Dividend stocks provide investors with passive income streams while driving long-term returns. Indeed, seed capital can grow fivefold with dividends. By reinvesting dividends to increase a position, you can accelerate compounding of the principal and eventually build a considerable portfolio.
Toronto Dominion Bank (TSX:TD) and TC Energy (TSX:TRP) are established dividend-payers in TSX’s heavyweight sectors. Given their current share prices and yields, a combined $20,000 investment ($10,000 each) can turn into more than $100,000 in 25 years with dividends and dividend reinvesting.
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Big Bank
TD is Canada’s second-largest financial institution and sixth-largest in North America by assets. The $140.5 billion bank has a mean 167-year dividend track record. At $79.44 per share, the dividend offer is 5.05%. A $10,000 position will be $35,064.25 in 25 years, or 250.6% in money growth.
In Q1 fiscal 2024 (three months ended January 31, 2024), reported earnings rose 79% year over year to $2.8 billion compared to Q1 fiscal 2023. Bharat Masrani, TD’s Group President and CEO, said, “TD had a good start to the year, with revenue growth reflecting higher fee income from our markets-driven businesses.”
TD is in comeback mode following the 38.1% net income drop to $10.8 billion in fiscal 2023 versus fiscal 2022 and an 82.5% year-over-year spike in provision for credit losses (PCL) to $2.9 billion. High-interest rates are headwinds for the banking sector, including the Big Banks.
Beata Caranci, chief economist at TD, believes that the Bank of Canada is likely to wait until July before cutting interest rates, although some economists say a cut in June is a possibility. She thinks Canada’s central bank is cautious about moving too early on cuts because of sticky inflation.
Meanwhile, Canadian banks will continue to raise PCL if necessary due to the persistence of underlying inflation. However, once rate cuts begin, expect the pressure on loan defaults to ease. TD’s strength as a long-term investment prospect is the strong Canadian franchise and exposure to the markets across the border.
Energy stalwart
Some market analysts say TC Energy is a dividend play with little downside. Moreover, the impending spinoff of its liquid business should lead to a stronger balance sheet and higher returns to investors. At $49.81 per share, current investors partake in the mouth-watering 7.81% dividend.
A $10,000 investment will compound to $69,149.30 in 25 years, including dividend reinvestment ($59,149.33 profit from dividends). This top-tier energy stock is a dividend aristocrat owing to 24 consecutive years of dividend increases. The example above assumes a constant dividend yield and does not include dividend hikes.
Liquids Pipelines, Natural Gas Pipelines, and Power & Energy Solutions form the asset base of the $51.7 billion company. TC Energy will hold its Annual and Special Meeting of common shareholders on June 4, 2024. The Board will seek shareholders’ approval for the proposed spin off of the Liquids Pipelines business.
TC Energy will become a diversified, growth-oriented natural gas infrastructure and energy solutions company. Its competitive advantage is the regulated, low-risk and utility-like portfolio of natural gas and power businesses. South Bow, an infrastructure company, will handle the liquid side of the business.
The challenge
Should investors take on the challenge of turning $20,000 into $100,000? The answer is yes, and undoubtedly, with Toronto Dominion Bank and TC Energy.
