No matter what your aspirations are — you want to own your first home, own a rental property, retire early, retire wealthy, or go on multiple vacations every year, etc. — you can achieve them by making an investment plan and taking action. Start stock market investing this new year to help you achieve your goals!
Here are some tips and ideas that I hope will assist you in starting your plan.
Put more of your investment earnings in your pocket
You can make investment earnings from assets you own. Investment earnings may come from the price appreciation of your assets or the income that they generate. For example, stocks might earn you dividend income, and you can book profits from them when the stock prices go up. Bonds can produce interest income. For bonds that you buy at a discount, you may be able to hold them to get price appreciation.
You can also get interest income from Guaranteed Investment Certificates (GICs). Some GICs are market-linked, which means you’re guaranteed the principal, and you might also get higher returns if the stock market goes up.
To put more of your investment earnings (price appreciation and income) in your pocket, you should take advantage of tax-advantaged accounts like the Tax-Free Savings Account (TFSA), Registered Retirement Savings Plan (RRSP), and if applicable, the First-Time Home Buyer plan (FHSA), and the Registered Education Savings Plan (RESP).
Because interest income is taxed at our marginal tax rates, some Canadians shelter their interest-bearing investments in TFSAs and RRSPs. Since eligible Canadian dividends are taxed at lower rates, some investors choose to hold Canadian dividend stocks in their non-registered accounts.
Others think it’s a waste to earn interest income in TFSAs. Instead, they aim to maximize price appreciation by holding a basket of solid growth stocks. What you do should depend on your portfolio mix, risk tolerance, investment horizon, and investment knowledge.
Here’s an example of a blue-chip dividend stock that could potentially help you with your aspirations.
TD stock
Every Canadian knows Toronto-Dominion Bank (TSX:TD). Most probably have an account with the big bank. The quality bank increases its earnings and dividends over time. In the past decade, for example, it more than doubled its earnings. More specifically, it increased its adjusted earnings per share by 7.9% per year. In the period, it increased its dividend by 137% (or 9% per year).
At the recent price of $82.52 per share, TD stock trades at a reasonable price-to-earnings ratio of approximately 10.3. It also offers a nice dividend yield of just under 5%. Assuming a reasonable earnings growth rate of 6% per year, going forward, we can approximate long-term total returns of about 11% per year.
Importantly, TD stock is considered to be a low-risk investment in the stock investing world. It won’t make you a home run, but it shouldn’t give you a heart attack either. It should be a solid long-term investment. That said, it is a bank and, therefore, its earnings are more or less sensitive to the economic health of the geographies it operates in — primarily, Canada and the United States. For example, in the last two recessions, the stock corrected north of 20%. However, its earnings were mostly intact and it maintained its dividend. Therefore, in market corrections, it would be the time to back up the truck.
