Do you own what you use?

The credit card advert shouts “2% back on purchases.” The dividend investor in a stock market pauses to think about the cash return on his or her everyday expenditures.  Let’s consider your monthly phone bill. It’s an easy case because all of your payment (minus taxes) goes to the company. (Lots of your regular spending goes through intermediaries; the end company only gets a portion of what the consumer spends.)  Let’s say you pay $100 per month to doomscroll. That’s $1,200 per year. What’s the cash return for that spending? The large phone company based in the northeast had revenue in 2022 of $137 billion. It paid dividends of $10.8 billion. The dividend “yield” on sales was 7.9%.

While your share of the company’s annual revenue is miniscule—0.000000877%–it translates into a share of dividends equal to $94.80.  That’s how much your annual spending produces in dividends. But for you to get that amount as a dividend payment, you would need to own the company’s shares in the same proportion as your slice of the revenue. In this case, that would be 36.67 shares out of 4.2 billion shares outstanding, each with an annual dividend of $2.59. The market value of those shares on 12/31/2022 was $1445, about 20% higher than the annual spend.  In short, if you can find your way to owning 37 shares of the phone company, you earn dividends in the same amount that the company generates them from your own personal spending.

The math remains attractive for other high yielding businesses where you might be a consumer, such as a large utility in the Southeast that just opened the first new nuclear reactor in this country in decades. While the yield on sales for that company is even higher than the phone company’s, the shares sell at a relative premium, with a lower traditional yield, so you need to own more of them to get your share of the dividend generated from your annual $1200 in electric bills.

The yield on sales is remarkably high for a carbonated beverage company based in Atlanta, and a biologic and botox pharma in Chicagoland. They return 18% in dividends for every dollar that comes in their door. In those cases, your annual spend generates more than $200 in dividends. (Keep in mind, as much as cola as you drink, and as many times as you erase a wrinkle, only roughly 50% makes its way to the companies. Remember the intermediaries. So you would need to spend around $2400 at the retail level to generate the $1200 in company revenue used in these examples.)

These companies are so profitable and grow so consistently that their market values translate into lower traditional dividend yields. That is, their sales dollars are bid up in the stock market. So as yield on sales goes up, yield on share price goes down. That means that to get your fair share of the $200 in dividends that your spending produces, you need to pay up, quite a bit in the case of the beverage company. While owning $7,000 in stock may seem like a lot in order receive the dividends that your spending generates, that is in the nature of a lower yielding investment.

Individual stocks without dividends don’t figure into this type of exercise. Their devotees can come up with other metrics on how users benefit from the usage of their products.

So what’s in your wallet? How about dividend checks from the companies that you use everyday.