Key Points
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Coca-Cola’s storied dividend history can help investors deal with their pesky phone bills.
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To what extent is the question.
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A relatively modest number of Coke shares can cover a phone bill for a month, but the yearly tab is a different matter.
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Unpleasant as it is, bills are a fact of life. Even the most diligent savers and debt eliminators still have regular obligations, including fuel, groceries, internet, and cellphone service.
Speaking of the phone bill, T-Mobile, one of the largest mobile phone carriers, says the average monthly cellphone bill is $141, or nearly $1,700 annually. That’s not chump change, but it’s not a lottery jackpot, either. Still, data indicate that phone bills are ticking higher, potentially prompting consumers to explore ways to offset those costs.
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Consumers who want to put a dent in their monthly phone bills while positioning themselves for better long-term outcomes may want to consider dividend stocks, including Coca-Cola (NYSE: KO). Of course, how much of a phone bill the soft drink giant’s dividend covers depends on investors’ starting capital.
Call on Coke to defray phone bills
When using the dividends from Coke, or any stock for that matter, as bill-paying tools, the math is essential. So based on the aforementioned T-Mobile estimate and Coke’s annual payout of $2.12 per share, an investor/cellphone user needs 67 shares of this consumer defensive stock to cover a single month of phone service.
As of late Monday, Nov. 2, high-flying Coke stock was flirting with $96, meaning investors would need to shell out $6,432 to generate enough equity income from this stock to cover a single month of phone obligations.
But what about the rest of the year? Obviously, that’s going to be more expensive. For the sake of keeping the math simple, I’ll say that the average cellphone bill costs $1,700 per year. Divide that by Coke’s payout of $2.12 per share per year, and that gets us to nearly 802 shares needed to generate enough income from this consumer staples stock to essentially get a “free” phone bill.
Of course, 802 shares of a $96 stock isn’t cheap. That tab (not the Tab Coca-Cola used to make) costs nearly $77,000. Put it like this: assuming no dividend growth (we’ll get into that momentarily) and no phone bill increases (unlikely), an investor plunking down $77,000 today on Coke shares in the name of paying their phone bill needs 45.3 years to break even ($77,000 dividend by $1,700). That’s a long time.
Dividend growth will help, sort of
The math above assumes Coke’s dividend doesn’t grow, but that’s not the case. We’re talking about a Dividend King here, one of the companies that’s raised payouts in at least 50 straight years. Coke’s steady dividend growth is why some storied professional investors and so many retail market participants flock to the stock.
The point is the Coke-paying-phone-bills math turns more favorable over time when accounting for likely dividend growth.
Still, inflation needs to be addressed. By some estimates, the average phone bill ticks higher by 3.8% per year. Over the past five years, Coke’s dividend has grown at an average rate of just over 4% annually. That beats phone bill inflation, but not by much.
Should you buy stock in Coca-Cola right now?
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Todd Shriber has no position in any of the stocks mentioned. The Motley Fool recommends T-Mobile US. The Motley Fool has a disclosure policy.
