Retirement Wealth: How to Turn a $15,000 TFSA or RRSP Into $279,000

The market pullback is giving TFSA investors an opportunity to buy top TSX dividend stocks at cheap prices.

| More on:
Businessperson's Hand Putting Coin In Piggybank

Image source: Getty Images

As prices soar due to high inflation, Canadian savers are looking for ways to boost returns on their retirement savings. One popular investing strategy for building Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) wealth involves buying great TSX dividend stocks and using the distributions to acquire new shares.

The market pullback is giving investors an opportunity to buy some of Canada’s top dividend stocks at undervalued prices.

TD Bank

TD (TSX:TD)(NYSE:TD) is Canada’s second-largest bank with a current market capitalization of about $153 billion. The stock trades near $84 per share at the time of writing compared to $109 earlier this year. The big drop is due to rising fears that a deep recession could be on the way next year.

Is the fear justified?

Soaring inflation is already hitting households hard. The added pressure of rising interest rates that are designed to get inflation under control will inevitably drive up loan losses as people and businesses run out of cash to pay all the bills. Economists broadly expect a recession, if it arrives, to be mild and short. However, a more serious economic contraction is certainly possible, and that could cause a spike in unemployment, which would lead to higher loan and mortgage defaults.

Where we are headed is anyone’s guess, but the market seems to be pricing in the uglier scenario when it comes to TD’s share price. That might be too negative, based on the general view of economists. TFSA or RRSP investors who are of the opinion a modest recession is on the way might want to consider buying TD stock on the latest pullback.

TD reported solid fiscal Q3 2022 results that indicate the bank is on track to beat the strong 2021 performance. TD generated $11.36 billion in adjusted net income in the first three quarters of fiscal 2022 compared to $10.78 billion in the same period last year. Fiscal third-quarter (Q3) adjusted earnings rose 5.1% year over year to $3.8 billion.

One thing the market might not realize is that rising interest rates tend to boost net interest margins for the banks and this can go a long way to help offset some of the higher loan losses that the jump in rates will cause.

TD raised its dividend by 13% for fiscal 2022 and another generous payout increase should be on the way for next year. The compound annual dividend-growth rate over the past 25 years is about 11%.

Looking beyond the potential economic turbulence in 2023 and 2024, TD is positioning itself for strong long-term growth by making two strategic acquisitions in the United States. The bank is buying First Horizon for US$13.4 billion in a deal that will make TD one of the top-six banks in the American market. TD already has a large presence along the east coast from Maine to Florida. First Horizon is heavily focused on the southeastern states, so the deal makes sense and will add more than 400 branches to the network.

In another move, TD is spending US$1.3 billion to buy Cowen, a U.S. investment bank. The deal expands TD’s capital markets capabilities and will make the investment banking group much larger.

TD is a good stock to buy right now if you think the market is wrong about how serious a potential recession will be in Canada and the United States in the next couple of years.

The bottom line on top stocks to buy for total returns

TD stock could certainly move lower in the near term, but the shares look attractive right now for buy-and-hold investors. Any additional downside would provide a chance to buy more shares and average down the investment price. Investors who buy now can get a decent 4.2% yield and wait for the bank sector to rebound.

Buying TD stock on big dips has historically resulted in strong long-term gains. A $15,000 investment in TD just 25 years ago would be worth about $279,000 today with the dividends reinvested.

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 Bank Stocks

hand using ATM
Bank Stocks

Better Stock to Buy Now: TD Bank or Scotiabank?

As far as the large Canadian banks are concerned, let's dive into two of the best and see which one…

Read more »

edit Woman calculating figures next to a laptop
Bank Stocks

Should You Load Up on TD Stock Now?

TD stock is near its lowest price in three years. Is TD Bank now oversold?

Read more »

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

TD Stock’s Dividend Yield Hits 5.4%: Is It Finally Time to Buy?

While TD Bank stock trades sideways, it's a good time to lock in a higher dividend yield.

Read more »

Hands shaking over a business deal
Bank Stocks

National Bank to Buy Canadian Western Bank: What Investors Need to Know

National Bank of Canada (TSX:NA) is acquiring Canadian Western Bank (TSX:CWB) in a historic deal for Canadian banks.

Read more »

Dice engraved with the words buy and sell
Bank Stocks

TD Bank Stock: Buy, Sell, or Hold at the 12-Month Low?

TD is near its 12-month low. Is more downside on the way?

Read more »

Person holds banknotes of Canadian dollars
Bank Stocks

If the Loonie Falls Against the U.S. Dollar, This Canadian Stock Could Gain

TD Bank (TSX:TD) stock finally looks like a decent investment as the loonie weakens further against the U.S. dollar.

Read more »

hot air balloon in a blue sky
Bank Stocks

Prediction: These 2 Canadian Bank Stocks Are Next in Line to Pop

Two Canadian bank stocks, one big and one small, are likely to pop following their Q2 fiscal 2024 results and…

Read more »

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

Should You Buy TD Bank Stock for its 5.3% Dividend Yield?

Down 29% from all-time highs, TD Bank stock offers you a tasty dividend yield in 2024.

Read more »