TFSA Investors: How to Turn $500 a Month into $1,000,000!

This year’s contribution room for the Tax-Free Savings Account (TFSA) is $6,000. It can be tough to come up with thousands of dollars right off the bat.

Regular contributions of $500 a month will make it much more doable. You can set up your chequing account so that it automatically contributes the amount to your TFSA every month.

If you save and invest $500 a month for total returns of 15% compounded annually, you’ll achieve more than $1,000,000 (specifically, $1,099,007) in 23 years!

Here is a growth-oriented dividend stock that can potentially generate more than 15% in long-term returns for your TFSA.

Grow your wealth with Savaria

In the past 10 years, Savaria (TSX: SIS) has grown its earnings at a double-digit rate, specifically by about 19% per year on a per-share basis.

Along with the help of valuation expansion, this resulted in an investment that was an 18-bagger – turning a $10,000 initial investment into $183,246 by delivering total returns of almost 34% per year!

Notably, the dividends received in the period almost contributed to twice the investment on its own, despite Savaria’s occasional dividend cut.

At writing, Savaria provides a yield of 3.4%.

Savaria has a long-term growth runway

The growth driver for Savaria is still in place. The company benefits from a growing global aging population, as it improves people’s mobility (mostly for seniors) by providing products such as stairlifts, wheelchair lifts, ceiling lifts, and elevators.

According to projections by the United Nations, the world’s aged 65+ population will more than double in 30 years. It also estimates that in 10 years, this age group will make up 26% and 23%, respectively, of the population in North America and Europe, versus 17% and 19% today.

Savaria has made strategic acquisitions along the way to boost its growth. Its five-year return on equity (ROE) is high at about 16%, while in the last decade or so, its ROE has largely stayed between 10% and 20%.

Its acquisition of Garaventa Accessibility in August 2018 greatly diversified its revenue base, helping the company to increase its European exposure substantially from 5% of revenue in 2018 to 15% today.

In the first nine months of 2019, Savaria generated nearly $278 million in revenues: 59% from the U.S., 22% from Canada, and more than 15% from Europe.

More recently, in July 2019, Savaria made a tuck-in acquisition in Silvalea, which is based in the U.K. and makes patient transfer slings and accessories. The acquisition added about $6.8 million of annual revenue.

Strong insider ownership

Not counting the interests of other insiders, Mr. Marcel Bourassa, the chair, president, and CEO of Savaria, alone has a roughly 29% stake in Savaria’s common shares that he directly or indirectly controls. Therefore, investors should feel at ease that management’s interests are aligned with those of shareholders’.

Investor takeaway

Savaria is a great growth-oriented dividend stock. However, the small-cap stock does come with above-average uncertainty and volatility. So, don’t stop at one growth stock for your TFSA.

Diversify your risk.

For example, you can also consider Brookfield Asset Management as another growth-oriented dividend stock to ride a different megatrend.

To further reduce your risk, consider building your positions in the businesses over time and especially add on meaningful dips.