One of my best investments ever hangs on the wall of my office. It has returned 15X my original cost.
It’s not a piece of fine art. And it’s not a diploma.
It’s a single share of Starbucks (SBUX).
I bought it for $15 in early 2006.
Brad’s framed Starbucks share
That piece of paper represents two shares now. Starbucks split its shares two for one in 2015. So this stock certificate is worth $195 at today’s market prices. I’ve also collected $27.57 in dividends so far.
And I get a check for $1.06 every three months. That’s a 28.3% yield on what I paid to buy that share of Starbucks. And the dividend keeps increasing every year.
Now that’s what I call productive office décor.
I wish I had bought more Starbucks shares back then. If I had bought 80 shares back then, they would be worth $15,600 today and giving me $340 a year in dividends.
Here at the Intelligent Income Daily, we’re focused on finding the safest income investments on the market. You may not think much of the small amount of money you have to invest today. But over time, even small investments can compound into life-changing sums.
Today I want to show you the power of compounding in action. I’ll also give you one quick way to start investing in companies that steadily grow their dividends.
Don’t Save That Coffee Money, Invest It
You’ve probably heard that you could be rich if you’d just stop buying fancy overpriced coffees.
That sounds like some made-up mumbo-jumbo. Nobody pays more than a few bucks for a coffee. It can’t be that much money. Right?
Well, let’s take a look at the numbers.
I like to get a Grande Skinny Vanilla Latte on my way to the office. It costs about $5.
So that’s about $100 a month. Or $1,200 a year.
If I put that same amount into a bank account nearly a decade ago, I’d have around $13,000 today. That’s a decent chunk of change for kicking the coffee habit.
But that’s where “conventional” saving advice ends.
Instead of letting it sit in a bank account, what if I’d put that money into Starbucks stock?
That $100-a-month habit would now be worth over $26,000 since 2012 – the year Starbucks started paying a dividend. And it would be paying me $560 a year in dividends.
How can there be such a big difference – twice the amount – between saving money in a bank account and investing in Starbucks? It’s twice as much money!
Well, one reason is that interest rates have been close to zero for most of the past decade. That means that bank savings were barely earning anything. Interest rates are higher now, but there’s no guarantee they won’t drop back down when the next recession hits.
The other reason is that buying Starbucks shares means you own a piece of a growing business.This year alone, Starbucks has already opened 196 new stores.
And it plans to continue opening stores, even in this recessionary environment.
Because coffee tends to be cheap, it’s not usually something people are quick to give up when times are tough.
And every time the company opens a new store or raises the prices of its drinks, it increases its earnings. That flows back to the owners of the company in the form of higher share prices and growing dividends.
So when you reinvest those dividends, you get more shares in the company and a bigger piece of the pie. Over time, that compounding gets larger and larger.
You Don’t Have to Give Up What You Like Today to Enjoy Yourself Tomorrow
But what if you can’t give up your daily caffeine fix? The good news is: You don’t have to cut it out entirely.
Maybe you can skip one day a week. Or opt for a smaller, cheaper drink. There are a lot of options today to start investing even with small amounts of money. Even just $20 a month can turn into thousands of dollars over time.
Now, investing comes with risks. You can lose money when the stock market sells off. But if you stay invested in high-quality businesses like Starbucks, you can build up a steady stream of growing income that will compound your wealth over time.
Starbucks currently trades at about 28X earnings. That’s cheaper than its historical average of 31X over the past decade. It also pays a 2.2% yield that has grown every year since it started paying a dividend in 2010.
One day, your Starbucks shares could be paying for your fancy coffee habit.
Happy SWAN (sleep well at night) investing,
Brad Thomas
Editor, Intelligent Income Daily
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Source: Wide Moat Research