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

Happy Retirement” on a road
Happy Retirement” on a road

Written by Andrew Walker at The Motley Fool Canada

Canadian savers are searching for ways to build Tax-Free Savings Account (TFSA) and Registered Retirement Savings Plan (RRSP) wealth that can provide adequate retirement income. One popular investing strategy involves buying top dividend stocks and using the payouts to buy new shares.

Power of compounding

Time is the greatest asset an investor has when it comes to building retirement wealth. In fact, small initial investments in quality dividend-growth stocks can become significant piles of savings when the distributions are reinvested in new shares.

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Many companies have dividend-reinvestment plans (DRIPs) that enable the dividends to automatically buy more stock at no trading charge and often at a discount to the market price of the shares.

Each new share added to the portfolio generates more dividends on the next payout. Over time, the snowball effect can be impressive. This is particularly true when the company raises the dividend regularly and the share price trends higher.

TD Bank

TD (TSX:TD) has a great track record of dividend growth. In fact, the bank has raised the dividend by a compound annual rate of better than 10% for the past 25 years. Investors received a 13% dividend increase for fiscal 2022. Another generous hike is likely on the way for fiscal 2023, even as the economy heads for some challenging times.

TD earned $3.8 billion in adjusted net income in the fiscal third quarter (Q3) 2022 compared to $3.6 billion in the same period last year. For the first three quarters of fiscal 2022, adjusted net earnings came in at $11.4 billion compared to $10.8 billion over the same period time 2021.

Despite the solid performance, TD stock is down to $87 compared to $109 in the early months of this year. The pullback appears overdone, and investors have a chance to buy TD at an attractive price and can now pick up a 4% dividend yield.

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

BCE

BCE (TSX:BCE) has always been a top pick among retirees and other investors seeking passive income due to its generous dividends and reliable income stream. The stock, however, 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 with the dividends reinvested.

BCE is a leader in the Canadian communications sector and has successfully transitioned from being a landline telephone company to a mobile, internet, and media giant. Management continues to invest billions of dollars every year in new technology and network upgrades to drive ongoing revenue growth while protecting the strong competitive advantages the company enjoys in the Canadian market.

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

The bottom line on top stocks to buy for total returns

TD and BCE are just two examples of how investors can harness the power of compounding to build retirement wealth. There is no guarantee these stocks will generate the same returns in the future, but TD and BCE still deserve to be core holdings in a diversified portfolio of top TSX dividend stocks.

The post How to Turn $15,000 Into $247,000 for Retirement appeared first on The Motley Fool Canada.

Should You Invest $1,000 In BCE?

Before you consider BCE, you'll want to hear this.

Our market-beating analyst team just revealed what they believe are the 5 best stocks for investors to buy in September 2022 ... and BCE wasn't on the list.

The online investing service they've run for nearly a decade, Motley Fool Stock Advisor Canada, is beating the TSX by 21 percentage points. And right now, they think there are 5 stocks that are better buys.

See the 5 Stocks * Returns as of 9/14/22

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The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. Fool contributor Andrew Walker owns shares of BCE.

2022