The title of this post is actually a little misleading, as throughout my time at University I hardly touched a drop of the amber nectar. Don’t judge me, but my go to alcoholic option, was generally a Smirnoff ice. On a night out, I would often drink ten bottles without batting an eyelid. Multiply that by an average of 3 nights out a week, and it was very lucky I had a part time job to supplement my spending (ironically as a bartender) and that my liver is still fully functioning.
A company called Diageo produces all those Smirnoff ices that I used to adore. A company, I will be the first to admit, I had never heard of before I started my path to financial freedom through dividend investing. If you drink alcohol, there is no doubt you will have sampled one of their many brands, whether it be a Guinness, Johnnie Walker, Baileys or Captain Morgan, to name but a few.
While I enjoyed my Smirnoff ices all those years ago (although not so much the horrendous hangovers that inevitably came with them), and I wouldn’t change my University experience one bit, I thought I would step back in time and discover what a more financially savvy me could have done. So what would have happened if I had had a little foresight and thought about the future, delayed instant gratification and toned down my partying by even one night a week?
I started University in September 2001. I was at University around 30 weeks for each of the three years I attended. On an average night back then I would easily find myself down around £30 on alcohol alone. Let’s say of the three ‘party nights’ a week I skipped my mid-week outing, stayed in and read one of the many books I was actually meant to read for my courses and deposited that money into my piggy bank. The following September I would then be able to take the £900 saved and invest that money into Diageo, irrespective of whether it was fairly valued or not.
So on 6th September, 2002 I could have cracked open my piggy bank and bought 113 shares for the price of £7.92 each.
If I were to have repeated the process on 12th September, 2003 I could then have bought 135 shares for £6.63 each.
And finally, by 3rd September, 2004 after I had graduated and was suffering from the post-Uni blues, I could have bought 129 shares for £6.95 each.
In total, this would have given me 377 shares. To make life easier, I’ll imagine that for the next 13 years I would have kept my shares in my brokerage account and collected the dividends as cash. Most likely spending my dividends along the way on more Smirnoff ices as I travelled around the world.
At the time of writing this, a share of Diageo would set you back £27.25.
So my 377 shares would be worth £10,273.25, from an original investment of £2,700. A return of 280%! Granted, taking inflation into consideration, my original £2,700 investment would be the equivalent of £4,000 in today’s real money terms. This would still be quite a return, though, and that’s without dividends being reinvested (which would have made the returns substantially more). What is even better is that I would still be collecting dividends from these shares for as long as people continue to drink Guinness and Johnnie Walker around the world.
I won’t give you a complete dividend breakdown of how much I would have collected over the years but here’s a small sample of the past 5 years:
2017 – £234
2016 – £223
2015 – £213
2014 – £195
2013 – £179
So in 2017 alone, those hypothetical 377 shares would have made around £234. During the past 5 years I would have made over £1,000 in dividends to spend on whatever I wanted. This would have all been gained from making one small sacrifice and being smart about the choices I made with my money. The benefits are clear and who knows, I might have even got a better final grade at University. And if the last 2 years’ dividend growth is anything to go by (around 5%), next year I would be collecting around £246 and the next year even more, all for just the combination of delayed gratification, investing in a great company and the passing of time. If only I had a time machine to go back and have a word with my younger self, I would have told him to embrace investing (and to stop using so much gel in his hair). Of course, at the time the mere suggestion of missing a night out would have been met with abject horror by my 19 year old self.
There are great companies like Diageo all around us, you just need to open your eyes to them and realise the potential they have in changing your financial life. I seldom drink these days, but the other day I caught up with some friends at a bar and was sat next to one of them drinking Guinness like it was going out of fashion. Here was a man who obviously loves the product, but not once had he ever considered investing in the company. Just think how happy he’d feel, if while sipping his Guinness, he knew that not only was he adding to the coffers of the company that pays him a dividend twice a year, but half the bar was too. That’s far better than someone buying a round! He wasn’t smiling in the knowledge that his pint was making him money, but inside I sure was. And in case you were wondering, my drink of choice that night wasn’t a Smirnoff ice but a cider.
As always, do your own research.