How to Earn a Cup of Coffee from Dividends
People are Addicted to Coffee
People like their cup of coffee and it shows in the numbers. Starbucks, the world's top retailer in coffee made $10.7 billion last year. They have over 16,800 shops in 40 countries and I religiously visit them at least once a week for a Starbucks treat. I like everything on their drink menu. On a hot day, I love a Tiramisu Frappaccino or an Oprah Iced Chai or a Berry Lime Refresher, if I had a big lunch. On a normal day, a Caramel Machiato will do.
I call it a "treat" because I only indulge once a week. Others treat themselves every day by visiting the coffee house, but I think that's too much of a good thing. I like moderation and longevity.
Also from a financial perspective, I refuse to give in to their annual $10.7+ billion revenue. With that much money, I don't think corporate Starbucks would hurt if I went to Tim Horton's or Second Cup. But right now, I enjoy the king of brew from Seattle.
Finding the Right Stock to Buy
I plan to put my mother's lesson to good use. I am going to earn some passive income to pay for my coffee treat every week. To do this, I have to find a reliable financial vehicle that pays $20 per month to feed my addiction.
I googled 'stocks to buy' and 'stocks paying highest dividends' and I found a number of stocks that looked promising. If you cannot find a similar list, try googling 'dividend investing'. I found a stock that pays a healthy dividend every month. Companies may pay dividends monthly, quarterly or annually. For the sake of a coffee treat, my requirement would be a monthly payer. There seems to be a number of stocks paying monthly and with a varying amount of risk. If you're serious at earning income from a stock, be sure to do your homework. Check into the history of payments and make sure they have been steady over the years. Also, check that the dividend is not diminishing. You don't want to buy a stock that promises a high rate of return then lowers it as you own it.
I'm feeling thirsty so I'm ready to invest. Lets look the numbers:
- How many shares would I need to collect $20 per month? I would need to buy at least $20 / $0.25 or 80 shares.
- I checked the stock market and found the stock listed at $22.42 per share. With a $9.99 commission, my total would cost me 80 x $22.42 + $9.99 or $1803.59.
If my calculations are sound then I would have to invest a little more than $1800 to earn a cup of premium coffee every week. If you don't have $1800 or want to risk less then let me advise you to go to one of the other coffee houses that I mentioned before. They make a fine cup of joe.
Timing is Everything...so watch the dates.
When buying stocks that pay dividends, it is important to know four dates:
- Declaration date.
- Ex-Dividend date.
- Record date.
- Payment date.
The first date is known as the Declaration date and it is the date to which a company will declare the amount of dividends to be paid to the shareholders. This is important to know because it tells me whether I get a treat or not.
The second and third dates are known as the Ex-Dividend and the Record dates, These two dates are somewhat related because if you buy shares between these two dates, you are not entitled to receive any dividends. Basically the company needs you to own shares by the Record date in order to receive the dividends. In a lot of cases, there are only 2-3 days between the Ex-Dividend date and the Record date. If you are buying shares, try to buy them at least 3 days prior to Record date but before the Ex-Dividend date.
The last date is the most important date when it comes to payment. This is the date when the company pays the dividends.
Be truthful, did you know about these dates?
An Investment Plan
Lets recap on what I've done:
1. Identify your treat.
2. Determine the monthly cost.
3. Find a stock that pays monthly and a high dividend.
4. Divide the monthly cost of the treat by the dividend amount. (Number of shares)
5. Multiple the number of shares with the stock price.
6. Add the commissions.
7. Contact your stockbroker and put in an order.
8. Watch for the payment date and redeem for your treat.
Starbucks has its Rewards
I'm glad I chose world's top retailer to buy my premium coffee treat because I am part of the Starbucks Rewards program. Every time I buy a coffee, I earn stars towards a free reward. When I have saved up to 10 stars, I earn a free drink and it can be of any size. Obviously, I order a Venti or an XL. On those weeks when I don't pay, I save the $5 in my brokerage account where my dividends are paid. When I have saved enough money, I plan to buy more shares. Perhaps, I can earn enough to buy a pastry or cookie to accompany my coffee treat.
The additional shares will come in handy when I am ready to sell the shares. If the stock price remains the same, there would be a capital gain realized. This is known as a re-investment plan.
Mothers know Everything but...
Some of you (skeptics) have written in and asked if it was the same if we had put the entire amount into the bank and withdraw $20 per month to pay my coffee addiction. If I did that, it would take $1803.59 / $20 = 90 months or 7.5 years to exhaust the bank account. After 7.5 years, my bank balance would be $0.00 with loose change.
If you had listened to my mother and me, your bank balance will be $1803 - $9.99 if the stock price remained the same. Even if the stock price had fallen 10%, I would have had a free cup of coffee every week and money left over for another investment.
Please leave me a comment or better yet, follow me and I'll share ideas with you on making extra money.