RRSP and TFSA Investors: How to Turn $25,000 Into $475,000

Investors have a chance to buy top TSX dividend stocks at cheap prices to build retirement wealth in their self-directed TFSA and RRSP portfolios.

| More on:
growing plant shoots on stacked coins

Image source: Getty Images

The market correction is giving Registered Retirement Savings Plan (RRSP) and Tax-Free Savings Account (TFSA) investors a chance to buy top Canadian stocks at discounted prices for buy-and-hold retirement portfolios. One popular RRSP and TFSA investing strategy for producing solid total returns involves buying reliable dividend-growth stocks and using the distributions to acquire new shares.

Power of compounding

We all know how a snowball is rolled to make a snowman. The same compounding process is commonly used to build wealth using dividend stocks.

Investors can take advantage a company’s dividend-reinvestment plan (DRIP) to automatically allocate each dividend payment to acquire more shares. This generates additional dividends on the next distribution that can buy even more shares. The compounding process is slow at the start but can turn a relatively modest initial investment into a significant pile of savings over time. This is particularly true when the dividend increases regularly and the share price appreciates.

The best dividend stocks to buy tend to have long track records of delivering dividend growth supported by rising revenue and higher profits.

TD Bank

TD (TSX:TD)(NYSE:TD) reported decent fiscal third-quarter (Q3) 2022 earnings in a challenging environment and is on track to top the strong full-year 2021 results. In fact, TD generated $11.36 billion in adjusted net income in the first nine months of fiscal 2022 compared to $10.78 billion in the same period last year.

Investors, however, are worried that a recession could hit bank stocks in 2023 and have dumped TD in recent months. TD stock currently trades near $85.50 per share compared to $109 in early 2022.

Near-term volatility should be expected, and TD’s share price could certainly slip back to the July low around $77. That being said, the stock already looks oversold, and retirement investors might want to start nibbling.

Why?

TD is in the process of closing two significant U.S. acquisitions that will help drive future growth. The purchase of First Horizon for US$13.4 billion will make TD a top-six bank in the United States. In addition, TD is bulking up its capital markets capabilities with the US$1.3 billion acquisition of Cowen.

TD is one of the best dividend-growth stocks in the TSX Index. The board raised the distribution by a compound annual rate of about 11% over the past 25 years. TD increased the distribution by 13% late in 2021, and investors should see a generous payout hike for fiscal 2023. At the time of writing, TD provides a 4.1% dividend yield.

TD is a good stock to buy for investors who want exposure to the U.S. economy through a top Canadian company.

Long-term investors have done well holding TD stock. A $25,000 investment in TD shares 25 years ago would be worth about $475,000 today with the dividends reinvested.

The bottom line on top stock stocks to buy for total returns

TD is a good example of a top TSX dividend stock that has generated great long-term total returns for retirement investors.

There is no guarantee that TD’s shares will deliver the same performance in the future, but the stock still deserves to be in the portfolio. The strategy of buying great dividend stocks and using the distributions to acquire new shares is a proven one for building retirement wealth.

The TSX is home to many top dividend stocks that look cheap today. If you have some cash to put to work in a TFSA or RRSP focused on total returns, this stock deserves to be on your radar.

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.

The Motley Fool has no position in any of the stocks mentioned. Fool contributor Andrew Walker has no position in any stock mentioned.

More on Dividend Stocks

Paper Canadian currency of various denominations
Dividend Stocks

Passive Income! My Top 2 Dividend Stocks for New Investors

These two top Canadian dividend stocks could help new investors create a reliable source of passive income that could last…

Read more »

Electricity high voltage pole and sky
Dividend Stocks

Fortis Stock: Should You Buy, Sell, or Hold Today?

Fortis is down 15% from the 2022 high. Is the stock now oversold?

Read more »

View of high rise corporate buildings in the financial district of Toronto, Canada
Dividend Stocks

Top 2 REITs to Buy Before Yields Fall Along With Interest Rates

Canadian Apartment Properties REIT (TSX:CAR.UN) is just one REIT that could gain when rates really start to tumble.

Read more »

Printing canadian dollar bills on a print machine
Dividend Stocks

Where to Invest $10,000 in June

Canadian small caps are widely outperforming the TSX, and REITs, including Dream Industrial REIT (TSX:DIR.UN) could recover as interest rates…

Read more »

edit Real Estate Investment Trust REIT on double exsposure business background.
Dividend Stocks

Finally, This REIT ETF Could Be the Best Buy of 2024

This ETF is finally looking up, with enormous returns already in 2024. And a high dividend yield that should only…

Read more »

dividends grow over time
Dividend Stocks

3 Canadian Stocks Poised to Double by 2025

Three TSX stocks could benefit from an improved market environment, and break out and double by 2025.

Read more »

A close up color image of a small green plant sprouting out of a pile of Canadian dollar coins "loonies."
Dividend Stocks

Why Park Lawn Stock Nearly Doubled Last Week

Park Lawn (TSX:PLC) stock saw shares surge by 67% after the announcement that it would be going private as early…

Read more »

A Canada Pension Plan Statement of Contributions with a 100 dollar banknote and dollar coins.
Dividend Stocks

Claim CPP at 60? Here’s Why it Could Pay Off Big

Claiming the CPP at 60 has financial consequences but could be advantageous and more beneficial to some prospective retirees.

Read more »