Owning stock is cool. It makes you a part owner of the company. For about $100 you can buy yourself a share of Starbucks stock (ticker symbol: SBUX). Then, next time you walk into a Starbucks you can hit on the person in line next to you by saying “You know, I’m an owner of Starbucks”. Hopefully by the time they figure out what you mean, you’ll already be married with a few kids and it’ll be a good time to work together on the ins and outs of personal finance for the benefit of your marriage.
As of today Starbucks has set their dividend pay out at $0.45 per quarter. That means every three months you’ll find a free $0.45 in the account where you hold a share SBUX stock. That’s not so great, but if you own 200 shares, that dividend payment turns into $90/quarter. You can take that flow of free money, walk into Starbucks and buy yourself frappuccinos to your heart’s content.
And what’s even cooler? Even with that free flow of money you still own the all the stock! Twenty years ago a share of SBUX was only $5.66/share. The share price has increased because the value of the company has increased (more stores, sales, profits, etc). If that trend continues, in 18 years you can cash in your stock for $1,800/share! PLUS you had 20 years of free coffee. NOT BAD.
Of course, I don’t suggest JUST buying stock in SBUX. It’s impossible to know ahead of time which stocks are going to perform well since everything we know about these companies is already “priced in” to the stock price. That’s why I think the best strategy is to buy an INDEX FUND that holds EVERY stock. Then you collect dividends from ALL the companies and guarantee your fair share of growth over time. Buying and holding index funds over long periods of time is the most effective and efficient path to build wealth!
As always, reminding you to build wealth by following the two PFC rules: 1.) Live below your means and 2.) Invest early and often.