If you stumbled upon a magic lamp and the genie inside gave you three wishes, I bet one of those would be free alcohol for life. Alcohol takes up a good chunk of many peoples disposable incomes and this leaves them dreaming about having their own brewery and getting free alcohol for life. I didn’t used to think that ‘free alcohol’ was possible until a friend of mine showed me exactly how he lets his favourite drinks maker get the rounds in.
In this article, I will show you how my friend got his favourite drinks company, Diageo, to give him money to buy his favourite bottles of alcohol.
Many people have not heard about Diageo but to keep it short, it is the company that produces
brands such as Smirnoff, Guinness, Johnie Walker and Captain Morgan. Diageo is absolutely massive and it is sited on the London Stock Exchange.
Back in 2010, my friend Tom signed up with an online broker and bought shares in Diageo (DGE). To be exact, he bought 460 shares. By buying the shares, he now is part owner of the company. Tom understood that buying shares on the stock exchange is not the same as gambling- it is not merely ticker symbols going up and down as many people would like to think – but buying shares entails you becoming part owner of a business. And if the business does well and churns out profits, you as a part owner receive some of the profit in proportion to the amount of shares you own.
So in this case, Diageo has made ever increasing profits over the years and thus the amount it pays out to its shareholders have also increased. Diageo paid a dividend of 40.40p per share in the first year Tom held the shares, 43.50 p in the second, 47.40p in the third, 51.70p in the fourth and 56.40 in the fifth. In short, Tom received:
- £185 in 2011
- £200 in 2012
- £218 in 2013
- £237 in 2014
- £259 in 2015
Tom has been receiving ever increasing amounts of dividends for that one time purchase of an ownership stake in Diageo. As Tom favourite drinks are Guinness and Smirnoff Vodka, the money he spends is coming back to him in the form of dividends from the company he buys the drinks from. Isn’t this great.
Now I know what you are thinking, this is not exactly free beer. Tom actually had to spend money to acquire those 460 shares at the beginning. Yes that is right, Tom did actually spend £500 for those 460 shares.
But looking at the value of those shares today, it is £8,602. Tom has grown his money by over 70% and that is without counting the dividends along the way! If Tom wanted his £5000 back, he could simply sell 267 shares. This would leave him with 193 shares worth £3602 and he would still be getting £108 in dividends every year. This £108 will grow as the company’s profits increase. If you now look at the big picture, Tom now has 193 shares giving him £108 in dividends just for thinking long term. By thinking this way, it is exactly how you can get an alcohol company to give you free drinks for life!
Diageo is by no means the only company you can invest in to get ‘free drinks for life’. Other companies include Anheuser Busch Inbev SA (EBR: ABI) and Brown Forman (NYSE: BF.B). Buying ownership stakes in the companies whose products you regularly consume is a great way of receiving some of the money back by way of dividends.
The great thing approach is that it is is not limited to getting free alcohol. You can essentially use this passive income approach to cover any of your expenses.
For instance, perhaps you eat Corn Flakes every morning for breakfast. I don’t know how much you eat or your local cost, but perhaps this daily consumption adds up to £10 a month. 10 pounds a month equates to £10 a year.
A direct way of paying for this would be to have an asset that pays you £120 in annual income. If you went straight to the source – Kellogs (NYSE:K) – this would require about 90 shares or a £4,410 investment. Naturally, you can get there over time, but the idea is that once you had this investment, there’s a good chance you just bought yourself “free” cereal for life. Along with the propensity for increasing dividends, you’re apt to receive capital appreciation of the stock price to boot.
This is one of my favourite finance hacks, investing in companies whose products you use is a great way to cover these expenses for life!
Isn’t it great knowing that you can own the companies you pay the bills to, and then use the dividends from it to meet your needs – this is the definition of poetry in my book! This is exactly what I am doing with my portfolio and you can follow me for my journey right here. I noticed that I like many other spend a lot of money on transport and fuel. That is why two companies I have invested in are BP and Shell. These companies will pay me over £300 in the coming year and it is a great feeling knowing that these energy giants will cover some of my bills next year!