Toronto-Dominion Bank (TSX:TD)(NYSE:TD) has a 1st or 2nd position in Canada and a sizeable business in the U.S. (about 38% of net income). It focuses on retail banking, which is perceived to be lower risk.
Recent Performance
TD’s recent performance has been stable. In the first 9 months of fiscal 2019, TD’s revenue climbed 6.8% to CAD$30.7 billion and adjusted earnings-per-share rose 5.6% to CAD$5.11. The U.S. Retail segment continues to be the key driver of growth. The provision for credit losses ratio was 0.43%, which aligns with the average of the Big Six banks.
TD’s capital position remains strong with its common equity tier 1 capital ratio at 12%, and its shareholders’ equity rose 11% from $78 billion a year ago to $86 billion today.
How much do North Americans save every year? How much do you save and invest every year?
How many years will it take for you to get to $30,000 of dividend income?
The size of your current portfolio is, how much you contribute monthly, how much dividends you reinvest, and how much your income tax rate is will affect how long it takes.
How Much Does North Americans Save?
The latest data we found (from Jan. 2018) indicates the average Canadian earns CAD$55,806 in annual income, but the household savings rate was measly 1.1% in Q1 2019. That equates to tiny monthly savings of CAD$51.
Q4 2018 data indicates that the median annual income for an American was ~US$46,800, while the U.S. savings rate was recently 6-8% (US$234-312 per month), which is much better than in Canada.
Saving is a habit. The more you save now and invest it properly, the less you have to save for the future.
It’s not uncommon to save from 10% to 50% of one’s income. If the average Canadian or American can save just 15% of their income, that’d imply an amount of CAD$8,370 or US$7,020 that can be invested every year (or about CAD$700 or US$600 a month, respectively).
Since you have money to invest in stocks, obviously, you’re in much better financial shape than the average North American.
In the scenarios below, we assume you need $30,000 of dividend income (complemented by other income such as job’s income, rental income, or pension income) to live comfortably. Regardless of how much dividend income you need, the principles discussed will still be relevant.
Our other assumptions include a safe and conservative portfolio yield of 3% and a very achievable 10% rate of return on investments.
Scenario 1a: Starting with a $120,000 Portfolio
Assumptions:
You currently have a portfolio value of $120,000
Annual growth of the portfolio is 10%, compounded annually
Monthly contribution: $0
Portfolio yields: 3%
Tax rate on dividends: 5.5%
Source: Author
Based on the assumptions above, it’ll take 23 years to earn $30,000 of annual dividend income. Notably, if we reinvested all the dividends received (after taxes), we would cut down 7 years and only take 16 years to earn $30,000 of dividend income.
Everyone’s tax rate is different. In our case, the Canadian province we reside in implies the highest tax bracket of 5.5% in 2019 if our only income were eligible Canadian dividends.
Obviously, if the tax rate were much higher, the dividends (after taxes) we get to invest will be so much lower, and it’ll take longer to achieve our dividend income goal. We just used the 5.5% as a conservative estimate, as the effective tax rate should be lower because the taxes for lower brackets are lower.
Annual Dividend based on 10% portfolio growth rate that assumes corresponding dividend growth:
Source: Author
Portfolio value with no dividend reinvested vs. Portfolio value with dividends reinvested
CVS Health (NYSE:CVS) was substantially undervalued before the 7% pop on Wednesday. It remains a strong buy for long-term investors.
Why the Pop?
CVS reported its Q2 results on Wednesday. And the stock appreciated 7% because the business performed better than expected with the company beating its own Q2 adjusted earnings per share (“EPS”) guidance by 10%. As a result, it also boosted its full-year guidance modestly by about 1.8% to $6.89-7.00.
Additionally, the Aetna integration and debt reduction have been progressing well.
Q2 Results
Adjusted revenues increased 36% to $63.4 billion, adjusted operating income rising 55% to $4 billion, adjusted EPS rising 12% to $1.89, and cash flow from operations climbing 82% to $5.3 billion. The large spike in revenues and operating income is attributable to the Aetna acquisition, which was closed on November 28, 2018.
The Leveraged Balance Sheet
The Aetna acquisition resulted in CVS’s leveraged balance sheet. At the end of Q2, CVS’s net debt arrived at $61.3 billion, leading to a D/E of 99.6% and a debt-to-assets ratio of 28%.
