Saturday, October 18, 2014
The Weekend Edition is pulled from the daily S&A Digest. The Digest comes free with a subscription to any of our premium products.
One of the greatest ways in history for retirees to collect income was born from the Great Depression...
In the early days, utility companies providing electrical power weren't regulated. Multiple companies would compete for the same clients, sometimes even building duplicate distribution channels.
In the late 1880s in Chicago, for example, there were as many as seven companies competing with each other, according to the National Bureau of Economic Research.
The competing firms drove the cost of gas down from $2.25 per thousand cubic feet (mcf) to $1 per mcf.
But this kind of competition wasn't available outside major cities, where populations weren't as dense or as wealthy.
Price wars erupted amongst utilities in big cities and margins evaporated. In Chicago, all the companies merged into a single firm to survive. Gas prices rose 25% after the merger. Other large cities followed suit.
So began the price gouging.
As Dr. David "Doc" Eifrig wrote in the December 2010 issue of Retirement Millionaire...
That's why utility companies are a safe component to a retiree's portfolio... They're able to pay large, stable dividends due to their monopoly status and steady earnings.
Doc still recommends holding some of your portfolio in traditional utilities for the reasons discussed above... even though, like everywhere else, yields in the utility sector aren't what they used to be (around 3.5% today).
But with the advent of technology, a new type of utility has emerged... They're just as dominant as electricity providers... and they play just as integral a role in our everyday lives. Doc has dubbed these companies "Digital Utilities." Every time you turn on your computer, you're paying these firms. As he wrote...
Remember, in the early days of traditional utilities, a handful of firms were competing for customers. But the industry consolidated, leaving dominant players in every city.
A similar process has happened in the digital age. A decade ago, you could choose from a dozen search engines... Remember WebCrawler, Excite, AltaVista, and Lycos?
Today, there are two primary search engines. It's the same with operating systems... In the early days of computing, you could choose from multiple word-processing packages. Today, only a couple exist... with one dominant software company in the space (Microsoft). Here's how Doc put it...
In December 2010, Doc recommended four Digital Utilities:
These companies all share traits that make for perfect utilities: Impeccable financials, brand loyalty and recognition, captive users, friendliness to shareholders, and regular and frequent use of their services.
If you had followed Doc's advice and purchased Intel in November 2010, you would be up around 71% including dividends. The company has increased its dividend payout twice since then... And you'd be earning 4.2% a year on your original purchase price.
Microsoft is up 81% since then. The software giant has increased its payout four times. In November 2010, Microsoft was yielding 2.4%. Today, you'd be earning 4.7% on your original purchase price.
Cisco is up 4% and has increased its dividend four times since November 2010. The stock was yielding 1% back then. Today, you'd be earning 3.7% on your original investment. Google is up 70% over the same period. Though it doesn't pay a dividend, it does reward shareholders through share buybacks.
Not all of the Digital Utilities Doc originally recommended are still in the Retirement Millionaire portfolio... He stopped out of some and sold and rebought others at later dates. The numbers we provide above are just to show the value of holding these Digital Utilities over a long period of time – not necessarily the actual gains his subscribers achieved.
In his latest Retirement Millionaire, Doc recommended another Digital Utility... This company and its closest competitor control about 70% of their sector. This company provides a service we use every day... And it's incredibly difficult for a new company to enter this space.
The company generated $11 billion in free cash flow over the past 12 months... It trades for around 11 times earnings. And it pays a huge dividend. It's one of the cheapest, highest-quality stocks in the market today.
You can get immediate access to Doc's latest pick with a 100% risk-free trial subscription to Retirement Millionaire. After reading through Doc's work, if you decide it's not for you, we'll give you a full refund.
And Retirement Millionaire is more than just profitable investment advice... Every month, he also shares his best tips for leading a healthier and wealthier life. You can start your trial subscription to Retirement Millionaire by clicking here.
Date Range:10/9/2014 to 10/16/2014
Date Range:10/9/2014 to 10/16/2014