Anyone can fantasize or dream about early retirement, but making it a reality now seems impossible. Still, no matter how slim the chances are, there could be a way to fulfill such ambition. Retirement planners keep repeating, especially to younger folks, to save and invest early.
However, if dividend investing is the route, the timeframe must be at least 25 years. You can relate the investment period to the Canada Pension Plan (CPP). Only CPP users who made the maximum CPP contribution each year for 39 years can receive the maximum $1,364.60 monthly pension. You have to plant the seeds for a bountiful harvest in the future.
Ticket to early retirement
Canadian Big Bank stocks are ideal retirement stocks and any can be an anchor holding in your investment portfolio. While their dividend yields are not the highest in the market, the country’s banking sector is a bedrock of stability. All five banking giants, without exception, have paid dividends for more than 100 years.
If time is my friend, I will pick the Bank of Nova Scotia (TSX:BNS) as my ticket to early retirement. Canada’s third-largest financial institution is the most generous among the group. At $71.51 per share (+18.13% year-to-date), the dividend yield is 5.9%.
Assuming the dividend yield and annual Tax-Free Savings Account (TFSA) contribution limit are constant for the next 25 years, a $7,000 contribution yearly will compound to a raw estimate of $410,967. The sample computation illustrates that time is gold; if you have plenty of it, early retirement can be a dream come true.
Value for money
TSX’s financial sector slump is over, thanks to the Bank of Canada’s rate-cutting cycle. As of this writing, the sector is up 17.9% year-to-date, while BNS outperforms +18.1%. Over three quarters in fiscal 2024 (nine months ending July 31, 2024), total revenue and net income increased 5% and 1.8% year-over-year to $25.1 billion and $6.2 billion, respectively.
According to BNS President and CEO, Scott Thomson, the $88.5 billion bank’s solid revenue growth is due to continued deposit momentum and net interest margin expansion. The balanced business lines also strengthen the balance sheet. BNS is also bolstering its presence in the United States.
On August 12, 2024, BNS entered an agreement to acquire around a 14.9% equity stake in KeyCorp. The latter is a premier American bank operating in 15 US states, with about 1,000 branches offering commercial and retail banking and investment advice and services.
Thomson said BNS has a long-term vision of delivering sustainable, profitable growth. “We expect that this transaction will enhance near-term profitability, grow and diversify our well-established U.S. business, and create future strategic optionality for Scotiabank as we expand our presence in the North American corridor,” he added. The deal should close in Q4 fiscal 2024.
Buy and hold
BNS is a reliable, dependable source of passive income. The Big Bank’s dividend track record is 192 years and counting. You can build retirement wealth over time and retire early or ahead of your peers.
