In the US alone the entire coffee industry is valued at $20 billion a year. In the quick service business, companies like Starbucks and Tim Hortons have such loyal customers that people are willing to sacrifice a part of their busy morning lives and wait in long lineups to get their cup of joe. In the past I couldn’t help but notice how many people I see everyday walking around with Starbucks coffee cups in their hands, and I thought hey if I were Starbucks, I could have just made some money from these folks. Well it’s time I stopped missing out. It is time to take action! So earlier today I bought 20 shares each of Tim Hortons and Starbucks 😀
Starbucks for example had $13.3 billion in sales last year, from which they made $1.4 billion in profit. Out of that profit, they paid about $535 million to shareholders as dividends.
In other words, for every $4.00 cup of coffee they sell, it costs them about $3.60 to make, so they end up keeping about 40 cents as pure, after-tax profit. Makes good sense so far right? Out of this 40 cents, about 15 cents is paid to their shareholders (like myself) in cold hard cash (goes straight into my trading account) and the remaining 25 cents of the profit is used to further invest in the business such as establishing new locations, for example.
Starbucks has about 743 million shares in total, and I now have 20. Which means I own about 0.0000027% of the entire company :0) That means every time I see someone buying a cup of coffee (let’s say for $4) I know that they just gave me 0.0000004 cents in passive income (dividends,) or if I still remember how to do my scientific notations (4×10^-7) I know that doesn’t sound like much and I can’t really buy anything with 0.0000004 cents but think about all the billions of cups of coffee Starbucks serves around the world every year 😀 It all adds up! Anyone who buys just 1 stock of Starbucks today can expect to receive at least $.72 in dividends this year. Not to mention, Starbucks has a history of increasing dividends :0)
Starbucks dividend distribution history:
- 2012 – $0.72 per share
- 2011 – $0.63 per share
- 2010 – $0.57 per share
- 2009 – $0.51 per share
- 2008 – $0.41 per share
- 2007 – $0.38 per share
As you can see even during the great recession this company still managed to grow their business and give increasingly more dividends back to their owners. Starbucks is currently working on plans to open up another 3,000 stores in the Americas in the next 5 years, not to mention their other plans for the Asian markets. This tells me that their dividends are safe and their business outlook is strong, otherwise why would a company choose to expand if they don’t think they can get more sales? Think about how big Starbucks will become in 2020. That’s why I’m getting into the business now and holding it for the long term.
With three big names in the coffee service business all working for me I now collect altogether $155 a year in dividends from them 😀
To all those fabulous people who are regular customers of these fine franchises. Thank you so much for your business and for mocha me very happy （＾－＾）Your continuous support will bring me one step closer to financial freedom.
Disclaimer: I have 40 shares of MCD, 20 shares of THI and 20 shares of SBUX 🙂 Long all the stocks.
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Random Useless Fact: Despite living in Canada and even hosting the 2010 Winter Olympics, Vancouverites are notoriously bad for driving in the snow for some reason.
Starbucks also bought Teavana, which is something non-coffee drinkers like me would gravitate towards. In addition, Teavana would be a bigger hit in parts of Asia than coffee, as tea is more of their thing. I’m looking into Tim Hortons and McD right now and running their numbers. Also, er.. are you happy with TD for buying stocks? Because I’m with Questrade, and I don’t know the fees for TD, but it MAY be higher than Questrade, depending on how much you tend to buy and trade and how much you have with them as assets (I believe you get preferred flat rates if you have over $50K or something with TD). They charge $4.95 at a minimum, then 1 cent per stock past that $4.95 minimum up to a max of $9.95 per trade. Anyway, look into them to see if they could be cheaper for you. I’m switching out my non-registered $$ from TD for my e-series to buy ETFs via Questrade because it’ll save me about $300/year or more. If you do decide to go with Questrade, you can get $50 in free trades with this referral code of mine: O0SOEHDS Email me if you want more… Read more »
I’m paying $9.99 per trade at TD. Questrade looks to be cheaper so I might switch in order to save some money. I trade less than 20 times a year so will have to think about if the savings are worth it. I’ll keep your code in mind if I do switch. Thanks for the info.
Oddly, I thought of this before I saw the comment above, but it seems to be a theme…
You seem to do a lot of small trades, which makes me wonder – what are you trading costs?
My trading costs for today was $19.98. I tend to make smaller trades when I don’t have a lot of money like right now. Then I make larger trades when I have a couple months of savings :0) Maybe one day when I’m living in a dual income household we can save enough to make $5,000 or even $10,000 trades, but for the time being it would take me a very long time to save up that much in cash. My trading costs last year not including swing trades was $120, basically 12 trades at roughly $10 each. Normally I buy 2 stocks at once, every couple of month or when I think there’s a good opportunity. The commission today cost me about 1% of the investment in THI and SBUX. I don’t worry about the the cost of selling either of these companies because like 90% of the stocks I buy, I plan to hold them and just live off the dividends someday 😀
I’ve bean drinking alot of coffee 😉
Oh, you 😀
Good call on the coffee stocks. People are addicted to this stuff. These stocks are almost like buying Philip Morris! 🙂
Mark
People will try to get their hands on coffee by any beans necessary 😉 And that’s what I’m counting on. I heard coffee can be an addictive drug so I don’t drink it myself, but there are millions of people who pretty much need to drink coffee every morning or else they’ll feel bad the entire day. Coffee is like a more ethical way to invest than PM :0) But hundreds of years ago coffee was actually illegal in some countries.
I know you have long position but great timing on Starbucks!!
If you’re referring to that fact that they jumped up more than 4% the day just after I bought them then yeah, that was totally lucky 😀
Looks like you have some solid picks there. I am currently long a SBUX call, so we’ll see how that turns out. I know they bought Teavana, but I’ll be interested to see how they continue to diversify their offerings here in the future.
I hope they will continue to come out with new drinks and surprise their customers with their future products and their investors with future earnings ^_^
are you not better off to buy SBUX in your RRSP? I always buy US stocks and fixed income in my RRSP.
Yup, ideally I would buy all my US stocks in my RRSP 😀 Unfortunately I only have a limited amount of space I can contribute to my RRSPs each year. You probably saw my earlier post about the list of US stocks I plan to buy in 2013. Since not all the US stocks I plan to buy this year will fit inside my contribution room, it’s better to put the low dividend yielding stocks (such as SBUX) in a non-registered USD trading account because most of the profits are expected to be capital gains which are taxed at 50% of my marginal rate. This will leave RRSP room for other stocks with higher dividends such as Johnson & Johnson to go in. It’s generally better to not have high US dividend paying stocks outside an RRSP as it will be subject to the marginal tax rate. As an example, a $10 dividend in an RRSP is not immediately taxed, but a $10 dividend from a US stock outside an RRSP will be subject to a $3 tax, or whatever the marginal tax rate is, so we only keep $7. We have an over complicated tax system but not much… Read more »
Nice; I definitely contribute to your dividends! Especially when McDonalds has those darn coupons. 😛
I have been thinking about my trading costs recently as well, but have decided to stick with my RBC account with the $9.95 trading fees. I have considered Questrade, but I don’t think I trade enough to warrant the switch over, although they do DRIP Vanguard ETFs while RBC doesn’t!
Have a good weekend!
Too bad they don’t DRIP those Vanguard ETFs, not sure why because they’re traded just like stocks. Hey since you’re using coupons you technically save some money so everyone wins :0)
Great post! I like your calculations of the portion of each coffee you receive as dividend. The number may be small but if you multiply it by billions, it’s no so small anymore!
Thanks a latte :0) every cup counts in the end.
Great blog. First time comment. Where are you getting the Starbuck’s distribution information? Think you’ve got it wrong. 4 dividends last fiscal year, $.17 * 3 + $.21 *1 = $0.72. Think you might have interpreted their annual dividend as a quarterly one.
I always goto Edgar directly.
http://www.sec.gov/Archives/edgar/data/829224/000082922412000007/sbux-9302012x10k.htm
Page 19 of their 10k.
Thanks for catching that error Andy 😀 I should have known something was off because they’re only yielding like 1.5%. Surprised nobody else noticed until now ( ･_･). I’ve just gone back and edited the numbers.
Awesome! Good luck on your new investment. I think coffee is a good choice because its the fuel of the gods! 😉
Thanks, it’s not a large investment but slow and steady is the way I like to play the game :0)
Starbucks is getting bad press in the UK at the moment, being accused of tax avoidance. But that just means that they are employing better lawyers or the law here is stupid. Coffee is a big growth industry, which is a full circle return to the 18th century before the tea invasion! Good buy!
Nothing is illegal if enough lawyers decide to do it 😀
Hate the coffee, like the stock !!! 20 shares eh, Awesome !!! I got 1.8 shares lol I have some catching up to do to you. Starbucks definitely a candidate for my RRSP this year, I put some Coke in last year.
Hopefully next month Timmies should announce about a 20% dividend increase !!!
Good buy with KO. I was just planning to put that in my RRSP this year :0)
I purchased 50 stocks of Starbucks a few years back. I ended up selling them to help with a down payment for the house. I definitely want to buy their stock again once I have more cash. If you are interested about reading about how it all started, the CEO, Howard Schultz wrote two books: Pour your heart into it and Onward. Christine Day, the current CEO of Lululemon used to work for Starbucks. I feel like they have similar approaches in running their businesses, especially commuinity invovlement. I buy actual Strabucks coffee once a month. :p
Thanks for being a monthly customers :0) Wow 50 shares. We’ve got a high roller investor over here. I plan to increase my position to 50 shares eventually, but I’m interested in other stocks too right now :0) I’ll keep an eye out for his books. Thanks for the trivia.
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