North Americans pay a lot of money for high speed internet access. One way to get around this costly expense is to own the means that produce the service. This means buying shares of the internet service providers that we use. Telecommunication companies are usually very generous to their shareholders as many pay out up to 40% of annual profits to their owners. Over time this gives one the opportunity to have a reoccurring internet bill pay for itself.
Step 1: Figure out your current internet service fee.
Step 2: Save an equal amount of money earmarked to buy shares of your internet provider.
Step 3: Continue buying shares every year for 20 years.
Step 4: Now use the dividend income you receive from your ISP to pay your internet bill. 🙂
Example: If we currently pay $50 a month for one of Bell’s internet plans, we can simply set aside another $50 a month to buy Bell stocks (BCE) on the TSX. This gives us $600 a year to invest in BCE. To save on trading fees we can buy the shares once a year, not every month.
The average price of BCE last year was around $50 so every year our $600 savings can buy us 12 shares of BCE. After 20 years we’ll have 240 shares total. Bell currently pays its shareholders $2.6 per share every year. With 240 shares, we would get $624, or about $600 after tax, with the dividend tax credit, for most people.
At that point we can essentially use Bell’s dividends ($600/year) to pay for the cost of our internet usage ($600/year.) 🙂
Inflation isn’t really an issue since internet companies tend to grow their profits as the cost of their services increase. But the best part is the growing income distribution to shareholders. Bell pays quarterly dividends. Look at how its dividends have increased over the years. 🙂 (click image to enlarge)
Consumers in the U.S. can hedge the same way. Verizon (VZ) on the NYSE, for example, currently trades at ~$50 per share, and has a similar dividend yield as BCE.
This is a good strategy if we want our internet services to eventually pay for itself one day. The only catch is we have to put some money aside and wait two decades.
But our money won’t be gone of course. It’s invested in a blue chip, large cap business in an oligopolistic industry, protected and regulated by the government. Out of all the companies in the stock market, large telecom stocks are some of the most defensive names to hold.
Once we become old, fragile, and have moved into a retirement home, we can transfer our internet stocks to someone else and give that lucky person the gift of free internet. 😀 Or we can simply cash out, and get ourselves a pimpin wheelchair. 😉
Not all internet service providers have high payout ratios however. Some companies may not even pay dividends at all. But that’s okay. Usually if this happens what we lose in dividend income will be made up in capital appreciation. So after 20 years we can sell our shares and move the money into some income producing investments instead and still make the plan work.
Keep in mind that owning a stock means owning a part of a company. If the company fails the stock will be worth $0, and dividend payments will cease. That’s why investing in multiple internet companies is less risky and is probably a better approach.
Disclaimer: I own shares in Bell, Rogers, Telus, and Comcast. I also invest a lot more than $600 a year in telecom companies. Currently I earn about $30/month in dividends from these stocks. It’s not quite up to $50/month yet, but it’s only a matter of time before my internet costs are completely covered. 😀
Random Useless Fact: