Have you ever wondered how an investment in a boring, blue chip company that pays dividends to share holders and periodically grows those dividends performs over long periods of time?
Welcome to the Invest and retire before you die series, where I explore the merits of long term investments in Canadian blue chip companies that pay and grow their dividends every year. I have seen these studies for American companies in the past and figured it would be nice for people to find something equivalent for Canadian ones. Notice that many Canadian blue chips companies are also listed in American exchanges and are therefore easily available to US investors.
If you are interested in other companies already discussed as part of this series, you can check out:
Invest and retire before you die - The Bank of Nova Scotia (BNS)
Invest and retire before you die - Emera Inc (EMA)
Invest and retire before you die - RioCan Real Estate (REI.UN)
Invest and retire before you die - Potash Corp. of Saskatchewan (POT)
Invest and retire before you die - Enbridge (ENB)
Invest and retire before you die - TransCanada Corporation (TRP)
Invest and retire before you die - Suncor Energy (SU)
Why dividend payers and growers?
Revenue that is distributed to share holders is the hard proof that money is flowing in the business. It is hard to argue with cash that is periodically paid out to shareholders. In addition to that, dividends that are increased every year show the confidence that the management of a company has in the future operations of the business to sustain the new pay outs. Management knows how negatively, future dividend cuts are perceived by investors. That's why, when dividends are increased, they better make sure they can sustain them, which shows confidence. Increasing a dividend shows that the business is not only functional but that there is potential for sales and revenues to keep growing going forward.
Dividends are not only for old retirees but for anyone willing to make money as a long term investor. From 1930 to 2013 dividends were responsible for about 42% of Stock Markets returns.
Symbols: TD.TO (Toronto Stock Exchange), TD (New York Stock Exchange)
Taken from Google Finance:
"The Toronto-Dominion Bank, is a Canada-based bank, offering a range of financial products and services through TD Canada Trust, TD Bank, TD commercial Bank, TD commercial Banking and TD Auto finance. The Toronto-Dominion Bank and its subsidiaries are collectively known as TD Bank Group (the Bank or TD). The Bank serves approximately 20.5 million customers in four businesses operating in a number of locations in financial centres worldwide: Canadian Personal and Commercial Banking, including TD Canada Trust, TD Insurance, and TD Auto Finance Canada; Wealth Management, including TD Waterhouse and an investment in TD Ameritrade; U.S. Personal and Commercial Banking, including TD Bank, and TD Auto Finance U.S.; and Wholesale Banking, including TD Securities."
Canada is known for its strong banking sector, consistently ranked among the most trusted and secure ones in the world. Canadian banks did not need a government bail out during the 2008 financial crisis.
How would a $10,000 investment in TD have fared in the last two decades?
Data from August 1, 1995 to October 17, 2014. That is 19.22 years. Numbers reflected in Canadian Dollars.
A $10,000 investment in TD on August 1, 1995 with dividends reinvested in the stock would have been worth $174,896 on October 17, 2014. That is an Average Annual Return of 16.05% in a period that includes the 2000 dot com bubble burst, 9-11 terrorist attacks, Wars, the 2008 market correction (second worst in history), the 2011 debt ceiling issues in the US, the European debt debacle. Your initial investment would have been multiplied 17 times. You would own 3,272 shares at the end of the period, each one of them paying you $1.88 a year in dividends for a total passive income of $6,151 per year.
But what if instead of buying once and forgetting you decided to contribute with additional purchases every year? What if instead of purchasing $10,000 worth of stock once, you decided to invest $5,000 every year?
Had you invested $5,000 every year in TD and reinvested all the dividends along the way, your investment would now be worth around $600,705 and you would be the proud owner of around 11,234 shares of stock that would be paying you $21,120 every year in the form of dividends. Dividends that are favorably taxed in respect with normal income a.k.a salary. Dividends that provide you with cash flow without selling your shares, without giving away your ownership on the company.
A long term investment in TD was a life changer and could be going forward. In full disclosure I have a small position in TD (26 shares as of this writing).
This is the 8th Canadian company discussed in the Invest and retire before you die series. Only one more to go and then a portfolio analysis of all 9 combined.
Related Articles:
Chapter 1 - Invest and retire before you die - The Bank of Nova Scotia (BNS)
Chapter 2 - Invest and retire before you die - Emera Inc (EMA)
Chapter 3 - Invest and retire before you die - RioCan Real Estate (REI.UN)
Chapter 4 - Invest and retire before you die - Potash Corp. of Saskatchewan (POT)
Chapter 5 - Invest and retire before you die - Enbridge (ENB)
Chapter 6 - Invest and retire before you die - TransCanada Corporation (TRP)
Chapter 7 - Invest and retire before you die - Suncor Energy (SU)
Chapter 8 - Invest and retire before you die - Toronto-Dominion Bank (TD)
Chapter 9 - Invest and retire before you die - Telus Corporation (T)
Chapter 10 - A basic Dividend Growth oriented Canadian Investment Portfolio
Welcome to the Invest and retire before you die series, where I explore the merits of long term investments in Canadian blue chip companies that pay and grow their dividends every year. I have seen these studies for American companies in the past and figured it would be nice for people to find something equivalent for Canadian ones. Notice that many Canadian blue chips companies are also listed in American exchanges and are therefore easily available to US investors.
If you are interested in other companies already discussed as part of this series, you can check out:
Invest and retire before you die - The Bank of Nova Scotia (BNS)
Invest and retire before you die - Emera Inc (EMA)
Invest and retire before you die - RioCan Real Estate (REI.UN)
Invest and retire before you die - Potash Corp. of Saskatchewan (POT)
Invest and retire before you die - Enbridge (ENB)
Invest and retire before you die - TransCanada Corporation (TRP)
Invest and retire before you die - Suncor Energy (SU)
Why dividend payers and growers?
Revenue that is distributed to share holders is the hard proof that money is flowing in the business. It is hard to argue with cash that is periodically paid out to shareholders. In addition to that, dividends that are increased every year show the confidence that the management of a company has in the future operations of the business to sustain the new pay outs. Management knows how negatively, future dividend cuts are perceived by investors. That's why, when dividends are increased, they better make sure they can sustain them, which shows confidence. Increasing a dividend shows that the business is not only functional but that there is potential for sales and revenues to keep growing going forward.
Dividends are not only for old retirees but for anyone willing to make money as a long term investor. From 1930 to 2013 dividends were responsible for about 42% of Stock Markets returns.
An Investment in Toronto-Dominion Bank
Symbols: TD.TO (Toronto Stock Exchange), TD (New York Stock Exchange)
Taken from Google Finance:
"The Toronto-Dominion Bank, is a Canada-based bank, offering a range of financial products and services through TD Canada Trust, TD Bank, TD commercial Bank, TD commercial Banking and TD Auto finance. The Toronto-Dominion Bank and its subsidiaries are collectively known as TD Bank Group (the Bank or TD). The Bank serves approximately 20.5 million customers in four businesses operating in a number of locations in financial centres worldwide: Canadian Personal and Commercial Banking, including TD Canada Trust, TD Insurance, and TD Auto Finance Canada; Wealth Management, including TD Waterhouse and an investment in TD Ameritrade; U.S. Personal and Commercial Banking, including TD Bank, and TD Auto Finance U.S.; and Wholesale Banking, including TD Securities."
Canada is known for its strong banking sector, consistently ranked among the most trusted and secure ones in the world. Canadian banks did not need a government bail out during the 2008 financial crisis.
How would a $10,000 investment in TD have fared in the last two decades?
Data from August 1, 1995 to October 17, 2014. That is 19.22 years. Numbers reflected in Canadian Dollars.
A $10,000 investment in TD on August 1, 1995 with dividends reinvested in the stock would have been worth $174,896 on October 17, 2014. That is an Average Annual Return of 16.05% in a period that includes the 2000 dot com bubble burst, 9-11 terrorist attacks, Wars, the 2008 market correction (second worst in history), the 2011 debt ceiling issues in the US, the European debt debacle. Your initial investment would have been multiplied 17 times. You would own 3,272 shares at the end of the period, each one of them paying you $1.88 a year in dividends for a total passive income of $6,151 per year.
Comparison of an investment in TD vs an investment in the S&P500 index
Had you invested $5,000 every year in TD and reinvested all the dividends along the way, your investment would now be worth around $600,705 and you would be the proud owner of around 11,234 shares of stock that would be paying you $21,120 every year in the form of dividends. Dividends that are favorably taxed in respect with normal income a.k.a salary. Dividends that provide you with cash flow without selling your shares, without giving away your ownership on the company.
A long term investment in TD was a life changer and could be going forward. In full disclosure I have a small position in TD (26 shares as of this writing).
This is the 8th Canadian company discussed in the Invest and retire before you die series. Only one more to go and then a portfolio analysis of all 9 combined.
Related Articles:
Chapter 1 - Invest and retire before you die - The Bank of Nova Scotia (BNS)
Chapter 2 - Invest and retire before you die - Emera Inc (EMA)
Chapter 3 - Invest and retire before you die - RioCan Real Estate (REI.UN)
Chapter 4 - Invest and retire before you die - Potash Corp. of Saskatchewan (POT)
Chapter 5 - Invest and retire before you die - Enbridge (ENB)
Chapter 6 - Invest and retire before you die - TransCanada Corporation (TRP)
Chapter 7 - Invest and retire before you die - Suncor Energy (SU)
Chapter 8 - Invest and retire before you die - Toronto-Dominion Bank (TD)
Chapter 9 - Invest and retire before you die - Telus Corporation (T)
Chapter 10 - A basic Dividend Growth oriented Canadian Investment Portfolio
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Great Post.
ReplyDeleteJust curious ,how much one need to invest as of Feb 2015, to get this kind of return,assuming everything else remains same.10K of 1995= xx of 2015
Well, we would need the inflation of the last 20 years in order to know the value of $10000 1995 dollars today. This page shows the inflation in Canada year by year for the last 20 years http://www.inflation.eu/inflation-rates/canada/historic-inflation/cpi-inflation-canada.aspx and it would be a matter of compounding all those numbers year after year. But to make it simple, we can use hindsight and it looks like the average inflation was around 2% per year. This means that $10000 1995 dollars would be equivalent to roughly $15000 2015 dollars.
DeleteCheers,
LT