Given enough time, you can earn substantial wealth from compound interest on decent returns on your investments. What’s a good return on investment? You can use market returns as a gauge. For example, since 2003, the Canadian stock market return (using the iShares S&P/TSX 60 Index ETF as a proxy) has grown at a compound annual growth rate (CAGR) of approximately 8.6% (According to the rule of 72, investors would have doubled their money in about 8.4 years.).
Therefore, stocks that have beaten this return in the period could be a good investment. For example, Bank of Montreal (TSX:BMO) has delivered annual returns of about 9.6% in this timeframe. In fact, the stock is down about 17% in the last 12 months.
The weakness in the dividend stock could be an excellent buying opportunity for long-term investment. This is especially so since the big Canadian bank stock offers a higher dividend yield than the market. Assuming this dividend is safe (which I believe it is), investors can get more stable returns from BMO stock, which relies less on price appreciation than the stock market for returns.
The power of compound interest
Let’s take a look at BMO’s historical results for reference. Over the past decade, the bank increased its adjusted earnings per share (EPS) at a CAGR of 8.2% and dividend per share at a CAGR of 6.2%. Its 10-year total returns were roughly 10.2% per year (i.e., price appreciation of 7.4% and 2.8% from dividends annually). In other words, its dividend payments contributed to more than 27% of total returns.
At writing, BMO stock offers a fabulous dividend yield of 5.18%, which is higher than the 4.8% yield 10 years ago. Investing $10,000 today would make $518 in passive income annually. Assuming it’s able to grow its adjusted EPS 6% and dividend per share by 5% annually, and the stock appreciates 5% per year, an initial $10,000 investment will grow to about $16,289 in 10 years.
If the dividend yield remained at 5.18%, the stake would earn close to $844 in passive income annually (up almost 63% from $518). So, it would be a yield on cost of 8.4%. In other words, investors would earn north of 8.4% every year from dividends alone from then on assuming the stock increased its dividend over time.
How to fuel your wealth creation
While getting solid returns on your investments over time will make you wealthier, as shown in the example above, there are ways you can fuel faster wealth creation. You can reinvest your dividends for more shares in quality businesses. Additionally, you can regularly save and invest. For instance, you can invest $1,000 in your best stock idea every month or every few months. Just remember to spread your risk across a diversified portfolio.
Investor takeaway
It’s always the hardest to start something. It might not seem like much to make $518 per year in passive income on an initial investment of $10,000. However, slow and steady wins the race. Keep saving and investing regularly. If you invest in a basket of quality dividend-growth stocks, you will only make more and more passive income from your portfolio. Over time, the $518 per year could turn into $5,000.
Keep track of the growing dividend income per year you’re earning from your portfolio to encourage yourself in this lifelong journey. The increasing income may be from new investments from your regular savings or dividend increases from your holdings.
Before you consider Bank of Montreal, 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 May 2023… and Bank of Montreal 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 23 percentage points. And right now, they think there are 5 stocks that are better buys.
Fool contributor Kay Ng has positions in Bank of Montreal. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in technology, financial and energy stocks, while U.S. stock markets also pushed higher.
The S&P/TSX composite index was up 171.41 points at 23,298.39.
In New York, the Dow Jones industrial average was up 278.37 points at 41,369.79. The S&P 500 index was up 38.17 points at 5,630.35, while the Nasdaq composite was up 177.15 points at 17,733.18.
The Canadian dollar traded for 74.19 cents US compared with 74.23 cents US on Wednesday.
The October crude oil contract was up US$1.75 at US$76.27 per barrel and the October natural gas contract was up less than a penny at US$2.10 per mmBTU.
The December gold contract was up US$18.70 at US$2,556.50 an ounce and the December copper contract was down less than a penny at US$4.22 a pound.
This report by The Canadian Press was first published Aug. 29, 2024.
The crypto market has recently experienced a significant downturn, mirroring broader risk asset sell-offs. Over the past week, Bitcoin’s price dropped by 24%, reaching $53,000, while Ethereum plummeted nearly a third to $2,340. Major altcoins also suffered, with Cardano down 27.7%, Solana 36.2%, Dogecoin 34.6%, XRP 23.1%, Shiba Inu 30.1%, and BNB 25.7%.
The severe downturn in the crypto market appears to be part of a broader flight to safety, triggered by disappointing economic data. A worse-than-expected unemployment report on Friday marked the beginning of a technical recession, as defined by the Sahm Rule. This rule identifies a recession when the three-month average unemployment rate rises by at least half a percentage point from its lowest point in the past year.
Friday’s figures met this threshold, signaling an abrupt economic downshift. Consequently, investors sought safer assets, leading to declines in major stock indices: the S&P 500 dropped 2%, the Nasdaq 2.5%, and the Dow 1.5%. This trend continued into Monday with further sell-offs overseas.
The crypto market’s rapid decline raises questions about its role as either a speculative asset or a hedge against inflation and recession. Despite hopes that crypto could act as a risk hedge, the recent crash suggests it remains a speculative investment.
Since the downturn, the crypto market has seen its largest three-day sell-off in nearly a year, losing over $500 billion in market value. According to CoinGlass data, this bloodbath wiped out more than $1 billion in leveraged positions within the last 24 hours, including $365 million in Bitcoin and $348 million in Ether.
Khushboo Khullar of Lightning Ventures, speaking to Bloomberg, argued that the crypto sell-off is part of a broader liquidity panic as traders rush to cover margin calls. Khullar views this as a temporary sell-off, presenting a potential buying opportunity.
Josh Gilbert, an eToro market analyst, supports Khullar’s perspective, suggesting that the expected Federal Reserve rate cuts could benefit crypto assets. “Crypto assets have sold off, but many investors will see an opportunity. We see Federal Reserve rate cuts, which are now likely to come sharper than expected, as hugely positive for crypto assets,” Gilbert told Coindesk.
Despite the recent volatility, crypto continues to make strides toward mainstream acceptance. Notably, Morgan Stanley will allow its advisors to offer Bitcoin ETFs starting Wednesday. This follows more than half a year after the introduction of the first Bitcoin ETF. The investment bank will enable over 15,000 of its financial advisors to sell BlackRock’s IBIT and Fidelity’s FBTC. This move is seen as a significant step toward the “mainstreamization” of crypto, given the lengthy regulatory and company processes in major investment banks.
The recent crypto market downturn highlights its volatility and the broader economic concerns affecting all risk assets. While some analysts see the current situation as a temporary sell-off and a buying opportunity, others caution against the speculative nature of crypto. As the market evolves, its role as a mainstream alternative asset continues to grow, marked by increasing institutional acceptance and new investment opportunities.
