Filling the Tank from Dividends

investing in RDSAWhen it comes to investing in individual stocks, one of my favorite type of companies are the ones whose products I use myself regularly. Every time I make a purchase from such companies I feel a little bit like putting the money from one pocket to another (ok, the latter one might have a hole 🙂 ). One of my regular expenses is fuel. You can really say that you have reached financial independence once your expenses are covered by your passive income. So let’s find a way to cover fuel costs. I want to fill my car for free!

No, at this point of time I’m not planning to buy an electric car. I will still use my car in the regular way, but at the end of the day the fuel won’t cost me a penny. Here’s the deal:

Currently we spend on average EUR 50 per month on fuel. I almost always fill my car at Shell as in addition to the petrol I also get some extra air miles if I pay with my Amex credit card. These air miles can be used later to get free flights, hotels, car hire etc. But this is not the main point of this article. The thing is that I also happen to be a shareholder of Royal Dutch Shell and guess what, the company pays quite generous dividends (currently the dividend yield is close to 7%) which is paid out on a quarterly basis.

Now the quarterly dividend is around EUR 0.44 per share and currently I have 50 shares, the dividend received in every 3 months is around EUR 22. In order to receive EUR 50, I would need to have 114 shares. With an EUR 25 share price, that means EUR 1,600 extra investment and the dividends received would cover my monthly fuel costs 4 months per year.

how-to-get-free-tank-of-fuel

Having the full year worth of fuel consumption covered, I would need around 340 shares which worth EUR 8,500. I will slowly but steadily build up this holding in my portfolio. In the first half of next year my one month per quarter expenses will be covered like this, and by 2018 I am hoping that Shell will eventually pay for all my fuel costs via dividends.

The only thing that could come between me and my plan is a significant dividend cut. With a yield of 7% right now the market seem to believe that the current dividends are not sustainable, otherwise the share price would be more like EUR 45-50 and not 25. Nevertheless nowadays we could read some reassuring comments from the management, furthermore more and more analysts start too see the potential in the company (like you can read in this article).

If the company can indeed avoid a dividend cut, I believe the share price will increase double digit percentage in a relatively short period of time. Because of this reason I will definitely purchase some extra RDSA shares in December and January.

If you think about it, it is not that hard to cover your fuel expenses by dividends received from companies from whom you would buy the petrol anyway. Also if you are thinking about buying a car, wouldn’t it have sense to buy one for a few thousand cheaper and invest the rest in such companies, so you could drive without ever need to worry about fuel costs?

Of course the same principle could be applied in many areas of life. In the near future I will review my portfolio from this perspective and share with you the results.

How about you, dear reader? Do you ever consider your dividends like I described above? I would be happy to hear your thoughts!

 

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Disclaimer: This post or any other information on the site is not intended to be and does not constitute financial advice or any other advice. I am solely sharing my idea, plan and progress on early retirement.

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4 Comments

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    • Roadrunner December 11, 2016
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