NWC:CC - Got $5000? Buy and Hold These 3 Stocks for Years

2023-04-20 16:45:00 ET

There is such a simple way to turn your funds into far more and through the method of reinvestment. The thing is, this can be quite difficult if you aren’t using dividend stocks. You’ll have to take out returns and reinvest during dips, and, frankly, that’s quite risky.

Instead, investors can consider a far easier and safer way of investing. This involves simply taking the dividend income you receive and putting it right back into your stock. This method of dividend reinvestment can create substantial income — even with just a $5,000 investment.

How much? Let’s look at some solid examples and what you could receive in the next several years.

Three top stocks to choose

First, let’s look at some options. If you’re seeking income from dividend stocks that’s going to last you years to come, you need to consider the sector. While it can be exciting to choose that up-and-coming top stock, these don’t tend to provide you with long-term income. As Warren Buffett once said, invest in companies that could be run by a fool, “because one day a fool will.”

In that sense, there are a few companies that we’ll always need. First up, I would put part of your $5,000 towards a company like The North West Company ( TSX:NWC ). On the surface, it might not look like a great option during a downturn, as it’s a retail company. However, it’s set up in rural locations, such as northern Ontario and Alaska. It provides some of the only options for consumers in those locations, creating stable revenue streams.

North West stock trades at a valuable 15.58 times earnings as of writing, with shares up 5.22% in the last year. It currently offers a dividend yield of 3.88% as of writing.

I would then look to Canadian financial institutions. There is far less competition here in Canada, providing far more stable income streams for these companies. First, I’d choose a Canadian bank for another third of that $5,000.

A top choice right now is Canadian Imperial Bank of Commerce ( TSX:CM ). While it doesn’t do so well during downturns, its provisions for loan losses allow the bank to climb right back up, which it’s done decade after decade. CIBC stock trades at 11.5 times earnings and offers a substantial 5.85% dividend yield.

Another top choice is Fiera Capital ( TSX:FSZ ), which has done well in the last few decades due to having a strong management team. This team has identified strong companies with value and growth ahead of them. It trades at 2.3 times book value and holds a whopping 11.33% dividend yield.

How much $5,000 can get you

Now, let’s look at what this investment could get you right now, as well as what could happen in a year’s time. First, here is what investing a third, or $1,667, into each of these dividend stocks would bring in annually.

You would bring in passive income at $350.58 annually! However, let’s now look at what could happen if you reinvested that income into each of these dividend stocks and if shares reached 52-week highs. So, that would be a new investment of the original shares plus investing the funds from each dividend.

In total, even after just one year, you would have a portfolio totaling $6,876.60. That’s total returns of $1,876.60 — almost $2,000 in just one year!

The post Got $5,000? Buy and Hold These 3 Stocks for Years appeared first on The Motley Fool Canada .

Fool contributor Amy Legate-Wolfe has positions in Canadian Imperial Bank Of Commerce. The Motley Fool recommends Fiera Capital and North West. The Motley Fool has a disclosure policy .

2023