Covering the grocery bill with money from a grocery stock has a nice bit of symmetry. The catch is the size of the cart you have to fill first. Even a dependable-looking quarterly cheque can require more money than you’d want riding on one company.
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Work back from the bill
An $1,800 annual target averages $150 a month. To find the share count, divide $1,800 by the annual dividend per share and round up. Rounding down makes sense when there’s a fixed purchase budget. For a minimum income goal, it leaves you a little short.
Payment frequency tells you when the cash turns up. A company that pays four times a year can fund a monthly expense if you save the cheques in a cash account and transfer a fixed amount. I’d keep a little extra on hand so the first grocery trip doesn’t have to wait for the first dividend.
A yield calculation assumes the shares are available at the price you’ve used. If the share price rises before you buy and the dividend stays put, the target still takes the same number of shares, but it costs more to reach it. That’s why I’d compare costs again when I’m ready to place an order.
I’d also separate the portfolio goal from the size of any one investment. A list of Canadian dividend stocks can give me several ways to earn $1,800. Before picking the mix, I’d see what one business actually brings to the table.
NWC
The North West Company (TSX: NWC) runs stores in places many national chains don’t serve, including northern Canadian communities and markets outside Canada. Food and household supplies give customers reasons to come back. Getting those goods to stores can cost quite a bit more than running a truck between two cities down south.
In the results it released in September, earnings rose to $0.76 per share from $0.74. I’d read that improvement with the delivery bill in mind. Growing sales help most when the company can keep enough of each sale after shipping, staffing and stocking shelves. A busy store with expensive freight can look better at the till than it does on the income statement.
The latest quarterly dividend rose to $0.42, or $1.68 annualized. Trading at $59.46 recently, the yield was about 2.8%. That’s a modest starting yield for an income target, so the business would need to earn its place through dependable earnings and the potential for future raises.
What the full order costs
The calculation is $1,800 divided by $1.68, or about 1,071.43 shares. Round up to 1,072 shares and the position costs $63,741.12 before fees. At an unchanged rate, it pays $450.24 quarterly and $1,800.96 over a year.
| COMPANY | RECENT PRICE | NUMBER OF SHARES | ANNUAL DIVIDEND | ANNUAL TOTAL PAYOUT | FREQUENCY | TOTAL INVESTMENT |
|---|---|---|---|---|---|---|
| NWC | $59.46 | 1,072 | $1.68 | $1,800.96 | Quarterly | $63,741.12 |
I wouldn’t make that the first purchase. A $10,000 budget buys 168 shares for $9,989.28 and starts at $282.24 a year. That’s enough to see the income at work while leaving room for businesses whose profits don’t depend on getting supplies to remote stores on time.
I’d also judge a dividend raise against the grocery bill it’s meant to pay. If prices at the store climb faster than the dividend, the cash still goes up while its buying power slips. That’s another reason to give myself a margin above the target.
The practical risk is that rising freight costs or inventory issues can eat into the cash that funds future raises. If I’m building the position inside a Tax-Free Savings Account (TFSA), I’d check available room and add gradually rather than make one big purchase for the sake of a round income number.
Bottom line
I’d let North West pay for a few trips to the grocery store and give other businesses a share of the list. Over time, dividend raises and new purchases can make that $150 monthly target feel a lot closer.
