Investors don’t necessarily need to employ an overly aggressive investment strategy to build a decent retirement portfolio. A disciplined, nimble, and yet consistent long-term buy-and-hold strategy on dividend-paying stocks could help one create a comfortable nest egg.
For example, a single $50,000 investment in Toronto-Dominion Bank (TSX:TD) stock at the turn of this millennium in 2000 could have grown to nearly half-a-million dollars today, and dividends did most of the heavy lifting. Many such opportunities remain available on the TSX today.
Small investments in dividend stocks, diligently held over long periods of time, with dividend reinvestment, could compound into sizeable retirement portfolios. At the same time, a $50,000 investment could also help generate respectable amounts of regular monthly passive income to augment current income and help pay recurring bills.
Given the recent scary, and somewhat overblown news of actual and potential bank collapses in some foreign markets, bank stocks look attractive today, and Toronto-Dominion Bank (fondly known as TD Bank) stock could be a good long-term bargain.
TD Bank stock
Canadian banks enjoy significant fortress-type regulatory protection, and that has historically shielded them from the global banking crises of yesteryears. Down 10% over the past year, short-sellers have found some reason to bet against well-capitalized TD Bank stock after a few uniquely exposed U.S. and European banks faced challenges in early 2023.
TD Bank’s 13.4% stake in Charles Schwab, its planned (but persistently delayed) acquisition of U.S. regional bank First Horizon, and its significant Canadian real estate mortgage exposure are topical.
Although Charles Schwab has significant unrealized bond losses, it faces a low risk of a bank run as the majority of its deposits are insured. TD’s planned acquisition consideration for First Horizon could be significantly renegotiated downwards, and the bank’s Canadian mortgage loan book shows little to no signs of impairment yet.
TD Bank stock looks attractively priced right now with a price-to-book value (P/B) multiple of 1.4, which was last seen during the 2020 pandemic. Any drops in TD’s P/B multiple to 1.4 or below have historically been good buying opportunities. Investors can lock in a 4.8% dividend yield.
A $50,000 investment in TD Bank stock 10 years ago could have nearly tripled to more than $144,000 with dividend reinvestment. The same investment done in the year 2000 could have grown to $466,330, with full dividend reinvestment.
Got $50,000? Buy CT REIT units before a potential dividend raise in May
Real estate investment trusts (REITs) are a unique asset class that affords investors a piece of the real estate action, yet without the hustles that come with rental property management. Investors with a long-term view could take advantage of a recent pullback in real estate values to lock in a favourable cost basis and earn respectable yields on REIT distributions.
CT Real Estate Investment Trust (TSX:CRT.UN) is the landlord to convenience store giant Canadian Tire. The trust boasts of a fully occupied real estate portfolio (with a 99.3% occupancy rate going into 2023) that has generated growing cash flows and enabled it to raise its monthly income distributions every year for the past decade.
Interestingly, CT REIT’s 1,280,000 square feet of gross leasable area under development was already 99.5% leased by December 31, 2022. The REIT has a financially stable, reliable, and credit-worthy key tenant that should continue to support its growing operations for decades to come.
A $50,000 investment in CT REIT units right now could reward you with $223.27 in passive income every month and generate more than $2,679 every year in distributions. Actually, the REIT has a decade-long, untainted history of increasing its income distributions every year.
The trust has never cut its distribution. It has raised its payouts by about 4% each year over the past five years. Given an established tradition, another distribution raise for 2023 could be announced on May 9, when management presents the trust’s first-quarter 2023 financial results.
Moreover, CT REIT pays one of the safest REIT distributions in Canada. It paid out just 74.5% of its adjusted funds from operations (AFFO) in 2022. There’s more room for sustainable future distribution raises — and higher monthly income distributions on a $50,000 investment.
