Using Dividend Stocks to Pay for Your Coffee

Using Dividend Stocks to Pay for Your Coffee

What It Costs You To Be a Caffeine Addict

Are you a caffeine addict like me? I don’t know about you, but my day doesn’t really start, nor am I entirely awake or focused on my tasks until I first sip on a fresh cup of coffee.

Equally important, have you thought about how much money you spend on coffee on a regular basis?

Over the past years, I have come to realize that spending money on coffee is something that’s inevitable for so many people. Whether you’re perking your own coffee at home, contributing to an employer led fund , or getting your ‘fix’ at great coffee shops while on the move, all that spare change adds up on a weekly basis.

In many cases, when someone is busy with their respective career and is constantly on the go, the most practical thing to do often involves buying coffee at one of the popular coffee chains like Starbucks, Dunkin’ Donuts, Tim Horton’s, and Krispy Kreme to name a few.

Taking conservative figures into account, if you spend just $2 a day in the course of a 5-day workweek at one of these joints, you’re forking out at least $40 a month. That’s like a typical utility expense rolled up into a coffee bean!

So how do we counter such an expense without having to resort to what some would consider as being excessive frugal measures? By investing in publicly traded companies that offer dividends or distributions, that’s how!

The Major Coffee Companies

Let’s take a quick look at some of the leading coffee establishments for consideration:

Dunkin’ Donuts: Owned by Dunkin’ Brands, this chain has close to 15,000 points of distribution. Unfortunately, a consortium of private equity companies owns this company, and it’s not publicly listed.

Krispy Kreme (KKD: NYSE): With hundreds of locations around the world, Krispy Kreme is another hot spot for coffee drinkers. Despite the fact it is a publicly traded company, the company offers no dividend payment to investors. In my case, I move on.

Tim Horton’s (THI: NY & TSX): With a commanding two thirds of Canada’s coffee market along with a growing U.S. presence, Tim Horton’s offers investors both long-term share price appreciation and a dividend. As of the time of this writing, the dividend yield being offered to investors on both the NY and TSX exchanges are between 1.5%-1.9&. A little too low for my liking!

Starbucks (SBUX: NASDAQ): Many of you may have heard of Starbuck’s recent announcement of its first ever cash dividend for investors. This company could easily be on one’s radar for investment purposes. Currently sitting at a dividend yield of 0.407%, I think the dividend announcement is positive; however, it’s just way too low to contemplate covering my monthly expense.

Second Cup (SCU.UN: TSX): With hundreds of shops around the country, Second Cup is Canada’s largest specialty coffee retailer. Presently, the dividend yield is just over 11%; in addition, the distributions are paid out on a monthly basis to investors! Canadian Business recently announced that Second Cup is in the process of converting from a trust to a corporation. The good news is the company has announced no changes in distributions for the remainder of 2010 – a good sign if you ask me.

The Route I Took To Have Free Coffee For Life

From a personal disclosure and investment standpoint, I own 1000 shares of Second Cup and paid an average cost of $8.13 per share. Every month, like clockwork, $76.67 is deposited in my savings account.

I have owned the above-mentioned number of shares in Second Cup (SCU.UN) over the past few years and in my view, it’s one of those companies that actually pay their unit holders handsomely! I owned this position during the financial collapse and it came out relatively unscathed. I’m also happy to see that the company has bounced back in terms of share price appreciation in recent weeks.

When I go out to buy coffee, I tend to look for a Second Cup shop because it’s as though I’m investing in myself due to the fact I own shares.  One of my fundamental rules as it relates to investing is that in most cases, a stock has to pay me a dividend of at least 3% (I’ve made some notable exceptions). Despite the fact that I think THI and SBUX are good companies – they just don’t make the cut for my purposes.

If Second Cup decided to slash their dividend by half tomorrow morning (to $0.04 per unit), it would still cover the $40 estimated coffee expense mentioned earlier in this thread.

Conclusion

Although the strategy I used involves spending about $4,000 of your hard-earned dollars in order to cover the estimated $40/month, the great thing is your coffee expense could be covered for life!

Of course, this strategy is dependent on the company’s future performance and so forth, but my intent is to highlight the real possibility of being able to enjoy high-end coffee on a monthly basis without the hassle or worrying about the expense.

Most importantly however, you must realize that I am not a financial expert or professional of any kind, so do your own due diligence before deciding or embarking on such a strategy!

Readers, what about you? Would you be interested in investing in some of the companies mentioned above in order to offset the money you spend on coffee on a monthly basis?

This is a Guest Post by The Rat. After earning a Bachelor of Commerce, he returned home at the age of 21 to work in various capacities, most of which were in the private sector. There, he had the opportunity to accumulate over ten years of business experience in a range of senior management levels, take advantage of real estate opportunities, and invest in equities and other types of investment vehicles. In January 2010, he was able to retire and hence “end the rat race” in his early 30’s. Officially launched in September 2008, Ending The Rat Race is a personal finance blog that has as one of its key purposes, the sharing of various personal finance topics with others having similar interests, and learning from one another.

13 Responses to Using Dividend Stocks to Pay for Your Coffee

  1. This is ingenious! I love the idea. For those who love coffee, buying stock in their favorite brand may be the way to go. :) Love it, Rat.

  2. I spend between $.50-.70 on coffee a day. For someone who used to drink at least 6 coffee drinks a day, that’s a feat.

    Maybe I focus too much on insurance to understand the idea, but why not focus on total return and harvest when prices go up? That would open you to possibilities outside the one industry too. Or if you want to stay in the industry, you could then consider a mix of THI, SCU, and KKD.

    Your thoughts..

  3. @FS: When you’re an addict, frugality is not an option! :)

    @Evan: I think XOM and Suncor Enery (SU.T)are going to exhibit share price appreciation in the short to mid term and could be good buys. I do have a % of my portfolio with oil sector exposure, but my intent of the post was in relation to coffee 4 life.

    @Mrs. Money – Thanks! Glad you liked the thread; I think the challenge involved in getting to the point where you have a ‘coffee for life fund’ is finding a company that pays a sufficient yield for your dollar. I suppose you still could cover the monthly bill by investing in more shares in companies offering less yields, or consume less high-end coffee/coffee shops on a monthly basis…buy why do that, right? :)

    @Aaron: I consider myself to be primarily a ‘buy and hold’ type of investor and I’m generally in it for the long-run than try to capitalize on short to mid-term increases. I do hold a few positions in the life insurance industry (such as Sun Life Financial – SLF.T) and they comprise an important part of my portfolio.

    Thanks for the comments!

  4. Good job Rat, I’m doing the same thing but with my lunch expenses (well at least when I go out to eat lunch).

    I planned on trying to do that same with all my expenses, or at least that was the idea. It depends on how much the raise the taxes here in the US on dividends and capital gains… :(

  5. Really wish DD was public, they’re expanding her in Missouri after leaving 20 years ago, I think it could be a good investment. Oh well. Good post though, I’m going to check out the blog.

    • His blog is great I would absolutely check it out. I am on the other side of the Country in NY and dude I can literally name 6 DDs within 5 miles of my house!

      Why not look into a franchise?

      • We went to Boston last summer and DD is everywhere. We are addicted to their coffee now, luckily they sell it in grocery stores/Target here.

        I’ve thought about a franchise a little, but the price scares me – not to mention I know nothing about the business other than how to dunk a donut.

  6. @Money Reasons: Thanks! I think it’s a good idea to do it with lunch expenses to. I bought a sizable position in Boston Pizza Fund (BPF.UN.T) and it has never missed a distribution in the three years I’ve had it and it has never gone down. Now, I don’t eat at Boston Pizza too often, but it justifies paying for the lunches I buy. It has a yield of over 11% and the distribution is monthly.

    @Kevin M: It would surely be interesting to see if DD wasn’t privately owned and what their share structure would be. They have a huge network of outlets and it would be pretty neat if they were publicly traded.

    @Evan: Thanks for the props! I also want to thank you for allowing me to do a guest post here. You’ve got a great site with a lot of activity. I commend you. Keep up the good work with such bad ass articles!

  7. Great post! This article has me thinking…I should write a post on my blog about my wife’s love of Aveeno skin care products. Now that we own some shares of JNJ, at least we’re getting returns on her products loves as well! :) Cheers!

    • JNJ is such a great company. I don’t have any shares in it yet and I keep saying that I will dive in when the loonie hits parity (almost there). Don’t know if I should just cave in and go for it. A 3.3% yield is pretty good right now.

      Cheers

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