We all hate bills, right?
Nelson’s wife: OH GOD YES WHY WON’T THEY GO AWAY?
I make her pay all the bills because equality, baby!
One of my favorite things is my town’s discussion board on Facebook. Lately, thanks to Alberta’s new Carbon Tax (DUN DUN DUN), there have been multiple threads started about people’s power bills and the OUTRAGEOUS fees associated with the luxury of having electricity come into one’s house.
Anybody who has ever paid a power bill knows exactly what I’m talking about. A $100 bill will only be $40 in actual power usage and $60 worth of fees, taxes, and LEGALIZED EXTORTION. It’s enough to cause a frugalite to actually pop their top, an expression my 92-year-old grandpa still assures me is cool.
Alberta’s crummy economy certainly has something to do with this, but at the end of the day none of us like paying bills. Most people have two responses to this. They either take steps to minimize their bills (which is logical) or they take to whatever means necessary to voice their displeasure with the damn power company, gas provider, or bringer of internet.
These people are looking at utilities all wrong.
Invest in utilities
My argument has always been the same. If power or gas or whatever is such a great business that RIPS YOU OFF every month, wouldn’t that make it a great investment?
Utilities are damn close to the perfect business. They offer predictable monthly revenue that has high profit margins. Dirtbags who don’t pay their bills are a nuisance, but not the end of the world. As much as dads like to say “I’ll freeze in the dark, goddammit,” you know paying to keep the lights on is going to be high on anyone’s priority list.
What a great business. Yet people don’t bother investing in the sector, choosing instead to chase all sorts of weird stuff. Why invest in the gas company when you could invest in a company that allows physical ownership of gold without taking delivery of said gold?
Yes, that company exists. Sure, it solves a problem. It’s just not that big of a problem.
Getting dividends to pay for things
Many dividend investors have a goal to retire off their dividends. This has a number of advantages, including paying zero taxes assuming you keep the income under a reasonable level.
There’s just one problem with that strategy. It takes a long time to go from zero to getting $50,000 a year in dividends. Many people throw up their hands and don’t even try.
I prefer to break it down into various milestones. If you invest $4,000 at a 3% yield, you end up with $10 per month (or $120 per year). That doesn’t seem like much, but it’s enough to pay for your Netflix subscription. $30 or $40 a month is enough to pay for your cell phone. And so on.
You can take this mentality one step further when it comes to gas bills. Altagas Inc. (TSX:ALA) owns natural gas utilities in Alberta, Nova Scotia, and a few U.S. states. It has made a friendly offer to buy U.S.-based WGL Holdings, which is expected to boost the bottom line by 8% a year each of the first three years after the deal is completed.
Shares have sold off a bit after the deal was made official. Atlagas is going to have to issue a bunch of stock to make the deal happen, which investors don’t really like. But management insists the 6.8% dividend will be safe. In fact, they plan to hike the payout between 8% and 10% a year until 2021.
For approximately $18,000 per year, you could generate $1,200 in annual dividends from Altagas. Assuming your gas bill averages $100 per month (and the company never cuts the payout), you could exchange that amount of money to ensure you’ll never have to pay another gas bill in your life.
There’s inflation protection built in, too. There’s a zero chance your utilities get cheaper over time. Whenever Altagas passes on a rate increase, shareholders benefit. That’ll be you!
The bottom line
Instead of complaining about your power, gas, or internet bill, do something about it. Buying shares in your utility provider is the easiest way to hedge against price increases. You get capital gains potential, too.
For less than the price of a new car you can ensure you’ll never pay another gas bill again. Writing out cheques to the gas company becomes a whole lot less painful when you know you’re just getting that money back.