Home » Investing » If You Can’t Beat ‘Em, Join ‘Em

There has long been a love-hate relationship between consumers and businesses. While consumers want the comforts they enjoy from the products they purchase, they often feel like businesses are “sticking it to them” and reaping outsized profits.

The most reviled companies are often those that charge recurring fees. Most prominently featured in this category are banks, telecoms, energy or utility providers, and others; pretty much any company that requires monthly payments from customers.

There are three main reasons why such companies tend to make excellent long-term investments:

  • Recurring Revenues
  • Ability To Raise Prices
  • Difficulty For Consumers To Switch

Recurring Revenues

The beauty of companies that typically put their customers under contract and/or bill them monthly is that these companies are able to count on a regular stream of income. Month after month they can forecast to a degree what their revenues are going to be.

As customers open their bill with disgust and complain about the price they’re paying, they still pay the bill – and as an investor, that’s the main thing. One such company that pays a healthy dividend and has been increasing it steadily is BCE Inc. (BCE). They provide telecommunications services and have been snatching up a bevy of media companies in Canada. Due to their stable revenues, they have made a sound investment over the past many years.

Ability To Raise Prices

When customers are paying a monthly bill of $75, they typically will not buck too much when their bill goes up a few dollars every year. Paying $78 instead of $75 isn’t enough to really make the customer go out and switch companies – often because competitors are making similar price increases.

When you have a company that is able to raise prices and receives monthly payments, what you wind up with is a real dividend machine. This business model allows for regular dividend payments that rise over time. This provides inflation protection for investors as while they may be paying more for bread at the grocery store, they should also be receiving larger dividend payments to offset this cost.

Difficulty For Consumers To Switch

We mentioned that banks fall into this breed of companies due to their monthly fees. They don’t, however, put their customers under contract. They can get away with this because the reality is that there is very little difference in terms of pricing and offerings among the large banks. Leaving one to go to another will typically lead to a similar level of service. As such, customers tend to just stay with the bank they are at and where they’re comfortable despite feeling they’re paying too much. Further, while customers are not under contract, they most likely have a number of bills coming out of a certain account automatically and switching banks is viewed as a hassle.

Ultimately, this difficulty of switching companies which is hated as a consumer becomes your advantage as an investor.

Conclusion

What we’re really saying with all of this is that if you can’t beat ‘em, join ‘em. Rather than being one of the millions of consumers who complain about the prices they pay for goods and services, put yourself in the driver’s seat by earning profits.

Companies that are able to earn recurring revenues and raise prices without seeing a mass exodus from their customers have a wonderful business model that you should be profiting from. Think in your personal life which companies seem to “stick it to you” the worst. Start there and see if you’re staring any investment opportunities in the face.

The Get Rich Brothers

Which companies do you get services from that you also own as an investor?

Full Disclosure: Long BCE

Pictures courtesy of pixabay.com

5 thoughts on “If You Can’t Beat ‘Em, Join ‘Em

  1. Allan says:

    Hi guys,

    I totally agree on this. And that’s part of why I invested in dividend growth stocks in the first place.

    Fun fact : to cover a BCE 75$ monthly bill one would need to buy +/- 365 shares or 19,000$ worth of BCE stock at current price!

    So that’s why you’re always better off to cut costs. Buying income is expensive!

    Best regards,

    1. Thanks for stopping in, Allan!

      That’s a staggering sum to have to put up just to cover a $75 monthly bill. For most, starting with a more modest investment, reinvesting the dividends, and getting there “in time” would be the best bet!

      Cutting costs is definitely a solid way to go and also gives the potential to put more into investments once the costs have actually been reduced.

      Take care!
      – Ryan

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