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:
Its a similar train of thought I had earlier on hedging your bills – and covered the example of BCE and BNS 🙂
I like services to pay for themselves. As you mentioned, telecom companies pay out a good amount of dividends and if you can allocate enough capital to invest in them, the dividends can be used to cover the bills – which eventually feeds back into more dividends. I love these kind of business models!
That’s cool, R2R. Looks like you have your own hedge fund as well. 🙂 These strategies work for other living expenses too.
Sometimes I calculate my dividend income against the expenses category (hedging), especially after I bought my first home.
I do compare how much pay and how much dividends I receive:
– Mortgage interest payment vs dividend from bank stocks- RY, BNS, TD, CM and BMO.
– Utilities cost vs dividend from energy & utilities stocks – ENB, TRP, SU, CVE, CU, FTS, CPX, etc.
– Telephone, internet cost vs telecommunication stocks – BCE, Telus, AT & T, VZ, etc.
At one point in my life, dividends income I receive will surpass the expenses –the day I reach my financial freedom. 😀 .
That’s a very smart philosophy. The best part is with most of these companies the dividends grow at the same speed or often even faster than the rate of inflation so once we reach financial freedom our financial position would be permanent. 🙂
I’ve always loved looking at my dividend payments as covering the bills from the same industry. It gives a feeling of having a service for free. Obviously not truly free but you know what I mean. It removes it from my “having to mentally worry about it” list.
Yup. I totally get it. It’s like being subsidized by the very industry we have a business relationship with. The world revolves around money so knowing how to make money work for us is really important.
Fcc Farmland report 2014 just released!
Thanks Ian! 18.7% price appreciation in Saskatchewan, woohoo! I plan to write a post about it on Thursday. 🙂
That’s an interesting way to look at it. But the way I see it is that money is fungible.
Does it really matter if the income to pay for your internet comes from the dividends of an internet provider instead of some bank stocks, income ETF, or bonds ?
What you really want is for all your investement to pay all your bills.
I agree. Every dollar has the same value no matter what we decide to do with it. That’s why I don’t distinguish a retirement portfolio with my other investments. Basically, everything that I have at the time of my retirement will be my retirement nest egg, lol.
I started my quest after reading your “hedge” post back in 9/2014. I bought 200 shares of VZ, and T. I do like the idea of buying oil and gas company to pay for oil and gas, and real estate for housing (rent), if you wish :P, and food (walmart), drink (DEO), etc The list can go on and on, as long as you get all of your monthly expense cover buy each of the company you’re hedging, you’re good to go!!
Like you said, these companies wouldn’t go away, say Google is putting high speed internet, T, is doing the same in Atlanta. Google started in Kasas city. T didn’t think it could compete as it doesn’t have infrastructural there. But when google go to Atlanta, T did the same to keep the market-share. The high tech chasing is no news for these companies that have been here for over 100 years. I’m more comfortable now to ride the bear market with these blue chips.
VZ and T are great choices. 🙂 It’s smart to choose quality stocks when thinking about long term investing.
Great idea Liquid. What’s more is that BCE has a history of increasing dividends each year…so you’ll actually be able to cover the internet bill sooner than 20 years.
Gotta love them dividend aristocrats. 🙂