Sitting on Cash? Invest $10,000 for a Chance at $15,800 in 10 Years

People with idle cash can put the money to work and allow it to compound over time by investing in dividend stocks.

| More on:
money cash dividends

Image source: Getty Images

Cash earns a zero rate of return, but you can put it to work by investing in dividend stocks. Storing cash provides financial safety to many, except it also loses value when inflation is high, like today. People avoid the stock market for fear of losing cash but forego the propensity to earn with total avoidance of risk.

For instance, your $10,000 today could compound to $15,814.84 in 10 years, including quarterly reinvestment of dividends, if the yield is 4.61%. If you extend the holding period to 20 years, and the dividend yield remains constant, the money could grow further to $25,010.92. The stock in this example is Canadian Utilities (TSX:CU), the TSX’s only Dividend King. It earned the lofty status by raising its dividend for 51 consecutive years.

Why a Dividend King?

Income investors, including retirees living off dividends, turn to Dividend Kings for capital protection and growing payouts. Stocks in this elite group are reliable passive-income providers. Their share prices fluctuate or aren’t immune to market volatility, but income streams flow continuously.

Raising dividends every year since 1972 is an incredible feat for Canadian Utilities. The $10.57 billion utility and energy infrastructure company holds the longest record of annual dividend increases of any TSX or Canadian publicly traded company. Its regulated and long-term contracted investments assure sustainable earnings and dividend growth.

Essential services

CU’s comprehensive solutions are essential services. The Utilities segment involves electricity and natural gas transmission, distribution, and international operations. The second core segment is Energy Infrastructure, which includes energy storage, energy generation, industrial water solutions, and clean fuels. The last is Retail Energy (electricity and natural gas retail sales and whole-home solutions).

The global rate base has grown to $14.9 billion following years of continued investments in utility assets. Today, the highly contracted and regulated earnings base serves, as the foundation for sustained dividend growth. According to management, the company will invest $3.1 billion in regulated utilities from 2023 to 2025.

It will also allocate $800 million for growth projects or new growth platforms in energy infrastructure during the same period. The capital-investment plan should increase earnings and cash flows significantly while creating long-term value for shareowners.

A staple in an investment portfolio

Every investment portfolio needs a staple, and Canadian Utilities is always a top-of-mind choice. Cash flow and dividends are recurring, because their regulated utilities are a solid base or source. In 2022, the story was the same, despite the economic circumstances and uncertainties. CU’s adjusted earnings climbed 12% year over year to $655 million.

The bottom line here is that CU is a defensive, low-risk asset for risk-averse investors. Don’t expect much from price appreciation, because the stock won’t fly high. Based on market analysts’ forecasts, the high price target in one year is $43 (+10%). The current share price is $38.95 (+7.58% year to date).

Overcome loss aversion

Dividend investing is one way to reach your long-term financial goals or build retirement wealth. People with idle cash should consider taking some level of risk. The best option to be free of the loss-aversion feeling is to invest in a Dividend King like Canadian Utilities.

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.

Fool contributor Christopher Liew has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

More on Dividend Stocks

A close up image of Canadian $20 Dollar bills
Dividend Stocks

2 TSX Dividend Stocks With Yields Above 7% That You Can Buy With $100

Here are two high-yielding TSX dividend stocks you can buy with less than $100 per share today and hold for…

Read more »

oil and gas pipeline
Dividend Stocks

Should You Buy Enbridge Stock on a Pullback?

Down 25% from all-time highs, Enbridge stock remains a top investment choice due to its diversified business and steady cash…

Read more »

Redwood trees stretch up to the sunlight.
Dividend Stocks

2 Fantastic Growth Stocks to Buy Right Now

These two growth stocks aren't your average growth stocks, as shares rise higher and higher after earnings, and more's to…

Read more »

Businessmen teamwork brainstorming meeting.
Dividend Stocks

1 Magnificent Dividend Stock Down 15% to Buy and Hold Forever

Enbridge is off the 12-month lows but still trades at a large discount to its 2022 high.

Read more »

Increasing yield
Dividend Stocks

My Top 5 Ultra-High-Yield Dividend Stocks to Buy in May

If you’re looking to build a passive-income stream, these five dividend stocks should be on your radar.

Read more »

Payday ringed on a calendar
Dividend Stocks

A 10.6% Dividend Stock That Provides Monthly Cash Payments

A dividend stock with a mouth-watering yield providing monthly cash flow streams.

Read more »

Dividend Stocks

The Top Canadian REITs to Buy in May 2024

These three REITs have envious growth potential and trade cheaply today, making them three of the top Canadian stocks to…

Read more »

Young woman sat at laptop by a window

Why I Can’t Stop Buying Shares of This Magnificent High-Yield Stock in My Retirement Account

This utility is an excellent retirement stock, providing juicy income, income growth, and wealth creation for the long haul!

Read more »