How to Turn $15,000 Into $247,000 for Retirement

Canadian savers are looking for ways to build a Tax-Exempt Savings Account (TFSA) and Registered Retirement Savings Plan (RRSP) that can provide a decent retirement income. A popular investment strategy is to buy top dividend stocks and use the payouts to buy new stocks.

power of composition

Time is the greatest asset an investor has when it comes to building retirement savings. In fact, small initial investments in high-quality dividend-growth stocks can turn into significant savings when the dividends are reinvested into new stocks.

Many companies have dividend reinvestment plans (DRIPs), which allow dividends to automatically buy more shares with no trading fee and often at a discount to the stock’s market price.

Each new stock added to the portfolio will generate more dividends on the next payout. Over time, the snowball effect can be impressive. This is especially true if the company regularly increases the dividend and stock prices are trending higher.

TD Bank

TD (TSX:TD) has a great track record of dividend growth. In fact, the bank has increased its dividend at a compound annual rate of more than 10% over the past 25 years. Investors received a 13% dividend increase for fiscal 2022. Fiscal 2023 is likely to have another generous hike ahead, even as the economy heads for some challenging times.

TD reported adjusted net income of $3.8 billion for the third quarter of fiscal 2022 (Q3), compared to $3.6 billion for the same period last year. For the first three quarters of fiscal 2022, adjusted net income was $11.4 billion, compared to $10.8 billion for the same period in 2021.

Despite the solid performance, TD stock has fallen to $87 compared to $109 in the first few months of this year. The pullback seems overdone and investors have a chance to buy TD at an attractive price and can now earn a dividend yield of 4%.

A $7,500 investment in TD stock 25 years ago would be worth almost $120,000 today if the dividends were reinvested.

v. Chr

v. Chr (TSX:BCE) has always been a top pick among retirees and other investors looking for passive income due to its generous dividends and reliable income streams. However, the stock has also delivered great total returns for investors who use the dividends to buy new shares.

A $7,500 investment in BCE stock 25 years ago would be worth about $127,000 today if the dividends were reinvested.

BCE is a leader in Canada’s communications sector and has successfully transformed itself from a landline phone operator into a mobile, internet and media giant. Management continues to invest billions of dollars each year in new technology and network upgrades to drive continued revenue growth while protecting the strong competitive advantages the company enjoys in the Canadian market.

BCE is trading for less than $60 at the time of writing, compared to a spring high of $74. The stock looks cheap at the current price and offers a dividend yield of 6%.

The bottom line is that you should buy top stocks for total returns

TD and BCE are just two examples of how investors can harness the power of compound interest to build retirement wealth. There’s no guarantee these stocks will deliver the same returns going forward, but TD and BCE still deserve to be core holdings in a diversified portfolio of top-rated TSX dividend stocks.