The 20K Challenge: Turning $20,000 Into $100,000 With Dividends

Dividend investing is a time-tested strategy, including turning $20,000 into $100,000 over time with dividends.

| More on:
grow money, wealth build

Image source: Getty Images

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.

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.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Christopher Liew has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

More on Dividend Stocks

A close up image of Canadian $20 Dollar bills
Dividend Stocks

This High-Yield Dividend Stock Is a Monster Passive-Income Machine 

This top TSX dividend-growth stock offers a 7.4% yield.

Read more »

Hourglass projecting a dollar sign as shadow
Dividend Stocks

For a Shot at $5,000/Year in Passive Income, Buy 6,850 Shares of This TSX Stock

Whitecap Resources is a monthly dividend stock that offers you a tasty dividend yield while trading at a cheap valuation.

Read more »

edit Balloon shaped as a heart
Dividend Stocks

Love Value Stocks? 2 That Are Screaming Buys in May 2024

Patience can pay off by investing in these two value stocks with nice dividends and the potential to turn around.

Read more »

Senior Couple Walking With Pet Bulldog In Countryside
Dividend Stocks

2 Everlasting Canadian Stocks for Your RRSP

The Canadian National Railway (TSX:CNR) stock is worth owning for the long haul.

Read more »

Business success with growing, rising charts and businessman in background
Dividend Stocks

3 Stocks Set for Dividend Increases This Year

Here are three TSX stocks that are set to increase their dividends later this year.

Read more »

Dice engraved with the words buy and sell
Dividend Stocks

EQB Inc Stock: Buy, Sell, or Hold

EQB Inc (TSX:EQB) is Canada's fastest-growing bank.

Read more »

pipe metal texture inside
Dividend Stocks

Enbridge Stock: Buy, Sell, or Hold Today?

Enbridge is up 7% in the past six months. Are more gains on the way?

Read more »

money cash dividends
Dividend Stocks

The 2 Stocks Every Dividend Investor Should Own for Reliable Cash

Dividend stocks offering consistent and reliable returns can be a crucial asset in any portfolio, especially for income-producing dividend portfolios.

Read more »