Can You Earn 6 times More than a Term Deposit?


A Term Deposit also referred to as a GIC (Guaranteed Investment Certificate) currently pays about 1% annually in interest. 1% return on your investment doesn’t even cover the cost of inflation. Let’s take a look at an example in which you could earn six times as much.

Here is a list of sample annual interest rates available today:

Term Deposit (1 year): 1.095%
Term Deposit (2 year): 1.194%
Term Deposit (3 year): 1.293%
Term Deposit (4 year): 1.490%
Term Deposit (5 year): 1.786%
Checking Account: 0.10%
High Interest Savings Account: 0.80%
Canada Savings Bonds (1 year): 0.50%

In 2012 I purchased 110 shares in Bell Canada (BCE) for $41.35 each, at the time the dividend was $2.22 per share.

In the 2012 I earned $244.20 in cash ($2.22 x 110 shares) on my original investment of $4548.50 ($41.35 x 110 shares), this represented a return of 5.37%. However each year BCE has increased their annual dividend:

2012 $2.22
2013 $2.33
2014 $2.47
2015 $2.60

Today BCE is paying $2.60 each year in dividends per share, for me this comes out to $286 annually, which represents a return of 6.29% on my original investment. 6.29% return is certainly much better than earning 1% in a term deposit.

BCE is one of Canada’s largest telecommunications and media company, providing wireless, wireline, Internet, and television (TV) services to residential, business, and wholesale customers. The company operates approximately 30 conventional TV stations; and 39 specialty, pay, and pay-per-view TV channels; 106 radio stations; 10,500 advertising faces; and 200 Websites. If you live in Quebec or Ontario and have Internet service at home via a DSL land-line, regardless of which ISP you use the communication is being run on Bell Canada owned lines. As long as there’s a need for communications, BCE should continue to do well, and provide an increasing stream of dividends for years to come.

BCE has had 7 years of consecutive dividend increases, at an average growth rate of 5.4% since 2012. If we assume the same growth rate to continue, in 5 years the BCE dividend could reach $3.38 per share. At $3.38 per share my return will be $371.80 ($3.38 x 110 shares) annually, which represents a return of 8.17% on my original investment ($371.80 / $4548.50).

As you can see my investment in BCE continues to get better and better over time, and we haven’t even looked at the stock prices yet. Today BCE shares are trading at $58.75, which represents an increase of 42.1% without dividends, including dividends the total return is 65.3%....certainly much better than the dismal low rates offered by the banks today.

The key here to buy a great company and hold it for a very long time, your patience will be rewarded with increasing dividends.

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