Tollbooth Stocks for a Tollbooth Portfolio

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Dividend Earner

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What Is a Tollbooth Stock?

While I am a dividend growth investor, my stock selection process has everything to do with finding the tollbooth stocks or more specifically subscription business model. 

Why is that? Subscription is the easiest model to forecast for businesses and you can build a relationship with the customers more easily which greatly help improve the products and services offered.

The non-digital way to look at subscription is done by using the tollbooth analogy. A tollbooth can also be predictable and profitable. You can increase the fees as your costs go up to maintain the same profit ratio.

The tollbooth stocks and subscription businesses generate recurring revenue with consistency and when managed properly, the businesses can either optimized their costs for a higher profit margin or they can increase the end user price.

Unlike regular businesses where they simply have to get more and more customers, the subscription businesses can focus on value add and staying competitive to generate higher profits.

Look at how Netflix operates vs car manufacturers; one is counting the members paying monthly and the other is counting sales. The 2 models have very different impact in forecasting financials.

In the fall of 2019, I heard Jim Cramer discuss on his Mad Money podcast how car companies are learning that we drive more but buy less vehicles. Due to the cars lasting longer, consumers don’t buy new vehicles as often.

As such, the concept of subscription for vehicle is being discussed within the car industry and, as it happens, Porsche is offering a subscription through its Porsche Passport service. The concept goes back to how much one is spending on a car annually when you consider depreciation and all. The data is all there for the car manufacturer to establish an appropriate pricing strategy.

Identifying 7 Business Segments

When you merge the tollbooth concept with necessity of life, you end up with a really strong business model. The easiest companies to classify are the utilities. The next ones on the list are the Canadian banks and the telecom industry.

As you can see, those have some regulations in place in order to avoid gauging customers since they have a type of monopoly on the business. They are also referred to as oligopolies when a few business share a monopoly.

I have tried to look at businesses differently from the conventional models. The financial industry has classified companies a certain way within a sector and industry in order to compare more easily and assess trends with similar businesses.

While that’s is an important classification, revenue and growth forecasting is easier with the first 3 segments outlined below.

Using the segments below requires investors to understand how the business is collecting revenue. No metrics can tell you how it operates, you have to read up on it.

For example, until Disney started Disney+, it was in the consumable – discretionary segment but now with Disney+, it has entered the subscription segment.

Here are the segments I use to categorize each business.

  • Subscription
  • Tollbooth – Regulated
  • Tollbooth – Unregulated
  • Consumable – Necessities
  • Consumable – Discretionary
  • Durable
  • Intermediate

Before we go further, I love tollbooth stocks or subscription stocks but not all of them provide growth and profit. You still need to do more research.

Take REITs as an example, they are a tollbooth stock but have limited growth and limited distribution growth.

Sure, you get regular rent but often times, rent increases is controlled or commercial rent is negotiated. Customers also don’t just magically increase like they can for online businesses. Just a word of caution as you read on.

Subscription

To fit into the tollbooth stocks category, an important part of the business must be driven by a subscription model. It has to be a service that users or companies opt-in willingly.

Take cloud computing or software services as an example. Newspaper and magazine would fall in here as well but it’s highly competitive.

The music industry was re-invented with streaming by Spotify and also has a service.

In fact, Apple is re-investing a lot of the old business models into new subscription services such as Apple Music, News+ and TV+. I also now file The Walt Disney Company in this category with Disney+. The streaming service should become their largest revenue contributor over time.

TickerKey Ticker Company Sector Industry Score Quote Market Cap P/E FPE EPS Yield Raw PayoutRatio Payments Dividend Chowder GrowthRating IncomeRating Tollbooth Ambassador Achiever Aristocrat King Country Graph SectorID IndustryID Grade MarketCapGroup
NASDAQ:AAPL AAPL Apple Technology Consumer Electronics 52.55 149.70 2,381.45 24.50 24.50 6.11 0.6100 14.8200 4 0.92 8.9700 6 6 Subscription NO NO NO NO USA 1 11 31 B Mega Cap
NASDAQ:MSFT MSFT Microsoft Technology Software - Infrastructure 75.22 247.11 1,842.07 26.63 26.63 9.28 1.1000 27.1700 4 2.72 11.7000 10 7 Subscription YES YES NO NO USA 1 11 91 A Mega Cap
NASDAQ:COST COST Costco Consumer Defensive Discount Stores 67.28 515.47 228.15 38.84 38.84 13.27 0.7000 25.6300 4 3.60 12.6000 10 6 Subscription YES YES NO NO USA 1 4 34 A Mega Cap
NYSE:ORCL ORCL Oracle Corporation Technology Software - Infrastructure 59.24 77.74 209.60 15.83 15.83 4.91 1.6500 59.0500 4 1.28 16.5200 7 5 Subscription NO NO NO NO USA 1 11 91 B Mega Cap
NYSE:ACN ACN Accenture plc Technology Information Technology Services 67.88 290.09 192.85 26.71 26.71 10.86 1.5400 35.6900 4 4.48 10.8800 9 6 Subscription YES YES NO NO USA 1 11 53 A Large Cap

Tollbooth – Regulated

Consumers are generally required to use the service, and pay a monthly fee. However, as a necessary service, fee increases are regulated and usually require approval by a governing body. This segment usually represents the utilities for your home.

TickerKey Ticker Company Sector Industry Score Quote Market Cap P/E FPE EPS Yield Raw PayoutRatio Payments Dividend Chowder GrowthRating IncomeRating Tollbooth Ambassador Achiever Aristocrat King Country Graph SectorID IndustryID Grade MarketCapGroup
TSE:BCE BCE BCE Communication Services Telecommunication Services 57.46 62.53 57.02 20.24 20.24 3.40 5.8900 116.2900 4 3.68 10.9200 5 8 Tollbooth - Regulated NO YES YES NO Canada 1 2 99 B Large Cap
TSE:T T Telus Communication Services Telecommunication Services 66.68 29.02 41.41 20.01 20.01 1.19 4.8400 91.8000 4 1.40 11.4100 7 7 Tollbooth - Regulated NO YES YES NO Canada 1 2 99 A Large Cap
TSE:BIP.UN BIP.UN Brookfield Infrastructure Partners Utilities Utilities - Diversified 39.01 50.18 32.78 0.00 0.00 0.37 3.8100 0.0000 4 1.44 6.4600 4 3 Tollbooth - Regulated NO NO NO NO Canada 1 12 104 D Large Cap
TSE:RCI.B RCI.B Rogers Communication Services Telecommunication Services 32.14 57.50 29.17 18.47 18.47 3.56 3.4800 64.0500 4 2.00 4.3000 1 5 Tollbooth - Regulated NO NO NO NO Canada 1 2 99 D Large Cap
TSE:FTS FTS Fortis Utilities Utilities - Regulated Electric 64.76 53.46 25.59 19.80 19.80 2.69 4.2300 80.5900 4 2.26 10.1500 6 7 Tollbooth - Regulated NO YES YES NO Canada 1 12 106 B Large Cap

Tollbooth – Unregulated

Banks are a tollbooth but they are somewhat unregulated. The account fees or any other fees are set competitively but since they have an oligopoly, they don’t tend to undercut each other much.

While telecoms are semi-regulated, I would say the complete suite of offerings put them in the unregulated space. Oligopoly businesses, such as the railway or credit card companies, will have a business that can look like a tollbooth.

TickerKey Ticker Company Sector Industry Score Quote Market Cap P/E FPE EPS Yield Raw PayoutRatio Payments Dividend Chowder GrowthRating IncomeRating Tollbooth Ambassador Achiever Aristocrat King Country Graph SectorID IndustryID Grade MarketCapGroup
NYSE:UNH UNH UnitedHealth Group Incorporated Healthcare Healthcare Plans 71.68 522.08 487.80 24.48 24.48 21.33 1.2600 29.9300 4 6.60 18.7900 9 6 Tollbooth - Unregulated YES NO NO NO USA 1 8 49 A Mega Cap
NYSE:XOM XOM Exxon Mobile Corp Energy Oil & Gas Integrated 68.77 113.95 469.25 8.97 8.97 12.71 3.1900 28.8300 4 3.64 5.8100 7 8 Tollbooth - Unregulated NO YES YES NO USA 1 5 70 A Mega Cap
NYSE:V V Visa Financial Services Credit Services 58.17 205.00 424.11 27.30 27.30 7.51 0.8800 0.0000 4 1.80 18.2800 10 4 Tollbooth - Unregulated YES YES NO NO USA 1 7 32 B Mega Cap
NYSE:JPM JPM JP Morgan Chase Financial Services Banks - Diversified 75.24 135.30 396.86 11.08 11.08 12.21 2.9600 33.7900 4 4.00 13.7600 9 7 Tollbooth - Unregulated YES NO NO NO USA 1 7 21 A Mega Cap
NYSE:CVX CVX Chevron Energy Oil & Gas Integrated 67.23 186.46 360.55 10.78 10.78 17.30 3.0500 31.6700 4 5.68 7.4000 7 8 Tollbooth - Unregulated NO YES YES NO USA 1 5 70 A Mega Cap

Consumable – Necessities

This segment represents medicine, toilet necessities, and cleaning products to name a few. Food also fall in this category as we need it to survive and stay healthy.

TickerKey Ticker Company Sector Industry Score Quote Market Cap P/E FPE EPS Yield Raw PayoutRatio Payments Dividend Chowder GrowthRating IncomeRating Tollbooth Ambassador Achiever Aristocrat King Country Graph SectorID IndustryID Grade MarketCapGroup
NYSE:JNJ JNJ Johnson & Johnson Healthcare Drug Manufacturers - General 67.09 169.25 442.50 17.03 17.03 9.94 2.6700 60.1300 4 4.52 8.4500 6 8 Consumable - Necessities NO YES YES YES USA 1 8 35 A Mega Cap
NYSE:LLY LLY Lilly Healthcare Drug Manufacturers - General 43.84 352.30 334.75 41.50 41.50 8.49 1.1100 56.7600 4 3.92 6.7800 5 5 Consumable - Necessities NO NO NO NO USA 1 8 35 C Mega Cap
NYSE:PG PG Procter & Gamble Consumer Defensive Household & Personal Products 60.58 140.97 334.06 24.43 24.43 5.77 2.5900 60.0900 4 3.65 7.6400 6 7 Consumable - Necessities NO YES YES YES USA 1 4 51 B Mega Cap
NYSE:PFE PFE Pfizer Inc. Healthcare Drug Manufacturers - General 69.32 47.60 267.19 7.25 7.25 6.57 3.3600 29.7100 4 1.60 8.0400 6 8 Consumable - Necessities NO NO NO NO USA 1 8 35 A Mega Cap
NYSE:ABBV ABBV AbbVie Inc Healthcare Drug Manufacturers - General 64.01 150.16 265.56 11.06 11.06 13.58 3.9400 75.3600 4 5.92 4.6100 5 8 Consumable - Necessities NO NO YES NO USA 1 8 35 B Mega Cap

Consumable – Discretionary

This segment represents the businesses the provide products that we consume such as clothes or any other items that are consumed by consumers (not businesses).

TickerKey Ticker Company Sector Industry Score Quote Market Cap P/E FPE EPS Yield Raw PayoutRatio Payments Dividend Chowder GrowthRating IncomeRating Tollbooth Ambassador Achiever Aristocrat King Country Graph SectorID IndustryID Grade MarketCapGroup
NYSE:WMT WMT Walmart Consumer Defensive Discount Stores 57.13 142.58 387.00 23.57 23.57 6.05 1.5700 66.6700 4 2.24 3.9100 7 5 Consumable - Discretionary NO YES YES NO USA 1 4 34 B Mega Cap
NYSE:HD HD Home Depot Inc. Consumer Cyclical Home Improvement Retail 76.35 314.94 322.41 19.36 19.36 16.27 2.4100 43.6400 4 7.60 16.4500 10 7 Consumable - Discretionary YES NO NO NO USA 1 3 50 A Mega Cap
NYSE:KO KO Coca-Cola Consumer Defensive Beverages - Non-Alcoholic 56.36 61.32 265.18 24.73 24.73 2.48 2.8700 75.8400 4 1.76 5.1700 5 8 Consumable - Discretionary NO YES YES YES USA 1 4 23 B Mega Cap
NASDAQ:PEP PEP Pepsi Co Consumer Defensive Beverages - Non-Alcoholic 67.11 178.05 245.30 26.77 26.77 6.65 2.5800 63.0400 4 4.60 8.3800 7 7 Consumable - Discretionary NO YES YES NO USA 1 4 23 A Mega Cap
NYSE:MCD MCD McDonald Consumer Cyclical Restaurants 55.33 271.39 198.77 27.86 27.86 9.74 2.2400 51.7300 4 6.08 9.8100 6 7 Consumable - Discretionary NO YES YES NO USA 1 3 87 B Large Cap

Durable

Growth from this classification comes from economic growth in my opinion. Most consumptions is needed to require increase production which drives growth for durables products and factories generating those products.

Without growth, no new towers are needed and no new bridges. Infrastructure can reuse what exists instead of creating new roads or buses.

TickerKey Ticker Company Sector Industry Score Quote Market Cap P/E FPE EPS Yield Raw PayoutRatio Payments Dividend Chowder GrowthRating IncomeRating Tollbooth Ambassador Achiever Aristocrat King Country Graph SectorID IndustryID Grade MarketCapGroup
NASDAQ:NVDA NVDA NVIDIA Corporation Technology Semiconductors 31.54 163.27 406.54 37.45 37.45 4.36 0.1000 5.1800 4 0.16 1.7100 3 3 Durable NO NO NO NO USA 1 11 88 D Mega Cap
NASDAQ:AVGO AVGO Broadcom Inc. Technology Semiconductors 70.67 518.09 219.92 14.80 14.80 35.00 3.1700 66.2700 4 16.40 31.8000 7 8 Durable NO NO NO NO USA 1 11 88 A Mega Cap
NASDAQ:CSCO CSCO Cisco Systems Inc. Technology Communication Equipment 63.46 44.79 183.91 13.33 13.33 3.36 3.3900 52.6900 4 1.52 9.2300 4 8 Durable NO NO NO NO USA 1 11 27 B Large Cap
NYSE:ABT ABT Abbott Laboratories Healthcare Medical Devices 49.37 104.09 181.49 18.49 18.49 5.63 1.8100 41.9200 4 1.88 1.1600 4 6 Durable NO YES YES NO USA 1 8 63 C Large Cap
NASDAQ:TXN TXN Texas Instrument Technology Semiconductors 69.38 179.49 162.90 18.85 18.85 9.52 2.7600 47.6700 4 4.96 19.7400 7 7 Durable YES YES NO NO USA 1 11 88 A Large Cap

Intermediate

This is a catch all for many basic materials and energy companies. It represent a company that doesn’t reach consumers directly and is instead consumed by another business before it reaches the consumer.

TickerKey Ticker Company Sector Industry Score Quote Market Cap P/E FPE EPS Yield Raw PayoutRatio Payments Dividend Chowder GrowthRating IncomeRating Tollbooth Ambassador Achiever Aristocrat King Country Graph SectorID IndustryID Grade MarketCapGroup
NYSE:TMO TMO Thermo Fisher Scientific Inc Healthcare Diagnostics & Research 47.67 538.68 211.27 22.10 22.10 24.38 0.2200 6.4800 4 1.20 10.9800 5 4 Intermediate NO NO NO NO USA 1 8 33 C Mega Cap
NYSE:DHR DHR Danaher Corporation Healthcare Diagnostics & Research 52.94 271.00 197.28 25.16 25.16 10.77 0.3700 10.4500 4 1.00 7.6500 7 4 Intermediate NO NO NO NO USA 1 8 33 B Large Cap
NYSE:COP COP ConocoPhillips Energy Oil & Gas E&P 44.92 133.96 166.92 10.27 10.27 13.05 1.5200 13.2800 4 2.04 0.0000 4 5 Intermediate NO NO NO NO USA 1 5 69 C Large Cap
NYSE:LIN LIN Linde Praxair Inc. Basic Materials Specialty Chemicals 65.37 330.22 163.25 27.75 27.75 11.90 1.4200 59.8200 4 4.68 8.5800 8 6 Intermediate NO YES YES NO USA 1 1 93 A Large Cap
NYSE:HON HON Honeywell International Inc. Industrials Specialty Industrial Machinery 61.04 212.73 143.02 25.48 25.48 8.35 1.9400 49.9900 4 4.12 9.2000 7 7 Intermediate YES NO NO NO USA 1 9 94 B Large Cap

Building a Tollbooth Portfolio

In the end, tollbooth and subscription businesses mean repeat customers. Back to the car business, a manufacturer would love to lock in customers with their brand, instead every time they roll over new models, they risk losing customers to another brand. Subscription implies loyalty and repeat spending which is very profitable for a business.

While the sector or industry classification could match a segment, it’s not always a 100% match. I strive to invest in companies that fit the first 3 categorization above.

DISCLOSURE: Please note that I may have a position in one or many of the holdings listed. For a complete list of my holdings, please see my Dividend Portfolio.

DISCLAIMER: Please note that this blog post represents my opinion and not an advice/recommendation. I am not a financial adviser, I am not qualified to give financial advice. Before you buy any stocks/funds consult with a qualified financial planner. Make your investment decisions at your own risk – see my full disclaimer for more details.