The target of most people with long-term financial goals and focused on securing their financial future is a cool $1 million. Besides achieving millionaire status, many believe the amount is enough to last through retirement. If you have $100,000 and the route is dividend investing, two blue-chip stocks can help turn your money into $1 million.
Toronto-Dominion Bank (TSX: TD) or Canadian Natural Resources (TSX: CNQ) can considerably reduce investment risk at the onset. Both companies have endured countless economic downturns and sustained dividend payments for decades.
The Math
You don’t need to invest additional cash to your $100,000, provided the annual rate of return or dividend yield is 10%. If you let the capital sit while reinvesting the dividends, it will take approximately 25 years to reach $1 million in retirement savings. However, chasing high returns requires a high risk tolerance.
The average dividend yield of TD and CNQ is only 5.02%, so in 25 years, you would have achieved 34% ($340.3 million) of your goal. If you keep going for another 22 years, you’d be very close to $1 million. The tradeoff for lower yield is dividend safety and peace of mind. Some TSX stocks have more than 10% yields but are higher-risk assets.
Pension-like dividends
TD has been paying dividends for 166 years. Nothing will stop Canada’s second-largest financial institution ($142.3 billion in market cap) from extending its dividend track record for another century. If you invest today, the share price is $79.47, while the dividend yield is 5.3%.
Like its industry peers, higher provisions for credit losses and expenses impacted earnings in fiscal 2023. In the 12 months ending October 31, 2023, net income declined 38.1% year over year to $10.8 billion. Nonetheless, its President and CEO, Bharat Masrani, said, “We enter 2024 from a position of strength, with proven resiliency, a powerful brand, and a strong capital position.” I couldn’t agree more.
Rock-solid energy major
Canadian Natural Resources is rock-solid because of its long-life, low-decline, low-risk, and high-value reserves. This $88.5 billion energy major operates in Clearwater, Montney, Deep Basin, and Charlie Lake, all top-tier crude oil and natural gas areas.
Management has a free cash flow (FCF) allocation policy. When net debt is between $10 billion and $15 billion, 50% goes to the balance, while 50% is for share repurchases. However, if net debt falls below $10 billion, CNQ will return 100% of FCF to shareholders. At $81.40 per share, the dividend offer is 4.91%.
The capital budget for 2024 is around $5.4 billion, and CNQ looks to deliver strong returns on capital. Its President, Tim McKay, said, “Our unique and diversified asset base provides us a key competitive advantage as we can manage the pace and timing of development activities to maximize value growth from our assets.”
For early planners
Some retirement planners did some pencil pushing and devised three options for 25-year-old investors. They would have $1 million in 40 years if they invested $1,000 monthly with a yearly 3% yield, invested $530 monthly if the return is 6%, or invested $240 per month on a 9% yearly return. Still, it pays to be risk-averse and invest in TD or CNQ for durable dividends.
