Set and Forget: 1 Dividend Stock That Could Create $46,058 in Tax-Free Passive Income in 10 Years

When it comes to finding a dividend stock that’s going to bring in long-term income, the key is thinking big. This means finding companies that are usually household names and have been around for decades. What’s more, they of course need to produce dividends.

Today, however, there is really only one sector and one industry that all but guarantees a recovery. Plus, the sector offers some of the most consistent dividends around! Making this dividend stock, in particular, one of the best options if you’re looking to create tax-free passive income.

CIBC stock

If you’re looking for a great deal on a blue-chip stock, then I would look to Canadian banks. And of those, Canadian Imperial Bank of Commerce (TSX:CM) is an excellent option. CIBC stock offers a high dividend, and a cheap share price. That’s not only in terms of its value, but also its actual price. After a stock split, it now offers a lower price per share than any of the other Big Six Banks.

Of course CIBC stock isn’t perfect. It’s not immune to the current economic environment, with shares down about 19% in the last year, as of writing. The stock is particularly influenced by the rise of interest rates due to its exposure to the housing industry.

Even so, CIBC stock has proven time and again that it can bounce back from even the worst of economic times. Which is why investors should look to the future with this cheap stock instead of focusing on the present economic situation.

Growth to come

That’s not to say you shouldn’t look to the past. In fact, the past is a great way to see how CIBC stock should recover. In particular, over the last 20 years shares have increased by about 93%, adjusted for the stock split. This amounts to a compound annual growth rate (CAGR) of 3.33% as of writing, and that’s in the midst of an economic downturn.

But let’s just go ahead and say that we continue to see this growth over the next 10 years. But first, you see shares recover to 52-week highs. This could mean you’re getting an incredible deal while shares trade at just 10.4 times earnings, with a dividend yield at 6.26%

How much could you make then in the next decade? Let’s take a look.

Maxing it out

Let’s say you were to use your Tax-Free Savings Account (TFSA), choosing to max out your contribution each and every year. You then take your investment and dividend income and reinvest back into the stock. The dividend, meanwhile, increases as well in that time by a CAGR of 5%. If you do that for 10 years, investing the max contribution room of $6,500 each year, here is what you could have.

Year	Share Price	Shares	Dividend	Annual Contribution	Dividend Income	New Share Price	New Shares Purchased	Total Shares	Portfolio Worth
1	$54	120	$3.48	$6,500	$417.60	$69	100	220	$6,897.60
2	$69	220	$3.65	$6,500	$803	$71.20	102	322	$22,926.40
3	$71.20	322	$3.84	$6,500	$1,236.48	$73.60	105	427	$31,427.20
4	$73.60	427	$4.03	$6,500	$1,720.81	$76.05	108	535	$40,686.75
5	$76.05	535	$4.23	$6,500	$2,284.45	$78.57	111	646	$50,756.22
6	$78.57	646	$4.45	$6,500	$2,874.70	$81.16	115	761	$61,762.76
7	$81.16	761	$4.67	$6,500	$3,553.87	$83.83	120	881	$73,854.23
8	$83.83	881	$4.90	$6,500	$4,316.90	$86.60	125	1,006	$87,119.60
9	$86.60	1,006	$5.15	$6,500	$5,180.90	$89.46	130	1,136	$101,626.56
10	$89.46	1,136	$5.40	$6,500	$6,134.40	$92.42	136	1,272	$117,558.24

At the end of the final tenth year, you’ll have $117,558.24 in your portfolio. That’s from an investment of $71,500 (each year, plus starting out with $6,500 from day one). That would mean you receive total returns of $46,058.24! Plus you’re now getting annual passive income from dividends of $6,134.40. All from one dividend stock

The post Set and Forget: 1 Dividend Stock That Could Create $46,058 in Tax-Free Passive Income in 10 Years appeared first on The Motley Fool Canada.

Should You Invest $1,000 In CIBC?

Before you consider CIBC, you’ll want to hear this.

Our market-beating analyst team just revealed what they believe are the 5 best stocks for investors to buy in August 2023… and CIBC wasn’t on the list.

The online investing service they’ve run for nearly a decade, Motley Fool Stock Advisor Canada, is beating the TSX by 26 percentage points. And right now, they think there are 5 stocks that are better buys.

See the 5 Stocks
* Returns as of 8/16/23

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Fool contributor Amy Legate-Wolfe has positions in Canadian Imperial Bank Of Commerce. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.