How to Turn a $25,000 TFSA or RRSP Into $475,000
Written by Andrew Walker at The Motley Fool Canada
Young investors can take advantage of the market correction to buy great TSX stock at great prices for their Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSPP portfolios) and use distributions to buy new shares.
v. Chr
v. Chr (TSX:BCE)(NYSE:BCE) is a good stock to buy for both passive income in retirement and total returns as investors build their nest egg.
The company is a giant in the Canadian communications industry with a current market capitalization of $58 billion. BCE delivers steady revenue and cash flow growth to support the generous dividend. The board has increased the payout by at least 5% in each of the last 14 years.
BCE knows it needs to make major investments to protect its market position and increase sales. In 2022, BCE will spend US$5 billion on investment projects. Before the end of this year, the company will connect another 900,000 customers directly with fiber optic lines. Owning the high-speed connection to the building is a good way to retain customers and gives BCE new opportunities to sell higher data plans or add services.
BCE is also expanding its 5G mobile network. Management spent $2 billion last year on new 3,500 megahertz spectrum licenses that will form the basis for continued rollout of the program.
BCE reported solid results for the second quarter (Q2) of 2022. Adjusted net income increased by 5.3% compared to the second quarter of the previous year. Free cash flow increased by 7.1%. BCE says it’s on track to deliver 2-7% annual earnings per share growth. Free cash flow is expected to increase by 2-10% compared to 2021.
At the time of writing, BCE stock is looking cheap. Shares are trading for almost $63.50 compared to $74 a few months ago. Investors who buy now can lock in a dividend yield of 5.8%.
A $25,000 investment in BCE stock 25 years ago would be worth about $475,000 today if the dividends were reinvested.
fortis
fortis (TSX:FTS)(NYSE:FTS) is a $60 billion utility company in Canada, the United States and the Caribbean. The business areas include power generation, power transmission and natural gas distribution. These are all essential services, so the revenue stream tends to hold up well during tough economic times.
Fortis is a good stock for a portfolio focused on dividend growth. The board has increased the payout for each of the last 48 years, and management is targeting a 6% compound annual dividend increase through 2025. That’s a solid forecast in the current economic environment.
Fortis is working on a $20 billion capital program that will increase the interest base by about a third by the end of 2026. The resulting revenue and cash flow increases should support dividend growth.
A $25,000 investment in Fortis stock 25 years ago would be worth about $425,000 today if the dividends were reinvested.
The bottom line is that you should buy top stocks for total return
BCE and Fortis are good examples of stocks that investors can buy and sit on for years to deliver solid total returns.
The strategy of buying quality TSX dividend stocks and using the dividends to buy new shares has proven to be a good way to build retirement savings. Investors now have the opportunity to buy a range of Canadian dividend stars at discounted prices on a self-directed TFSA or RRSP.
“Retire at 50: How to Turn a $25,000 TFSA or RRSP into $475,000” first appeared on The Motley Fool Canada.
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The Motley Fool recommends FORTIS INC. Stupid contributor Andrew Walker owns shares in BCE and Fortis.
2022