A one-time investment can give you decades of passive income. Such is the power of compounding and a dividend-reinvestment plan (DRIP). A one-time investment of $10,000 in a Dividend Aristocrat like BCE (TSX:BCE) with a 5.5% average dividend yield and a 5% dividend compound annual growth rate (CAGR) could earn you $1,473 in annual passive income. And this calculation is not a forecast. I took the last 10-year data and saw how much a $10,000 investment in January 2013 in BCE’s DRIP would have earned you in annual dividend income.
BCE provides the historical data of the DRIP share price for every quarter. I took the average of the four quarters to arrive at an average share price for the year. Here is a rough calculation of how your $10,000 grew.
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How BCE converted $10,000 to $1,473 in annual passive income
| Year | BCE Stock Price | BCE Share count | Total Share Count | BCE Dividend per share | Total dividend |
| 2013 | $43.13 | 232.00 | 232.00 | $2.33 | $540.56 |
| 2014 | $47.00 | 11.50 | 243.50 | $2.47 | $601.45 |
| 2015 | $55.00 | 10.94 | 254.44 | $2.60 | $661.54 |
| 2016 | $60.00 | 11.03 | 265.46 | $2.73 | $724.71 |
| 2017 | $58.00 | 12.50 | 277.96 | $2.87 | $797.74 |
| 2018 | $55.00 | 14.50 | 292.46 | $3.02 | $883.23 |
| 2019 | $60.00 | 14.72 | 307.18 | $3.17 | $973.77 |
| 2020 | $58.00 | 16.79 | 323.97 | $3.33 | $1,078.82 |
| 2021 | $60.00 | 17.98 | 341.95 | $3.50 | $1,196.83 |
| 2022 | $66.00 | 18.13 | 360.09 | $3.68 | $1,325.11 |
| 2023 | $64.00 | 20.70 | 380.79 | $3.87 | $1,473.66 |
Let’s go through the table. Let’s say you invested $10,000 in BCE in January 2013, which bought you 22 shares at $43.13/share. In 2013, BCE paid an annual dividend of $2.33/share, which earned you $540.56 in annual dividend income on your 22 shares.
While you pay nothing from your pocket, the company reinvests the $540.56 dividend amount to buy more shares of BCE. In 2014, the average DRIP price was $47. It means your $540.56 dividend income brought you around 11.5 shares. Adding these DRIP shares to your 22 shares, you earned a $2.47 dividend on 24.5 shares in 2014.
The reinvestment of your dividend income compounds your return. On top of that, BCE’s consistent increase in dividend per share accelerated the returns further. Moreover, you save on commission or brokerage costs as the company directly buys DRIP shares.
If you invested in BCE through Tax-Free Savings Account (TFSA) or Registered Retirement Savings Account (RRSP), your dividend income is also exempted from tax.
Note that the calculation is approximate. The actual numbers may be higher, as BCE reinvests every quarter. I reinvested dividends annually for ease of calculation. The idea behind this table is to give you a rough estimate of the stock’s dividend returns potential, and the impact of compounding.
Is now a good time to invest $10,000 in BCE?
BCE has become Canada’s largest telco and has a lead in the 5G space. Strong communication infrastructure is the backbone of the digital economy. BCE grew its dividend annually as the 4G and 4G LTE (long-term evolution) technology evolved. The 4G made it possible to do video calls, live stream, and update maps. The 4G infrastructure telcos deployed in 2011 set the base to develop the cloud ecosystem over the next few years.
These telcos have now developed the 5G infrastructure setting the base for artificial intelligence (AI) at the edge that connects devices to the cloud to perform high-compute tasks in real time. ChatGPT finds answers, writes codes, and makes presentations in real-time using high-performance computing and high-speed internet.
The 5G will enable autonomous cars, drone surveillance and deliveries and any other tech that needs real-time updates. The 5G opportunity is much bigger than 4G, and BCE is set to benefit from this growth in Canada.
BCE stock is trading 20% below its April 2022 peak as the rising interest rate has increased its interest expense. All companies with high debt on the balance sheet have seen a dip in stock prices. While high interest may create short-term challenges, it will not affect BCE’s dividend-paying capacity.
Now is a good time to invest $10,000 in BCE and lock in a 6.6% yield for the long term. You can use the dividend-reinvestment option to accumulate the annual passive income you seek.
