Turning your Tax-Free Savings Account (TFSA) into a treasure chest? Lots of Canadians dream of that! Starting with $10,000 is a great first step. Picking the right dividend stock can really help your money grow. One option to think about is Canadian Imperial Bank of Commerce (TSX:CM).
Into CIBC
CIBC is one of the biggest banks in Canada. It offers all sorts of financial services. In its latest money report, CIBC said it made $2.18 billion in adjusted earnings, a nice 23% jump from the year before! That works out to $2.20 in adjusted earnings per share (EPS).
Putting your money in CIBC has some perks. The bank has a history of making money. Its profit margin is a healthy 29.50%, and its return on equity is also a solid 12.14%. Plus, CIBC pays out a strong dividend. This gives investors a steady stream of income. As of writing, the yearly dividend is $3.60 per share for a yield of about 4.88%.
Let’s imagine how your TFSA could grow. You start with $10,000 worth of CIBC stock. You reinvest all the dividends to buy more CIBC shares. If the dividend stays the same and the stock price grows a bit over time, your investment could really take off. For example, over 20 years, reinvesting those dividends and the stock price going up could potentially double or even triple your initial $10,000! Of course, this depends on how the market does.
What to consider
It’s important to remember that all investments have some risk. Even though CIBC has been doing well, things can change. So, it’s a good idea to spread your investments around. Also, talking to a financial advisor can help make sure your investments match your goals and how much risk you’re comfortable with.
Yet starting your TFSA journey with a strong company like CIBC can be a smart move to build wealth. By reinvesting those dividends and letting the tax-free growth of a TFSA work its magic, you can boost your financial future. CIBC, being one of the big banks in Canada, is generally seen as a stable investment. People rely on banks for all sorts of financial needs, so there’s usually a consistent demand for their services. This stability can be appealing for long-term investors looking for reliable growth and income through dividends.
The fact that CIBC has a good dividend yield means that for every share you own, the company pays you a certain amount of money each year. When you reinvest these dividends, you’re essentially using that money to buy more shares of CIBC. This creates a snowball effect over time. As you own more shares, you receive more dividends, which in turn allows you to buy even more shares. This compounding effect can significantly accelerate the growth of your TFSA over the years.
A TFSA is perfect
The tax-free nature of a TFSA amplifies this growth even further. In a regular investment account, you would have to pay taxes on the dividends you receive and any capital gains you make when you sell your shares. However, within a TFSA, all of this growth is tax-free. This means that every dollar of dividend income and every dollar of capital appreciation stays within your account, allowing it to grow even faster over time.
While CIBC offers a solid foundation for long-term growth within a TFSA, it’s still important to remember the golden rule of investing: diversification. While reinvesting dividends in CIBC can be a powerful wealth-building strategy, it’s generally not advisable to put all your eggs in one basket. Consider exploring other investment options within your TFSA as well, such as other stable Canadian companies or even diversified investment funds like exchange-traded funds. This can help to reduce your overall risk and potentially enhance your returns over the long term.
Bottom line
Finally, staying informed about CIBC’s performance and the broader economic conditions is crucial. Keep an eye on the bank’s financial reports, news articles, and any significant developments in the financial sector. This will help you understand how your investment is performing and whether any adjustments to your strategy might be necessary over time. Remember, investing is a marathon, not a sprint, and staying informed is key to navigating the course successfully.
