Written by Kay Ng at The Motley Fool Canada
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.
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.
The post Turn a $10,000 Investment Into $844 in Cash Every Year appeared first on The Motley Fool Canada.
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.
See the 5 Stocks * Returns as of 5/24/23
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.
Tense diplomatic relations may not impact trade, investment ties between India, Canada: Experts
NEW DELHI: The tense diplomatic relations between India and Canada are unlikely to impact trade and investments between the two countries as economic ties are driven by commercial considerations, according to experts. Both India and Canada trade in complementary products and do not compete on similar products.
“Hence, the trade relationship will continue to grow and not be affected by day-to-day events,” Global Trade Research Initiative (GTRI) Co-Founder Ajay Srivastava said.
Certain political developments have led to a pause in negotiations for a free trade agreement between the two countries.
On September 10, Prime Minister Narendra Modi conveyed to his Canadian counterpart Justin Trudeau India’s strong concerns about the continuing anti-India activities of extremist elements in Canada that were promoting secessionism, inciting violence against its diplomats and threatening the Indian community there.
India on Tuesday announced the expulsion of a Canadian diplomat hours after Canada asked an Indian official to leave that country, citing a “potential” Indian link to the killing of a Khalistani separatist leader in June.
Srivastava said these recent events are unlikely to affect the deep-rooted people-to-people connections, trade, and economic ties between the two nations.
Bilateral trade between India and Canada has grown significantly in recent years, reaching USD 8.16 billion in 2022-23.
India’s exports (USD 4.1 billion) to Canada include pharmaceuticals, gems and jewellery, textiles, and machinery, while Canada’s exports to India (USD 4.06 billion) include pulses, timber, pulp and paper, and mining products.
On investments, he said that Canadian pension funds will continue investing in India on grounds of India’s large market and good return on money invested.
Canadian pension funds, by the end of 2022, had invested over USD 45 billion in India, making it the fourth-largest recipient of Canadian FDI in the world.
The top sectors for Canadian pension fund investment in India include infrastructure, renewable energy, technology, and financial services.
Mumbai-based exporter and Chairman of Technocraft Industries Sharad Kumar Saraf said the present frosty relations between India and Canada are certainly a cause for concern.
“However, the bilateral trade is entirely driven by commercial considerations. Political turmoil is of a temporary nature and should not be a reason to affect trade relations,” Saraf said.
He added that even with China, India has acrimonious relations but bilateral trade continues to remain healthy.
“In fact, bilateral trade is an effective tool to improve political relations. India must make special efforts to increase our bilateral trade with Canada,” Saraf said.
India and Canada have a strong education partnership. There are over 200 educational partnerships between Indian and Canadian institutions.
In addition, over 3,19,000 Indian students are enrolled in Canadian institutions, making them the largest international student cohort in Canada, according to GTRI.
According to the Canadian Bureau for International Education (CBIE), Indian students contributed USD 4.9 billion to the Canadian economy in 2021.
Indian students are the largest international student group in Canada, accounting for 20 per cent of all international students in 2021.
Benefits of educational partnerships are mutual and hence the current situation may have no impact on the relationship, Srivastava said.
Apple supplier Foxconn aims to double India jobs and investment
Apple supplier Foxconn aims to double its workforce and investment in India by next year, a company executive said on Sunday.
Taiwan-based Foxconn, the world’s largest contract manufacturer of electronics, has rapidly expanded its presence in India by investing in manufacturing facilities in the south of the country as the company seeks to move away from China.
V Lee, Foxconn’s representative in India, in a LinkedIn post to mark Indian Prime Minister Narendra Modi’s 73rd birthday, said the company was “aiming for another doubling of employment, FDI (foreign direct investment), and business size in India” by this time next year.
He did not give more details.
Foxconn already has an iPhone factory employing 40,000 people in the state of Tamil Nadu.
In August, the state of Karnataka said the firm will invest US$600 million for two projects to make casing components for iPhones and chip-making equipment.
The company’s Chairman Liu Young-way said in an earnings briefing last month that he sees a lot of potential in India, adding: “several billion dollars in investment is only a beginning”.
Taiwan election: Foxconn’s Terry Gou taps star-powered running mate
Last month, Foxconn’s billionaire founder Terry Gou said he would run for the Taiwanese presidency in next year’s election, as an independent candidate.
He said the ruling and independence-leaning Democratic Progressive Party (DPP) was unable to offer a bright future for the island and left Foxconn’s board following his decision to run.
The firm operates the world’s largest iPhone plant, in the city of Zhengzhou in Henan province.
Foxconn to double workforce, investment in India by ‘this time next year’
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