It’s no secret that investing in top dividend stocks on the TSX can lead to significant gains for Canadian investors. Dividend stocks have several qualities that make them attractive choices for long-term investors.
First, by consistently returning cash to investors every month or quarter, they help lower the risk of the investment. Rather than investing in hopes of seeing a tonne of profitability down the road, which may or may not materialize, these stocks start returning cash to you immediately.
Furthermore, this cash can be reinvested immediately, helping you to take advantage of the power of compounding.
In addition to these attractive returns, dividend stocks can offer significant capital gains potential, especially if they only pay a small dividend and reinvest most of their profits into future growth.
So, there’s no question that finding high-quality TSX dividend stocks and investing for the long haul can lead to massive gains for investors.
How long would it take to turn $20,000 into $100,000?
When it comes to investing, it’s essential to buy TSX dividend stocks that you plan to hold for the long haul because investing for the long term helps to mitigate against short-term risk. There’s no telling how a stock or the entire economy may perform over the short term, such as a few months or a year.
However, over the longer term, the economy is consistently expanding, and the highest-quality stocks are rapidly growing their businesses. So, it’s essential to avoid high-risk stocks in the hopes of getting rich quickly.
At the same time, though, while we invest for the long haul, we still want to grow our money as quickly as possible, which is why it’s paramount to find the best stocks on the market.
So the length of time it takes to grow your investment from $20,000 to $100,000, a 400% increase in value, all depends on the quality of stocks you buy and the risk you take on.
For example, if you can grow your portfolio at a compounded annual growth rate (CAGR) of 8.4%, it would take you roughly 20 years. To do it in 15 years, you would need to grow your cash at a CAGR of 11.3% and to do it in just 10 years, you’d have to earn a CAGR of 17.5%.
So, the time it takes to grow your capital by 400% ultimately depends on your level of risk, the quality of the stocks you buy, and the long-term growth potential that they offer.
Two of the top dividend stocks on the TSX
Investors need to find the right mix of reliable stocks by seeking safer and high-potential stocks that can provide more growth. For example, both Dollarama (TSX:DOL) and Fortis (TSX:FTS) are high-quality dividend stocks on the TSX.
Fortis is a utility stock well-known as one of the lowest-risk investments on the market. It pays the majority of its earnings back to investors, has increased its dividend annually for 50 years straight, and offers a yield of 4.4%.
On the other hand, while Dollarama is still a reliable investment, it’s a higher-risk investment than Fortis, pays out only a small dividend with a yield of 0.3%, and invests the majority of its earnings in growing its business.
When you consider the differences between these two TSX dividend stocks and how they operate, it’s not surprising that over the last decade, Dollarama has earned investors a total return of 652%, while Fortis has earned investors a total return of 151%.
So, the length of time it takes you to grow your money by 400% will depend on the stocks you buy and their growth potential. Ultimately, the most important aspect of investing is ensuring you invest for the long haul and take advantage of the power of compounding.
It might take 20 years for $20,000 to grow to $100,000 with an 8.4% CAGR, but if you stick it out another decade, your cash would more than double to roughly $224,000.
Remember, aiming to grow your capital as quickly as possible is ideal, but not losing your initial investment is most important. This strategy highlights that growth and safety go hand in hand, reminding us why it’s essential to buy the highest quality dividend stocks on the TSX.
