In 2009, we were told to go open a Tax Free Savings Account and grow your money tax free! Woo wee!
I opened a TFSA and my interest rate was 2.5%. I never knew how to fully take advantage of it, hell I never knew you could invest with one either. I went to the government website and it calculated that in 35 years, I would have $278,000! Then I got to thinking, “In 35 years, that’s probably the cost of a new car.”
Well today I’d like to show you what $417 a month can get you in 10 years. If you haven’t guessed, I really like Enbridge stock. The company is solid, its dividend is solid, so I thought it would be the perfect stock to use in this example.
The price of 100 shares of ENB on January 3, 2000 cost $1430 and the dividend they paid out was $.63 cents per share. That was a yield of 4.4% on that investment. Over the course of the next ten years, Enbridge increased its dividend by an average of 10% each year.
I searched market prices of the first day of trading in January as well as the dividend paid that year for the last 10 years.
It looks something like this:
Jan 2001| Market price $18, Dividend-$.70 cents/share
Jan 2002| Market price $21, Dividend-$.76 cents/share
Jan 2003| Market price $21.80, Dividend-$.83 cents/share
Jan 2004| Market price $26.85, Dividend-$.915 cents/share
Jan 2005| Market price $29.77, Dividend-$1.04/share
Jan 2006| Market price $36.80, Dividend-$1.15/share
Jan 2007| Market price $40.73, Dividend-$1.23/share
Jan 2008| Market price $39.94, Dividend-$1.32/share
Jan 2009| Market price $40.20, Dividend-$1.48/share
Jan 2010| Market price $48.05, Dividend-$1.70/share
Now if you had bought the 100 shares back in January of 2000 you would be making 11.8% a year on that initial investment of $1430 (1.7/14.30=11.88).
Your 100 shares would now be worth$ 4805, a 236% increase.
And you would have made $1175.50 in dividends on that initial investment. Your investment would have been paid for in 2 more years.
If you would have re- invested the dividends, You would now have 136 shares and each year you would get paid $230. Now you may think that’s not amazing at all, but you’re not looking at the big picture.
A Tax Free Savings Account (TFSA) allows you to put $5000 away each year and you are not taxed on any interest or capital gains received from that money. Well if you had a TFSA back in 2000, and saved $5000 a year for 10 years at an interest rate of a generous 3%, You would have $59038.98. Not too shabby.
If you had bought $5000 worth of Enbridge stock each year, and re-invested the dividends, You would have 2323 shares of stock. With a dividend of $1.70 in 2010, You would get paid 3438.04 annually tax free! And that’s just the icing on the cake. The market value of the $50,000 you had invested over the ten year period is now worth $111,620.15!
That’s just for starters. Compounded growth starts to snowball after ten years. If you kept investing for another five years, the annual dividend payment you receive would be double. If you kept if up for 30 years, I think the results would make for a VERY comfortable retirement… TAX FREE!