When it comes to finding a dividend stock that’s going to bring in long-term income, the key is thinking big. This means finding companies that are usually household names and have been around for decades. What’s more, they of course need to produce dividends.
Today, however, there is really only one sector and one industry that all but guarantees a recovery. Plus, the sector offers some of the most consistent dividends around! Making this dividend stock, in particular, one of the best options if you’re looking to create tax-free passive income.
CIBC stock
If you’re looking for a great deal on a blue-chip stock, then I would look to Canadian banks. And of those, Canadian Imperial Bank of Commerce (TSX:CM) is an excellent option. CIBC stock offers a high dividend, and a cheap share price. That’s not only in terms of its value, but also its actual price. After a stock split, it now offers a lower price per share than any of the other Big Six Banks.
Of course CIBC stock isn’t perfect. It’s not immune to the current economic environment, with shares down about 19% in the last year, as of writing. The stock is particularly influenced by the rise of interest rates due to its exposure to the housing industry.
Even so, CIBC stock has proven time and again that it can bounce back from even the worst of economic times. Which is why investors should look to the future with this cheap stock instead of focusing on the present economic situation.
Growth to come
That’s not to say you shouldn’t look to the past. In fact, the past is a great way to see how CIBC stock should recover. In particular, over the last 20 years shares have increased by about 93%, adjusted for the stock split. This amounts to a compound annual growth rate (CAGR) of 3.33% as of writing, and that’s in the midst of an economic downturn.
But let’s just go ahead and say that we continue to see this growth over the next 10 years. But first, you see shares recover to 52-week highs. This could mean you’re getting an incredible deal while shares trade at just 10.4 times earnings, with a dividend yield at 6.26%
How much could you make then in the next decade? Let’s take a look.
Maxing it out
Let’s say you were to use your Tax-Free Savings Account (TFSA), choosing to max out your contribution each and every year. You then take your investment and dividend income and reinvest back into the stock. The dividend, meanwhile, increases as well in that time by a CAGR of 5%. If you do that for 10 years, investing the max contribution room of $6,500 each year, here is what you could have.
| Year | Share Price | Shares | Dividend | Annual Contribution | Dividend Income | New Share Price | New Shares Purchased | Total Shares | Portfolio Worth |
| 1 | $54 | 120 | $3.48 | $6,500 | $417.60 | $69 | 100 | 220 | $6,897.60 |
| 2 | $69 | 220 | $3.65 | $6,500 | $803 | $71.20 | 102 | 322 | $22,926.40 |
| 3 | $71.20 | 322 | $3.84 | $6,500 | $1,236.48 | $73.60 | 105 | 427 | $31,427.20 |
| 4 | $73.60 | 427 | $4.03 | $6,500 | $1,720.81 | $76.05 | 108 | 535 | $40,686.75 |
| 5 | $76.05 | 535 | $4.23 | $6,500 | $2,284.45 | $78.57 | 111 | 646 | $50,756.22 |
| 6 | $78.57 | 646 | $4.45 | $6,500 | $2,874.70 | $81.16 | 115 | 761 | $61,762.76 |
| 7 | $81.16 | 761 | $4.67 | $6,500 | $3,553.87 | $83.83 | 120 | 881 | $73,854.23 |
| 8 | $83.83 | 881 | $4.90 | $6,500 | $4,316.90 | $86.60 | 125 | 1,006 | $87,119.60 |
| 9 | $86.60 | 1,006 | $5.15 | $6,500 | $5,180.90 | $89.46 | 130 | 1,136 | $101,626.56 |
| 10 | $89.46 | 1,136 | $5.40 | $6,500 | $6,134.40 | $92.42 | 136 | 1,272 | $117,558.24 |
At the end of the final tenth year, you’ll have $117,558.24 in your portfolio. That’s from an investment of $71,500 (each year, plus starting out with $6,500 from day one). That would mean you receive total returns of $46,058.24! Plus you’re now getting annual passive income from dividends of $6,134.40. All from one dividend stock
