Become a TFSA Millionaire With BCE Inc. (TSX:BCE) and Bank of Montreal (TSX:BMO)

You don’t need to invest in great stocks like BCE Inc. (TSX:BCE)(NYSE:BCE) and Bank of Montreal (TSX:BMO)(NYSE:BMO) to become a TFSA millionaire, but it’ll sure help.

| More on:

Who doesn’t want to become a millionaire? If this person exists, I’ve yet to meet them.

There are several ways to become wealthy. You could invent the next new app or other big technological breakthrough. You could work your way up to CEO of a major organization. Or you could save and invest wisely, and after a few decades of compounding, you’ll get there.

Alas, only one of these methods is a reliable way to earn wealth. The good news is that you don’t have to over-complicate this strategy. All you need to do is max out your TFSA each year and you’ll end up a millionaire.

Yes, really. Here’s an easy roadmap showing you how to get there.

A simple investing strategy

Let’s run through a simple hypothetical scenario. Say you just turned 25 and have entered your peak earning years. So you contribute the maximum to your TFSA each year, which currently stands at $6,000. We’ll assume zero increases in that maximum contribution over the years.

Next you invest in stocks that generate an 8% return, which is actually a little under what the market has delivered over the long-term.

The result is that you’ll easily become a millionaire. If you keep investing $6,000 per year by the time you’re 65 you’ll end up with a $1.8 million TFSA. I’m not sure that inflation will do in the next 40 years, but I’m confident $1.8 million will still be a lot of money in 2059.

Compound interest is funny. It seems like nothing is happening for years and then results start to explode upwards. It would take our imaginary investor 33 years to become a millionaire. Just seven years later, she would nearly double that nest egg.

And remember, TFSAs are completely tax free. At a 4% withdrawal rate we’re looking at a tax free annual income stream of $72,000.

How to get there

An 8% return is good, and you’ll likely do at least that well over the long-term if you own a portfolio of diverse index funds. But I think we can do a little better choosing some of Canada’s finest companies.

Let’s talk first about one of our largest banks, Bank of Montreal (TSX:BMO)(NYSE:BMO), which has been an incredibly good investment over the years. Not only has the company cemented itself as a leader in Canadian banking, but it has also spent the last two decades expanding its presence in the United States. BMO’s U.S. operations are, combined, the 12th largest bank in the United States.

An important part of BMO’s overall return potential is its generous dividend, a payout that has been maintained since 1829. No, that’s not a typo. Bank of Montreal really has paid a dividend for nearly whole centuries. In fact, the company has actually grown the dividend most years. The current yield is 3.9%.

Over the last 20 years, BMO shares have quietly produced great returns. Including reinvested dividends, BMO’s total return has been 9.98% annually, which is enough to turn a $10,000 initial investment into one worth just over $67,000 today.

Another great buy-and-hold forever TFSA stock is BCE Inc. (TSX:BCE)(NYSE:BCE), the nation’s largest telecom. BCE holds a dominant position in the wireless market, and is a leader in both television and internet services too. The company boasts nearly 20 million customers from all of its combined divisions.

I also like BCE’s exposure to professional sports teams — assets that seemingly refuse to decline in value. The company owns a portion of NHL teams like the Toronto Maple Leafs and the Montreal Canadiens, as well as the NBA’s Toronto Raptors and MLS’s Toronto FC soccer club.

And let’s not forget about the dividend. BCE’s payout is even better than BMO’s, checking in at 5.3%. BCE gives investors a higher yield today in exchange for muted dividend growth going forward, but I still expect dividend growth in the 4-5% range.

A $10,000 investment in BCE two decades ago would be worth $76,417 today including reinvested dividends, which represents a 10.7% annual return.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Nelson Smith owns shares of BANK OF MONTREAL and BCE INC.

More on Dividend Stocks

calculate and analyze stock
Dividend Stocks

This 5.5% Dividend Stock Pays Cash Every Single Month!

This REIT may offer monthly dividends, but don't forget about the potential returns in the growth industry its involved with.

Read more »

Silver coins fall into a piggy bank.
Dividend Stocks

How to Use Your TFSA to Earn up to $6,000 Per Year in Tax-Free Passive Income

A high return doesn't mean you have to make a high investment -- or a risky one -- especially with…

Read more »

path road success business
Dividend Stocks

2 High-Yield Dividend Stocks to Buy Hand Over Fist and 1 to Avoid

High yields are great and all, but only if returns come with them. And while two of these might, another…

Read more »

Man holds Canadian dollars in differing amounts
Dividend Stocks

This 7% Dividend Stock Pays Cash Every Month

A high dividend yield isn't everything. But when it pays out each month and offers this stability, it's worth considering!

Read more »

young people stare at smartphones
Dividend Stocks

GST/HST “Vacation”: Everything Canadians Need to Know

The GST/HST "vacation" is a little treat for the holidays, along with a $250 payment. What should you do with…

Read more »

Train cars pass over trestle bridge in the mountains
Dividend Stocks

Is CNR Stock a Buy, Sell, or Hold for 2025?

Can CNR stock continue its long-term outperformance into 2025 and beyond? Let's explore whether now is a good time to…

Read more »

coins jump into piggy bank
Dividend Stocks

The Smartest Dividend Stocks to Buy With $500 Right Now

These top dividend stocks both offer attractive yields and trade off their highs, making them two of the best to…

Read more »

Middle aged man drinks coffee
Dividend Stocks

Here’s the Average TFSA Balance at Age 35 in Canada

At age 35, it might not seem like you need to be thinking about your future cash flow. But ideally,…

Read more »