Skip to main content
investor clinic

In the October issue of ROB Magazine, I read that Royal Bank of Canada’s profit 40 years ago “was an almost quaint $480-million; in 2022, it was $15.8-billion.” I’m curious to know: If a young person had purchased shares back then and reinvested the dividends, what would the total value of the investment be today? Assuming this was their retirement plan, would the investment have kept up with inflation?

I’m always pounding the table about the importance of investing for the long-term, so I’m happy to answer this question. I think you’ll find the results quite impressive. Given the turmoil in markets lately, the numbers might even give you some comfort.

The following analysis is based on data from Bloomberg.

Let’s step into our time machine and assume an investor purchased 1,000 shares of Royal Bank RY-T on Dec. 30, 1983. The price at the time was $34.38 a share, so that’s a total investment of $34,380. True, that was a rather large chunk of change – a brand new Hyundai Pony retailed for about $6,000 at the time – but we’ll assume the investor didn’t put another dime into Royal Bank stock apart from reinvesting dividends every quarter.

Before we continue, it’s important to note that Royal Bank’s stock has split on a two-for-one basis three times since then – in 1990, 2000 and 2006. Because each split would have doubled the number of shares, the investor would have 8,000 shares today, even without reinvesting any dividends.

Fast-forward nearly 40 years, to Sept. 29, 2023. Royal Bank’s shares closed that day at $118.70. So, based on capital growth alone, excluding dividends, the initial investment of $34,380 would have grown to $949,600 (8,000 shares times $118.70). That works out to a return of about 2,662 per cent, or 8.7 per cent on a compound annual basis.

Pretty impressive, right? Now, let’s add the secret sauce: dividends.

Assuming all dividends were reinvested in additional Royal Bank shares, the initial investment would have grown at a compound annual rate of slightly more than 13 per cent. Today, it would be worth … wait for it … more than $4.5-million.

A few caveats are in order. First, the results are before income taxes, which would apply to dividends and capital gains in a non-registered account. Second, the numbers aren’t adjusted for inflation, which averaged about 2.48 per cent over the period, according to the Bank of Canada. But that’s a pittance next to the stock’s annualized return. Third, the vast majority of people probably aren’t going to hang on to a stock for 40 years.

Still, the results demonstrate the awesome power of compounding.

Most people don’t have access to a Bloomberg terminal to perform this sort of analysis. But you can do similar calculations for Toronto-Dominion Bank stock TD-T using the dividend reinvestment calculator on TD’s website.

To see how TD’s return stacked up, I entered the same starting date of Dec. 31, 1983, and the same initial amount of $34,380 and asked the calculator to determine the investment’s value as of Sept. 29, 2023. The answer was about $5.6-million – even better than Royal Bank’s performance.

You can do your own calculations for different amounts and holding periods. I think you’ll agree that the results validate the buy-and-hold approach and the wisdom of reinvesting dividends, which is important to remember when markets are in a funk.

I own units in the Romspen Mortgage Investment Fund and am over 80 years of age. Monthly distributions have been slashed and redemptions have been suspended since last November, and I can’t sell my units on the public market because it’s a private fund. How can the fair market value of the units be determined when I pass away if redemptions are still not permitted?

Romspen operates in a corner of the commercial mortgage lending market that has been hit especially hard by the pandemic and the sharp rise in interest rates. The company, which specializes in construction and predevelopment lending, is facing a liquidity crunch because loan repayments have slowed dramatically. To preserve cash, Romspen has frozen redemptions and announced several cuts to its monthly distribution, which is now two cents per unit, down from seven cents in October, 2021.

This has dealt a blow to unitholders, including many retirees, who flocked to Romspen during better times when it was offering yields that beat the puny returns available on bonds and guaranteed investment certificates.

Now, I’ll address your question about valuing the units. Although there is no public market for the securities, Romspen provides an estimate of the fund’s net asset value on its website each month. In September, the NAV per unit was $9.719. I doubt you would get anything close to that if you were able to sell your units, but Romspen says the NAV – essentially the fund’s assets minus its liabilities – is an accurate reflection of its unit value.

“Although there is not an active public market for such assets as compared to funds that invest in marketable securities, when determining the fair value of any particular mortgage investment, management relies on third-party appraisals and valuations of the underlying real estate collateral, the overall financial strength of the borrower, local market conditions, loan history, and the state of interest rates and real estate credit markets, among other things,” Romspen said in an e-mailed statement.

“While it is reasonable to use the fund’s published NAV as a basis for determining the deemed proceeds of disposition … in estate scenarios, we recommend that unitholders and their representatives consult their own tax advisors.”

The statement added that “Romspen’s investor relations team has considerable experience assisting unitholders and their families with estate situations, and we encourage the investor to reach out to us directly so that we can help with their specific situation.”

E-mail your questions to I’m not able to respond personally to e-mails but I choose certain questions to answer in my column.

Your Globe

Build your personal news feed

Follow the author of this article:

Follow topics related to this article:

Check Following for new articles

Interact with The Globe