Millennials: Turn Your $6,000 TFSA Contribution Into $60,000 in 5 Years

Dream Global REIT (TSX:DRG.UN) is a top investment to access the power of compounding and accelerate wealth creation.

Businessperson's Hand Putting Coin In Piggybank

Image source: Getty Images

Cash-poor millennials seeking to grow wealth at a solid pace need look no further than real estate investment trusts (REITs). REITs with diversified property portfolios are typically less-volatile investments than many other stocks, because they invest in income-generating, hard assets, endowing them with solid defensive characteristics.

One REIT that every investor should consider owning in their TFSA is Dream Global REIT (TSX:DRG.UN). Unlike many other REITs, it allows investors to avoid exposure to shopping malls and other properties affected by the retail apocalypse while diversifying into the Western European property market.

International property investment

Dream Global’s portfolio is focused on Germany, where 73% of its assets by value are located with 21% in the Netherlands and 3% in Belgium and Austria. This allows investors to reduce investment risk by diversifying into real estate outside Canada in a range of developed markets that have little direct correlation to the TSX, which is weighted heavily towards commodity and financial stocks.

Dream Global reported some robust second-quarter 2019 results, highlighting why it is a very attractive investment and is consistently capable of unlocking value. Key numbers included an impressive occupancy rate of 91.8%, which was 1.9% higher than a year earlier.

There was also a 3% year-over-year increase in net rental income to $65 million, while funds from operations (FFO) sored by 6% to $51 million, and net income spiked by an impressive 37% to $249 million.

Dream Global’s financial performance will continue to improve for the foreseeable future. The REIT is using a combination of organic growth strategies focused on value-adding and repositioning projects, tenant retention, development of existing properties, as well as acquisitions to drive earnings growth.

Another pleasing aspect of Dream Global’s performance is its ability to steadily grow its net asset value (NAV). For the second quarter, it had a NAV of $16.26 per unit, which was a healthy 21% higher than the equivalent period a year earlier and notably is 15% greater than its current market value.

This is crucial to note because it indicates that there is considerable upside available and it is rare for a high-quality commercial REIT that operates a profitable diversified portfolio of office properties.

Access the power of compounding

Another attractive aspect of Dream Global is its regular monthly distribution yielding a very juicy 5.6%. That distribution — with a trailing 12-month payout ratio as a proportion of diluted FFO of a modest 76% — indicates that the distribution is sustainable, which is further enhanced by Dream Global’s ability to grow earnings.

It is this, along with the ability for investors to reinvest those distributions to acquire additional units at no costs through the REIT’s distribution-reinvestment plan (DRIP), which makes it a powerful tool for creating wealth.

An investment of $10,000 made five years ago would have more than doubled to $22,122 had all distributions been reinvested compared to $19,620 if they were taken as cash. That means Dream Global has delivered a very impressive return of 121%, or 17% on an annualized basis if the distributions are reinvested compared to 14.4% annually if they aren’t used to buy additional units.

Foolish takeaway

While there is no guarantee that future returns will be the same as they have been historically, that demonstrates just how effectively Dream Global allows investors to access the power of compounding and accelerate wealth creation.

The best vehicle for holding such an investment is a Tax-Free Savings Account (TFSA) because of its tax-sheltered nature, meaning that all distributions and capital gains are tax free. If you’d invested your 2019 $6,000 TFSA contribution in Dream Global, added another $6,000 annually, and reinvested all distributions, you would have $62,396 in five years, assuming the REIT continues to perform as it has historically.

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 Matt Smith has no position in any of the stocks mentioned. Dream Global is a recommendation of Dividend Investor Canada.

More on Dividend Stocks

A steel grain silo storage tank with solar panel in a yellow canola field in bloom in Alberta, Canada.
Dividend Stocks

Down by 26.77%: Now Might Be the Perfect Time to Buy Nutrien Stock

This TSX stock has seen share prices fall by over 26% from its 52-week highs, but it might be the…

Read more »

Woman has an idea
Dividend Stocks

2 No-Brainer Stocks to Buy Now With $7,000

Two relatively cheap cash cows are no-brainer buys for investors with $7,000 to invest.

Read more »

dividends grow over time
Dividend Stocks

Buy This High-Yield Dividend Stock in July 2024

Buy this high-yielding dividend stock to lock in inflated yield into your portfolio to generate solid passive income for years.

Read more »

Double exposure of a businessman and stairs - Business Success Concept
Dividend Stocks

Where Will Dollarama Stock Be in 3 Years?

Dollarama stock has done incredibly well during economic uncertainty, but what about when the markets recover in the next three…

Read more »

Piggy bank with word TFSA for tax-free savings accounts.
Dividend Stocks

TFSA – 2 Canadian Stocks to Buy and Hold for Tax-Free Gains

Canadian stocks like Brookfield Corp (TSX:BN) can make wise TFSA holdings.

Read more »

Doctor talking to a patient in the corridor of a hospital.
Dividend Stocks

3 Things You Need to Know if You Buy NorthWest REIT Today

This REIT holds a super high dividend yield at 7.2%, but before you invest here is exactly what investors need…

Read more »

Blocks conceptualizing Canada's Tax Free Savings Account
Dividend Stocks

How to Turn Your TFSA Into a Gold Mine Starting With $10,000

High-yield dividend stocks can turn a $10K investment in a TFSA into a gold mine over time.

Read more »

money cash dividends
Dividend Stocks

Buy 6,250 Shares of This Top Dividend Stock for $250/Month in Passive Income

Beyond its reliable monthly passive-income streams, iShares Canadian Financial Monthly Income ETF (TSX:FIE) is on course to double investors' capital

Read more »