Don't Miss AI's Third Wave
Shopify (TSX:SHOP) stock enjoyed a Santa Claus rally in the 2023 holiday season. Those who bought this e-commerce stock before the seasonal growth are now sitting on a 60% return. Is it feasible to buy Shopify stock closer to its blue moon high? Or would it be better to chase a dividend all-star that shines all year long? Let’s find out.
Shopify stock at a blue moon high
Every stock has different features. Shopify is a growth stock with seasonal revenue. Discretionary spending drives e-commerce volumes during holidays while spending on essentials gives them a base volume. With the holiday season over, it is time to start saving for the next holiday season. Most of the time, Shopify’s first-quarter revenue falls as holiday buying ends.
Moreover, Shopify stock is trading above its pre-pandemic high. There is a high chance of correction. Now is the time to sell Shopify stock and not buy it. A good time to buy the stock would be in March or October, when it tends to fall.
If you invested $10,000 in Shopify in October 2023, its value is now over $15,100. It is time to rebalance your portfolio and convert Shopify profits into relatively stable returns.
A dividend all-star I can buy any day
While Shopify stock corrected 4%, BCE (TSX:BCE) stock surged 4% in the first four days of 2024. The two stocks have been moving in opposite directions in 2023. But that does not mean they are correlated. The telecom stock has been in a bear momentum since April 2022, when the Bank of Canada began its interest rate hike. The stock slipped throughout the rate-hike cycle as higher interest expenses slimmed its profits. Moreover, the telecom sector saw a slowdown in its media segment, forcing it to cut jobs. However, rising 5G subscriptions kept its free cash flow positive and helped it maintain its 5% dividend growth in 2023.
The dip in BCE share price because of the above headwinds increased its dividend yield to 7.1%. Now is an opportune time to lock in a $3.87 dividend per share for decades for a stock price of over $54.
How this dividend all-star can compound your Shopify earnings
You could consider investing your profits from Shopify into BCE. A $5,000 investment would buy you 91 shares of BCE, but I would suggest rounding off your purchase to 100 shares by adding some amount from your pocket.
| Year | BCE Stock Price 3.2% CAGR* | Annual Investment | BCE DRIP Shares | BCE Share count | BCE Dividend per share (5% CAGR) | Total dividend |
| 2024 | $55.00 | $5,500.00 | 100 | 100 | $4.06 | $406.00 |
| 2025 | $56.76 | $406.00 | 7 | 107 | $4.26 | $456.14 |
| 2026 | $58.58 | $456.14 | 8 | 115 | $4.48 | $514.76 |
| 2027 | $60.45 | $514.76 | 8 | 123 | $4.70 | $578.09 |
| 2028 | $62.39 | $578.09 | 9 | 132 | $4.93 | $651.41 |
| 2029 | $64.38 | $651.41 | 10 | 142 | $5.18 | $735.80 |
| 2030 | $66.44 | $735.80 | 11 | 153 | $5.44 | $832.44 |
| 2031 | $68.57 | $832.44 | 12 | 165 | $5.71 | $942.62 |
| 2032 | $70.76 | $942.62 | 13 | 178 | $6.00 | $1,067.73 |
| 2033 | $73.03 | $1,067.73 | 15 | 193 | $6.30 | $1,215.59 |
| 2034 | $75.36 | $1,215.59 | 16 | 209 | $6.61 | $1,382.18 |
If BCE continues growing its annual dividend by 5%, your 100 BCE shares could give you $406 in dividend income by the end of 2024. Instead of taking a payout, you could reinvest the dividend to buy more shares of BCE. The stock has grown at a 3.2% compounded annual growth rate (CAGR) in the last 10 years. Hence, I assume the stock price to continue this 3.2% growth in the coming 10 years.
If you keep reinvesting your dividend, you could accumulate another 109 shares by 2034 from the $5,500 you invested today. Technically, you have grown your invested capital and dividend income severalfold.
Going by the above expectation, 209 BCE shares could be worth $15,750 (209 shares x $75.36) and give you $1,382 in annual dividends if the growth remains stable. Looking at these returns estimates, your $5,500 could grow at a 10.8% CAGR.
Investor takeaway
Booking profits from growth stocks and locking them into dividend stocks is an effective way of rebalancing your portfolio and reducing risk.
