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Today’s coffee lovers look away. I sacrifice my daily lattes and snacks to fund regular investments in FTSE 100 dividend stocks. My life hack can generate other income.
Will it be worth the caffeine withdrawal to finance the promising returns? I think so, and here’s why.
Invest in investors
My plan was to build an investment war chest by avoiding coffee shops and putting the funds into stocks. It can generate £2,000 a year (I usually buy for two people). The savings pot will go to the stock Schroders (LSE: SDR).
With my first year of funding, I was able to invest in around 400 shares, based on the current price of around £4.80.
There are two reasons why I chose Schroders. First, there is the potential for the share price to reach £6 (an increase of 25%), as it has done so three times since 2015. The share price is up 8% so far.
Second, there is a strong dividend yield of over 4%. This can produce more valuable results if I keep my house commitment.
Schroders is a UK investment management company with over £700bn of assets under management, and a history of outperforming market benchmarks. In 2021, it made a record pre-tax profit of £836m on revenue of almost £3bn.
Invest for the future
In the company’s 2021 annual report, group chief executive Peter Harrison said “virtuous circle investing for growth“.
That includes a focus on sustainability. Schroders is a founding member of the Net Zero Asset Manager (NZAM) initiative. Support a multi-decade plan to prioritize green investments and help businesses on the path to net zero.
Harrison said:We need to do this for our business and our investments. The next two decades will be crucial for climate change.
“Success now allows for the investment needed to build capabilities for the long term. But these investments will also shape the future of the next 20 years.”
This long-term thinking gives me confidence in my plan to make Schroders a multi-year investment. This way, I can benefit from the compound growth provided by reinvesting dividends.
Long term commitment
If I keep my ‘Costa-life’ commitment and avoid it Starbucks, then over five years I will invest £10,000 in Schroders. Reinvesting dividends could yield a further £1,300 if it yields an average dividend of 4.5%, based on the current share price.
If I extend my commitment to 10 years, my total investment will grow to over £25,000, including nearly £6,000 in potential dividend returns.
Not bad for the price of coffee.
| year | Investment | Dividend (4.5%) | Total investment | Dividends received | Balance (stock price consistent) |
| 1 | £2,000.00 | – | £2,000.00 | – | £2,000.00 |
| 2 | £2,000.00 | £183.76 | £4,000.00 | £183.76 | £4,183.76 |
| 3 | £2,000.00 | £284.08 | £6,000.00 | £467.84 | £6,467.84 |
| 4 | £2,000.00 | £389.01 | £8,000.00 | £856.85 | £8,856.85 |
| 5 | £2,000.00 | £498.76 | £10,000.00 | £1,355.61 | £11,355.61 |
| 6 | £2,000.00 | £613.55 | £12,000.00 | £1,969.17 | £13,969.17 |
| 7 | £2,000.00 | £733.62 | £14,000.00 | £2,702.79 | £16,702.79 |
| 8 | £2,000.00 | £859.20 | £16,000.00 | £3,561.99 | £19,561.99 |
| 9 | £2,000.00 | £990.55 | £18,000.00 | £4,552.55 | £22,552.55 |
| 10 | £2,000.00 | £1,127.94 | £20,000.00 | £5,680.48 | £25,680.48 |
There is risk, at least in focusing on one stock holding. However, this is the only part of the portfolio that is funded solely from lifestyle changes.
It means that I have a wide range of other assets to cushion me from any financial blow. This includes a falling share price (which has fallen to £3.78 in the past five years) and reduced dividend payments.
However, I believe there is potential for growth ahead. As an investment strategy, I expect a good mocha return.
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