Who doesn’t want to be a millionaire? If that is your financial goal, can a dividend stock like Canadian Utilities (TSX:CU) be helpful? The TSX has many types of stocks with unique characteristics. Canadian Utilities is a low-volatility dividend stock whose share price has surged 233% in 24 years. If you invested $10,000 in January 2000, your money has only surged $33,400. This slow growth is because the company gives returns to shareholders primarily through dividends.
Source: Getty Images
What kind of returns can you expect from Canadian Utilities?
As I said before, Canadian Utilities is a resilient dividend aristocrat. It has a strong history of growing dividends at an average rate of 6% in the last 23 years. A $10,000 investment in January 2000 would buy you 1,081 shares that would have earned a total dividend of $26,270 and $23,400 in capital appreciation. You could consider this stock to get passive income. But expecting $1 million is not pragmatic.
Canadian Utilities stock has a stable business of supplying electricity and natural gas to households. The business model is not aggressive on growth but resilient to market cycles.
If your goal is to become a millionaire, consider investing in growth stocks that give at least 15% average annual growth. Growth stocks generally don’t pay high dividends. Their business model is easy to scale and expand revenue and profits. Tech stocks are popular growth stocks.
Stocks that can make you a millionaire
If $1 million is your financial goal, you could consider investing in less volatile growth stocks like Constellation Software (TSX:CSU) or Descartes Systems (TSX:DSG). They have the three qualities of a resilient long-term growth stock.
Catering to future business needs
Constellation acquires mission-critical software companies that operate in a niche market and are sticky. As the market is niche, competition is less. And as it keeps buying new companies, Constellation can acquire companies relevant to future business needs.
Descartes Systems offers supply chain management solutions and keeps upgrading its services as per the complexity of trade. For instance, it introduced e-commerce solutions during the pandemic and is enhancing its offerings further. The ever-evolving business of trade will only get complex. Descartes helps companies bring multiple supply chain partners on one platform, increasing the efficiency of the entire process. Its business offering is evergreen and relevant for generations to come.
Potential to scale
Constellation has the potential to scale at a rapid pace through acquisitions. It is like the Berkshire Hathaway of vertical-specific software companies. It uses the cash flows from its acquired companies to buy more companies, thereby compounding cash flows. Moreover, it generates 2 to 3% growth organically. Instead of looking at Constellation as a software company, look at it as a hedge fund that gives 30% compounded annual returns.
Descartes Systems already has a diverse customer base geographically and across verticals. It has the potential to scale by adding more offerings to its platform. When trade is booming, Descartes Systems stands to benefit.
Strong execution
While we discussed the business model of Constellation Software and Descartes Systems, the key lies in execution. Efficient execution helps them grow their revenue and net profit and stay relevant in a competitive market.
Constellation stock has surged over 1,500% in the last 10 years, growing a $10,000 investment to $166,455. And if you take the 15-year growth, a $10,000 investment is now $1.4 million. This sharp surge comes as the company maintained double-digit revenue growth.
Descartes’s stock has surged over 723% in the last 10 years, growing a $10,000 investment to $82,000. And if you take the 15-year growth, a $10,000 investment is now $331,300. While its growth is not as high as Constellation’s, it has generated significant growth.
Building a portfolio like a millionaire
You can’t be sure how much growth a stock can give. But building a portfolio of scalable, future-oriented, and strong execution growth stocks can increase your chances of being a millionaire in 15 to 20 years. Consider investing small amounts monthly in three to five such growth stocks for 10 years. That could help you become a millionaire faster.
