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.

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Evan

This Post was created by a Guest Author. Feel free to contact me to talk about how you can post on My Journey to Millions

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