How To Crush The Market With "Toll Booth" Stocks
As dividend investors, we prioritize stability and reliability, and there's no better place to find these qualities than in a "toll booth" company.
Just like a toll road operator collects tolls every time a vehicle passes through, these "toll booth" companies generate revenue by charging fees for the use of their essential products and services. It's a fantastic way to build a portfolio that generates reliable passive income, and I'm excited to share a few examples of these companies with you here.
The first one that comes to mind is American Tower Corporation (AMT). As the largest operator of cell towers in the world, American Tower has established itself as a global leader in the telecommunications industry. The beauty of their business model lies in its simplicity – they provide the infrastructure necessary for wireless communication, and they get paid handsomely for it. With mobile data usage skyrocketing year after year, American Tower is set to benefit from higher revenues without a corresponding increase in costs.
In essence, they are the toll booth of the digital age, collecting fees as the world becomes increasingly connected.
Next up is Watsco (WSO). Though a lesser-known gem, this beast of a company has built the most efficient distribution network for HVAC equipment and replacement parts. With rising global temperatures and increased standards of living, the demand for HVAC systems has surged. Additionally, green legislation is mandating higher efficiency standards, requiring upgrades to existing systems.
Saving the best for last, both Visa (V) and Mastercard (MA) are probably the most prime examples of "toll booth" companies. Every time a transaction occurs using their payment networks, they collect fees. Whether you’re buying groceries, booking a flight, or shopping online, these companies are silently raking in revenue.
Investing in these “toll booth” companies offers us the best of both worlds: the potential for capital appreciation and a consistent stream of dividend income. As dividend investors, this is exactly what we crave – predictable income with market beating returns, which all of these companies have delivered at least over the last 10 years.
Source: Seeking Alpha | Toll booth total returns vs the S&P 500
What are some other examples of "toll booth" companies? Do you have any in your portfolio? Write to me here and let me know.
And a big thank you to the 13 readers who responded last week. You rock! 🙌
In case you missed last week's newsletter, you can read it here.
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"O has a dividend yield of 5.61%, but does this translate to 5% every year or 5% every month?"
- @thijsverbaten2982 | YouTube
Great question. The dividend yield represents an annual yield, not a monthly one. This means that if you had $100 invested in O at a 5.61% dividend yield, you'll receive $5.61 over the course of that year. And because it's a monthly paying dividend stock, this amounts to about $0.47 per month.
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