Here’s How Much You’d Be Earning in Dividends if You’d Invested in TD Bank (TSX:TD) 5 Years Ago

Long-term investors are the big winners when it comes to holding shares of Toronto-Dominion Bank (TSX:TD)(NYSE:TD), as rising dividend payments make this a very good stock to own for years.

| More on:

Dividend stocks are a great way for investors to build their portfolios and accumulate cash flow. There are many good ones to choose from on the TSX, and while investors may be drawn to those with higher yields today, I’ll show you how much more you could be making with a stock that has a lower dividend but that increases it over the years.

A good stock to use for this example is Toronto-Dominion Bank (TSX:TD)(NYSE:TD). The bank stock routinely raises its dividends, and with a yield of around 4%, it’s a very good yield today. And with strong, consistent profits, TD provides investors with a very strong dividend that should remain safe for the foreseeable future.

Although there’s never any guarantee when it comes to dividend payments, TD offers one of the safer payouts on the TSX today.

Dividend growth has been significant over the years

Today, shareholders of TD are earning $0.74 for every share that they own and are paid every quarter. Five years ago, the stock was paying just $0.47 every quarter.

If we assume that we had invested $10,000 in TD and bought shares at a price of $54 five years ago, we would have owned a little more than 185 shares. Back then, the quarterly payments would have generated more than $87 in dividends. On an annual basis, the total dividend income per share would have been a little more than $348 for a yield of 3.48%.

This is about the yield we’d normally expect from TD in a given year. The reason it’s closer to 4% today is that TD and other bank stocks haven’t been performing that well over the past year. When a dividend has been going up and the share price hasn’t been increasing, the yield ends up rising as a result, which is what has happened with TD’s stock.

While a yield of more than 3% is still a very good source of income for investors, it gets even more powerful as we keep on holding shares of TD. If we continued holding those 185 shares until today, when the stock is paying $0.74 every quarter, that means we’d be earning $137 every quarter and $548 annually. That means that we’d be earning 5.48% in dividends from our initial investment of $10,000.

In just five years, payments have increased by 57%, and that would have had a significant impact on the amount of dividend income that investors would be earning today. And the longer you hold shares that are increasing their dividends, the more you’ll be making over time.

Bottom line

If you’re looking at dividend stocks to add to your portfolio, it’s important to look beyond just yield because a stock that pays a modest payout today could be much stronger years from now if it is a good bet to increase its dividend payments. And stocks that are a bit smaller in yield that are paying less than 5% could be a lot safer than high-yielding stocks that may not be sustainable over the long term.

In addition to yield, investors should always consider the safety of the dividend as well as at what rate it’s likely to grow at (if at all). TD is a great example of a stock that performs well across all those different variables.

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 David Jagielski has no position in any of the stocks mentioned.

More on Dividend Stocks

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 »

ETF stands for Exchange Traded Fund
Dividend Stocks

How to Invest Your $7,000 TFSA Contribution in 2024

Here's how I would prioritize a $7,000 TFSA contribution for growth and income.

Read more »

a man relaxes with his feet on a pile of books
Dividend Stocks

CPP Pensioners: Watch for These Important Updates

The CPP is an excellent tool for retirees, but be sure to stay on top of important updates like these.

Read more »

Technology
Dividend Stocks

TFSA Investors: 3 Dividend Stocks I’d Buy and Hold Forever

These TSX dividend stocks are likely to help TFSA investors earn steady and growing passive income for decades.

Read more »

four people hold happy emoji masks
Dividend Stocks

Love Dividend Growth? Check Out These 2 Income-Boosting Stocks

National Bank of Canada (TSX:NA) and another Canadian dividend-growth stock are looking like a bargain going into December 2024.

Read more »

An investor uses a tablet
Dividend Stocks

A Dividend Giant I’d Buy Over Enbridge Stock Right Now

Enbridge stock may seem like the best of the best in terms of dividends, but honestly this one is far…

Read more »