Many of the millennial investors I know have a similar goal. They want to become Tax-Free Savings Account (TFSA) millionaires.
Sure, inflation will mean a million dollars isn’t worth quite as much as it is today, but it’s still a terrific start. And if we assume the portfolio has a 4% yield, that’s a cool $40,000 in annual income your future self can count on.
Add in other sources of income like CPP or OAS — assuming they’re still around then, of course — and we have the basis of a comfortable retirement right there.
In fact, as I’ve outlined before, becoming a TFSA millionaire is something that will inevitably happen if your investing horizon is long enough. All you need to do is invest consistently and earn a half decent rate of return.
Still, it always helps to invest when stocks are cheap. This increases your return potential, which is always a good thing. If you put cash to work at the right time, it can make the journey to TFSA millionaire all the easier.
Let’s take a closer look at how you can capture this elusive goal and a stock I’d look at buying today to help you get there.
Invest like a TFSA millionaire
If you have a few decades until retirement and have a consistent savings rate, I have great news for you. Unless you screw up pretty badly, you’ll become a millionaire by the traditional retirement age.
In fact, if you’re starting out with $6,000 today and add $6,000 to your investments each year — while earning an 8% return — you’ll end up a TFSA millionaire in 33 years. If we bump return expectations to 10% annually, the time needed decreases significantly. You’ll need just 29 years to become a TFSA millionaire if your investments do a little better.
As you can see, it’s pretty likely that an investor younger than 35 will ultimately become a TFSA millionaire.
How to get there
If we only need to earn 8% annually for an investor to become a TFSA millionaire, it opens up the investing universe to all sorts of different stocks. An investor can even pick conservative stocks and get it done.
For instance, let’s take a closer look at Empire Company (TSX: EMP.A), Canada’s second-largest grocery chain. The company owns more than 1,500 locations throughout Canada, operating under banners like Sobeys, Safeway, IGA, Price Chopper, and Freshco. Many investors are attracted to grocery stocks today because they offer stability during times of market weakness.
Empire continues to expand by rolling more specialty grocery stores. It acquired Farm Boy last year, an upscale chain in the Ontario market. It’ll grow that chain by opening locations in wealthier neighborhoods. And the company is expanding its Freshco concept into Western Canada with a goal of bringing the discount brand to all corners of Canada.
Recent results have been solid. Same-store sales increased by 2% (excluding fuel), and adjusted earnings per share increased from $0.40 in the same quarter last year to $0.58 in the company’s most recent quarter.
Including the opening of new stores and the acquisition of Farm Boy, sales jumped by 3.6%. And Operation Sunrise, the company’s name for an aggressive cost-cutting program, continues to goose the bottom line by promoting synergies.
Empire has quietly become one of Canada’s best dividend growth stocks too, increasing the payout each year since 2000. The current dividend is just $0.12 per share each quarter, which works out to a 1.6% yield. That’s a little small, but the good news is investors know they can count on the payout. The payout ratio is tiny, too.
The company has also posted terrific long-term gains. Including reinvested dividends, Empire has returned 10.13% annually over the last 20 years. That’s despite shares cratering after the company spent too much to acquire Safeway, which is easily enough return to make someone a TFSA millionaire without taking on too much risk.
The bottom line
Becoming a TFSA millionaire is a lofty goal, but one I think you can accomplish. It’s not really that hard if you have a few decades left before retirement age. Great stocks like Empire Company can help you get there.
