Power of compounding
One retirement strategy to consider involves buying top dividend stocks and using the distributions to acquire new shares. This sets off a powerful compounding process that can turn small original investments into substantial savings over the course of two or three decades.
Top companies normally increase distributions at a steady pace, and their share prices tend to rise in step with growing revenue and profits. When markets go through corrections, investors should take advantage of the lower stock price to buy more shares.
BCE (TSX:BCE)(NYSE:BCE) is a leader in the Canadian communications industry. The company has been around for more than 140 years and continues to evolve with the advancements of technology. What hasn’t changed is BCE’s great dividend, which investors have relied on for decades.
BCE is now a very large company with a market capitalization of nearly $60 billion. This gives BCE the financial clout to make the investments needed to maintain its leadership position in the industry and protect its wide competitive moat. BCE is expanding its fibre-to-the-premises initiative, connecting homes and businesses directly to fibre optic networks. BCE also just spent $2 billion on new spectrum required to build out its 5G network.
BCE can take advantage of its large customer base of millions of mobile, TV, and internet subscribers to add new services such as security and remote monitoring. As technology advances, new revenue sources, such as movie streaming, also emerge. In addition, BCE’s media business contributes valuable content that can be distributed across multiple platforms.
The company generates strong free cash flow to support the dividend, and investors shouldn’t have to worry about the safety and reliability of the payouts. The stock currently provides a 5.4% dividend yield.
TD (TSX:TD)(NYSE:TD) is Canada’s second-largest bank with a market capitalization of $150 billion. The business is well known for its Canadian retail banking operations, but TD also has a large presence in the United States that was built through a series of acquisitions that started around 2005.
The American business now has the scale that TD needs to compete with the large U.S. banks and is a strong brand from Maine right down the east coast to Florida.
TD continues to generate robust profits, even in these challenging times. The company is sitting on a war chest of excess capital, and investors should get a nice dividend increase as soon as the government lets the banks restart distribution hikes. TD might also use the cash hoard to make a strategic acquisition to drive future growth.
The stock is off the 2021 high, giving investors a chance to by TD on a bit of a dip. At the time of writing, the stock provides a yield of 3.8%.
The bottom line
BCE and TD have been around for a long time, and patient investors have built up significant wealth by owning these stocks and using the dividends to buy new shares. If you are searching for anchor dividend stocks to start a diversified RRSP portfolio, TD and BCE deserve to be on your radar.