How to Turn a $20,000 TFSA or RRSP Into $340,000

Young adult woman walking up the stairs with sun sport background

Young adult woman walking up the stairs with sun sport background

Written by Andrew Walker at The Motley Fool Canada

The market correction gives new investors an opportunity to buy great Canadian dividend stocks at oversold prices. A popular strategy for building wealth in a Tax-Exempt Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) is to buy a variety of high-quality dividend stocks and use the payouts to buy even more stocks.

power of composition

Many companies have dividend reinvestment plans (DRIPs) in place that automatically use dividends to buy new stock. Some are even giving investors a discount of up to 5% on the new shares purchased with the payouts. Each new share added to the holdings increases the amount of dividends that will be paid in the next distribution. The process is slow at first, but over time it can turn into a sizable chunk of money. This is referred to as the power of compound interest, and using this strategy has made some investors quite wealthy.

Stocks that consistently increase their dividends are usually the best stocks to own. Dividend growth not only accelerates portfolio expansion, but also tends to support a long-term rising share price. Dividend reinvestment also takes advantage of market declines to add more shares at cheaper prices.


fortis (TSX:FTS) has increased its dividend for each of the last 48 years. This is a great achievement considering the ebb and flow of the economy and some serious market volatilities. Looking ahead, investors should see more of the same performance. Fortis aims to grow its dividend by an average of 6% per year through at least 2025. A $20 billion capital program will support payout growth.

Fortis stock looks oversold at $49 a share today. Investors can earn a dividend yield of 4.6% and just wait for the payouts to increase to boost the initial yield. Fortis has a DRIP that gives investors a 2% rebate on the new shares that are bought with the dividends.

Long-term investors have done well owning Fortis shares. A $10,000 investment in the utility 25 years ago would be worth about $140,000 today if the dividends were reinvested.


Enbridge (TSX:ENB) is another top stock with a solid track record of delivering dividend growth and total returns. The board has increased the dividend for each of the last 27 years, and investors should see a 3%-5% annual increase in the payout over the medium term. Enbridge is on a $13 billion secured capital program and making small strategic acquisitions to drive revenue and cash flow growth.

Enbridge shares are trading near $49 per share at the time of writing, compared to $59 in June. The pullback seems overdone and investors can now lock in a 7% dividend yield.

A $10,000 investment in Enbridge 25 years ago would be worth about $200,000 today if the dividends were reinvested.

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

Fortis and Enbridge are good examples of how investors can build long-term wealth by using dividends to buy new stock. There’s no guarantee these stocks will deliver the same returns over the next 25 years, but they look attractive today at their current prices and deserve to be part of a diversified retirement portfolio.

New Investors: How to Turn a $20,000 TFSA or RRSP into $340,000 first appeared on The Motley Fool Canada.

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The Motley Fool recommends Enbridge and FORTIS INC. The Motley Fool has a confidentiality policy. Stupid contributor Andrew Walker owns shares in Fortis and Enbridge.


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