It’s all well and good to tell investors that you could possibly make $1 million in two decades. But is it really possible? Today, we’re going to look at that possibility in fine detail. We’ll choose two solid TSX stocks that have shown they can grow steadily over two decades. Then, we’ll see if we can reach that $1 million mark in 20 years by reinvesting dividends. All while using your Tax-Free Savings Account (TFSA).
The two stocks I’d consider
The two TSX stocks I would consider for your TFSA these days must be those that can withstand the pressure. That usually comes in the form of downward pressure, like what we’re experiencing now.
Of course, I’m not going to say it would be easy to find stocks out there that are immune to the pressure of the markets. However, there are still some that will come out of a downturn faster. Which is why today I would consider Bank of Nova Scotia (TSX:BNS) and Canadian Utilities (TSX:CU).
In terms of stability, these are rock solid choices. Both Scotiabank stock and Canadian Utilities stock have a long history of dividend growth and payouts. Further, Canadian banks like Scotiabank have provisions for loan losses. And utility companies will be around no matter what to keep the lights on.
You can see that these two stocks then are excellent choices for investors wanting to keep their income rolling in over the next 20 years. Especially if you want your TFSA to reach $1 million.
How can you tell?
Now in the next section I’m going to get into the nitty gritty details that show every single year what your investment could shape up to be. However, let’s first get into the data behind those numbers.
Investors will need to consider the growth of the last 20 years to predict the next 20. In this case, let’s first look at share price. Scotiabank stock has grown 146% in the last 20 years. That comes to a compound annual growth rate (CAGR) of 4.6%. Canadian Utilities grew 217% in the last 20 years, for a CAGR of 5.9%.
Dividends have climbed as well. Scotiabank increased its dividend at a CAGR of 8.5% in 20 years, while Canadian Utilities stock grew at a CAGR of 6.5%. Using this information, we can then move on to how much you would need to invest in your TFSA to potentially reach $1 million in 20 years.
What to invest
As you can see, growth is fairly similar for both of these stocks. So to keep it simple, I’m going to show you the average amount of growth from the two. That would come to an average share CAGR of 5.3%, and dividend CAGR at 7.5%. Now if you were going to go all in and leave shares, you would need to invest about $100,000. That’s not possible in a TFSA. So instead, I want you to consider far less, adding $6,500 each year.
| Year | Principal | Annual Dividend | Yield On Cost | After DRIP Value | Annual Contribution | New Balance |
|---|---|---|---|---|---|---|
| 1 | $50,000.00 | $2,822.87 | 5.65% | $52,822.87 | $6,500.00 | $61,957.87 |
| 2 | $61,957.87 | $3,573.98 | 6.33% | $65,531.85 | $6,500.00 | $75,297.03 |
| 3 | $75,297.03 | $4,437.86 | 7.04% | $79,734.89 | $6,500.00 | $90,203.05 |
| 4 | $90,203.05 | $5,432.01 | 7.82% | $95,635.06 | $6,500.00 | $106,888.76 |
| 5 | $106,888.76 | $6,576.87 | 8.65% | $113,465.63 | $6,500.00 | $125,598.66 |
| 6 | $125,598.66 | $7,896.31 | 9.57% | $133,494.98 | $6,500.00 | $146,614.03 |
| 7 | $146,614.03 | $9,418.28 | 10.58% | $156,032.30 | $6,500.00 | $170,258.86 |
| 8 | $170,258.86 | $11,175.50 | 11.70% | $181,434.36 | $6,500.00 | $196,907.00 |
| 9 | $196,907.00 | $13,206.38 | 12.95% | $210,113.38 | $6,500.00 | $226,990.38 |
| 10 | $226,990.38 | $15,556.10 | 14.34% | $242,546.48 | $6,500.00 | $261,008.87 |
| 11 | $261,008.87 | $18,277.79 | 15.89% | $279,286.66 | $6,500.00 | $299,541.83 |
| 12 | $299,541.83 | $21,434.13 | 17.64% | $320,975.96 | $6,500.00 | $343,261.81 |
| 13 | $343,261.81 | $25,099.15 | 19.61% | $368,360.96 | $6,500.00 | $392,950.86 |
| 14 | $392,950.86 | $29,360.40 | 21.83% | $422,311.26 | $6,500.00 | $449,519.77 |
| 15 | $449,519.77 | $34,321.63 | 24.34% | $483,841.40 | $6,500.00 | $514,031.09 |
| 16 | $514,031.09 | $40,105.99 | 27.19% | $554,137.09 | $6,500.00 | $587,726.53 |
| 17 | $587,726.53 | $46,859.90 | 30.43% | $634,586.43 | $6,500.00 | $672,059.62 |
| 18 | $672,059.62 | $54,757.75 | 34.12% | $726,817.37 | $6,500.00 | $768,734.92 |
| 19 | $768,734.92 | $64,007.65 | 38.33% | $832,742.56 | $6,500.00 | $879,754.89 |
| 20 | $879,754.89 | $74,858.33 | 43.15% | $954,613.22 | $6,500.00 | $1,007,476.31 |
Now if you started with a $50,000 investment, adding $6,500 each year, you definitely have a shot at $1 million as you can see. But this is only an example. Always discuss your options with a financial advisor, who will do what’s best for your own personal situation.
