Can dividend stocks triple your invested capital? The answer is yes, but the investment horizon should be longer. If you want an approximation, the Rule of 115 in finance is a shorthand method. Assuming your assets are dividend stocks, divide 115 by the rate of return or dividend yield. A 4% return means your capital can triple in 28.75 years.
However, the timeframe shortens if the rate of return is 5% or more. The dividend yields of ATCO Ltd. (TSX: ACO.X), Canadian Imperial Bank of Commerce (TSX: CM), and Transcontinental Inc. (TSX: TCL.A) range from 5% to 7%. Given the average yield of 6.1%, a $30,000 investment ($10,000 in each) can turn into $90,000 in 18.85 years, more or less.
Defensive holding
At $37.32 per share (-9.93% year to date), ATCO pays a 5.06% dividend yield. The $4.2 billion diversified global enterprise engages in several businesses, including utilities, energy infrastructure, retail energy, logistics and structures, transportation, and commercial real estate. Besides Canada, it provides services to customers in Australia and other international markets.
ATCO is excellent for building wealth because of its essential services, resilient cash flows, and dividend growth. Since the utility segment delivers the bulk of earnings, you’d be in a defensive position throughout the journey. The best part is the 29 consecutive years of dividend increases, which is unlikely to be broken regardless of the economic environment.
Capital investment in the first half of 2023 increased 119% year over year to $1.5 billion. ATCO acquired the energy infrastructure segment of wholly owned subsidiary Canadian Utilities. It also acquired the renewable energy portfolio of Suncor Energy as part of the goal to become a renewable gamer.
No-brainer buy
CIBC, Canada’s fifth-largest lender, is a no-brainer buy. Also, the $51.1 billion bank’s 155-year dividend track record is an incredible feat. At $55.63 per share, current investors enjoy a 4.73% year-to-date gain on top of the 6.21% dividend yield. The dividend growth streak is now 12 years and counting.
The Big Bank, through its Innovation Banking segment, engages in growth financing to help innovative software companies like Bidgely. CIBC commits to providing additional funding to the leading provider of AI-powered energy intelligence solutions for energy providers worldwide.
Solid financial position
Transcontinental Inc. has never missed a quarterly dividend payment since 2002. At $12.64 per share, the materials stock is in negative territory (-13.28% year to date), although the juicy 7.03% dividend yield compensates for the underperformance during this bear market.
The $1.1 billion company generates cash flows from three core business segments. Transcontinental is North America’s leading flexible packaging company and Canada’s largest printer. Its media group publishes Canadian French-language educational materials.
Management said the Packaging Sector is the key driver of Transcontinental’s long-term growth. Meanwhile, inflation affects the volume and profitability in the Printing and Media sectors. Nonetheless, its Executive Vice President and CFO, Donald LeCavalier, said, “Our financial position is solid, and we expect to generate significant cash flows in the second half of fiscal 2023.”
Power of compounding
Dividends drive returns, while the power of compounding comes into play in dividend reinvesting. It’s safe to say that long-term investors can double or triple their stock investments over time or in less than 20 years.
