It might sound by this title that I’m recommending a get-rich-quick scheme, but far from it. For the everyday investor, finding a stock that can provide you with high returns over a long period of time means that by the time you retire, you could be well on your way to riches.
If you’re serious about retiring wealthy, you need to line up a few items. First, you need a decent sum of money to put away, making the Tax-Free Savings Account (TFSA) contribution room of $63,500 a great place to start.
If you have a partner, that total jumps to $127,000, so there is definitely some room to make some serious returns.
Next, you’ll need a blue chip stock that ticks all the boxes: a history of strong growth, a dividend to reinvest in the stock, and the future potential for continued growth.
Over the last two decades, TD has increased its shares significantly for investors. At just $14.63 back in August 1999, the stock has risen over 410% as of writing to where it is now around $75 per share — and that’s during a time of economic volatility.
The stock should be trading at $81 per share according to analysts, a potential upside of 8% just to hit fair value.
TD also offers investors a strong dividend of 4% as of writing, with consistent growth over the last five years. The dividend has risen 61% in the last five years, at an average of 12% per year. The bank also confirmed it would aim for growth of 7-10% for the next few years as well.
Then, of course, there’s the company’s future potential. The bank recently entered the United States and has since become one of the top 10 banks in the country.
What’s more, there is still so much room for growth, as the company has mainly focused on opening branches along the Northeast coast. Beyond the new branch openings, TD has also branched out to the world of wealth and commercial management, a highly lucrative area for the company moving forward.
Both areas should continue to bring in a significant amount of returns for this top banking stock.
So if you’re an investor with $127,000 to put away for the next two decades, let’s take another few things into consideration. Let’s assume that rather than using those dividends for household income, you reinvest them into the stock for the next two decades as well. That means every quarter, you will grow the amount of shares you have in the company, bringing you closer to those rich rewards.
Next, we’ll assume that the company will continue to grow along much the same trajectory as it has in the last two decades. While a recession could happen — in fact, more than one — TD and other Canadian banks have the diverse portfolio needed to bounce back fairly quickly.
During the last recession, for example, it was less than a year before the company was back on track to where it was before the recession.
Finally, we’ll also assume that dividends will continue to grow, though we’ll say at a pace of 8% per year to be on the conservative side. Taking all this into consideration, here is what you’ll end up with from a $127,000 investment:
|Number of Shares||4,382.80 shares|
|Funds from Dividends||$439,768.86|
That’s right, you’ve surpassed $1,000,000. Not bad for a conservative banking stock like TD.
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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.
Fool contributor Amy Legate-Wolfe owns shares of Toronto-Dominion Bank.