Tollbooth Stocks for a Tollbooth Portfolio

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 53.55 141.66 2,292.79 23.00 23.00 6.16 0.6500 14.4100 4 0.92 9.0000 6 6 Subscription NO NO NO NO USA 1 11 31 B Mega Cap
NASDAQ:MSFT MSFT Microsoft Technology Software - Infrastructure 73.55 267.70 2,002.14 29.29 29.29 9.14 0.9300 25.0300 4 2.48 11.5200 10 7 Subscription YES YES NO NO USA 1 11 91 A Mega Cap
NASDAQ:COST COST Costco Consumer Defensive Discount Stores 68.79 484.37 214.56 37.35 37.35 12.97 0.7400 25.6500 4 3.60 12.6400 10 6 Subscription YES YES NO NO USA 1 4 34 A Mega Cap
NYSE:ACN ACN Accenture plc Technology Information Technology Services 68.34 299.37 198.84 28.62 28.62 10.46 1.3000 33.7300 4 3.88 10.6400 8 6 Subscription YES YES NO NO USA 1 11 53 A Large Cap
NYSE:ORCL ORCL Oracle Corporation Technology Software - Infrastructure 64.92 70.70 188.41 14.40 14.40 4.91 1.8100 51.4600 4 1.28 16.6800 7 5 Subscription NO NO NO NO USA 1 11 91 B 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 66.92 63.28 57.59 19.51 19.51 3.30 5.8200 108.0500 4 3.68 10.8600 5 8 Tollbooth - Regulated NO YES YES NO Canada 1 2 99 A Large Cap
TSE:T T Telus Communication Services Telecommunication Services 71.72 28.89 39.89 23.18 23.18 1.08 4.6900 102.8100 4 1.35 11.2600 7 6 Tollbooth - Regulated NO YES YES NO Canada 1 2 99 A Large Cap
TSE:RCI.B RCI.B Rogers Communication Services Telecommunication Services 35.87 62.43 31.51 19.89 19.89 3.65 3.2000 63.5600 4 2.00 4.0200 1 5 Tollbooth - Regulated NO NO NO NO Canada 1 2 99 D Large Cap
TSE:BIP.UN BIP.UN Brookfield Infrastructure Partners Utilities Utilities - Diversified 51.79 47.78 31.16 0.00 0.00 1.24 5.8300 120.5400 4 2.16 8.4700 4 5 Tollbooth - Regulated NO NO NO NO Canada 1 12 104 B Large Cap
TSE:FTS FTS Fortis Utilities Utilities - Regulated Electric 69.99 59.77 28.50 23.09 23.09 2.60 3.5800 81.6500 4 2.14 9.5000 6 6 Tollbooth - Regulated NO YES YES NO Canada 1 12 106 A 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 68.52 495.64 465.00 25.83 25.83 19.19 1.3300 31.3000 4 6.60 18.8500 9 6 Tollbooth - Unregulated YES NO NO NO USA 1 8 49 A Mega Cap
NYSE:V V Visa Financial Services Credit Services 68.09 205.51 428.11 30.63 30.63 6.71 0.7300 22.3400 4 1.50 18.1300 10 6 Tollbooth - Unregulated YES YES NO NO USA 1 7 32 A Mega Cap
NYSE:XOM XOM Exxon Mobile Corp Energy Oil & Gas Integrated 78.69 86.90 366.13 12.78 12.78 6.80 4.0500 58.1400 4 3.52 6.6600 8 8 Tollbooth - Unregulated NO YES YES NO USA 1 5 70 A Mega Cap
NYSE:JPM JPM JP Morgan Chase Financial Services Banks - Diversified 86.32 117.32 344.57 8.62 8.62 13.61 3.4100 28.8200 4 4.00 14.2100 9 8 Tollbooth - Unregulated YES NO NO NO USA 1 7 21 A+ Mega Cap
NYSE:MA MA Master Card Financial Services Credit Services 68.75 330.50 321.46 35.05 35.05 9.43 0.5900 19.2200 4 1.96 18.8800 10 6 Tollbooth - Unregulated YES NO NO NO USA 1 7 32 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 60.97 182.29 479.68 18.45 18.45 9.88 2.4800 56.2800 4 4.52 8.2600 6 7 Consumable - Necessities NO YES YES YES USA 1 8 35 B Mega Cap
NYSE:PG PG Procter & Gamble Consumer Defensive Household & Personal Products 63.90 144.35 346.34 25.19 25.19 5.73 2.5300 59.0400 4 3.65 7.5800 6 7 Consumable - Necessities NO YES YES YES USA 1 4 51 B Mega Cap
NYSE:LLY LLY Lilly Healthcare Drug Manufacturers - General 42.82 325.62 309.39 35.90 35.90 9.07 1.2000 39.6000 4 3.92 6.8700 5 6 Consumable - Necessities NO NO NO NO USA 1 8 35 C Mega Cap
NYSE:PFE PFE Pfizer Inc. Healthcare Drug Manufacturers - General 70.57 51.59 289.47 10.00 10.00 5.16 3.1000 43.2000 4 1.60 7.7800 6 8 Consumable - Necessities NO NO NO NO USA 1 8 35 A Mega Cap
NYSE:ABBV ABBV AbbVie Inc Healthcare Drug Manufacturers - General 61.01 152.34 269.20 11.75 11.75 12.97 3.7000 77.9800 4 5.64 4.3700 5 7 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 61.21 123.72 339.14 20.42 20.42 6.06 1.8100 82.9600 4 2.24 4.1500 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 84.96 283.00 290.85 17.97 17.97 15.75 2.6900 43.4200 4 7.60 16.7300 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 58.96 63.04 273.28 26.05 26.05 2.42 2.7900 71.2900 4 1.76 5.0900 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 68.56 166.13 229.71 26.24 26.24 6.33 2.7700 57.6600 4 4.60 8.5600 7 7 Consumable - Discretionary NO YES YES NO USA 1 4 23 A Mega Cap
NYSE:MCD MCD McDonald Consumer Cyclical Restaurants 59.72 247.90 183.33 25.72 25.72 9.64 2.2300 55.9800 4 5.52 9.8000 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 36.89 171.26 428.15 35.02 35.02 4.89 0.0900 4.2300 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 76.83 509.09 205.58 15.80 15.80 32.23 3.2200 73.3900 4 16.40 31.8600 7 8 Durable NO NO NO NO USA 1 11 88 A Mega Cap
NYSE:ABT ABT Abbott Laboratories Healthcare Medical Devices 53.63 109.45 191.64 19.48 19.48 5.62 1.7200 42.1700 4 1.88 1.0700 4 6 Durable NO YES YES NO USA 1 8 63 B Large Cap
NASDAQ:CSCO CSCO Cisco Systems Inc. Technology Communication Equipment 66.75 44.10 182.62 13.09 13.09 3.37 3.4500 52.7400 4 1.52 9.2800 4 8 Durable NO NO NO NO USA 1 11 27 A Large Cap
NASDAQ:INTC INTC Intel Corporation Technology Semiconductors 70.06 38.61 157.88 7.80 7.80 4.95 3.7800 17.5100 4 1.46 8.8000 6 7 Durable NO NO 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 50.55 544.81 213.27 21.66 21.66 25.15 0.2200 5.5900 4 1.20 10.9800 5 4 Intermediate NO NO NO NO USA 1 8 33 B Mega Cap
NYSE:DHR DHR Danaher Corporation Healthcare Diagnostics & Research 56.79 256.83 186.74 24.93 24.93 10.30 0.3900 10.1500 4 1.00 7.6700 7 4 Intermediate NO NO NO NO USA 1 8 33 B Large Cap
NYSE:LIN LIN Linde Praxair Inc. Basic Materials Specialty Chemicals 74.39 303.23 152.44 27.24 27.24 11.13 1.5400 55.4800 4 4.68 8.7100 8 6 Intermediate NO YES YES NO USA 1 1 93 A Large Cap
NYSE:HON HON Honeywell International Inc. Industrials Specialty Industrial Machinery 70.79 180.02 122.55 22.39 22.39 8.04 2.1800 50.3500 4 3.92 9.4400 7 7 Intermediate YES NO NO NO USA 1 9 94 A Large Cap
NYSE:COP COP ConocoPhillips Energy Oil & Gas E&P 55.50 90.91 117.59 10.60 10.60 8.58 2.0200 18.4700 4 1.84 0.0000 4 6 Intermediate NO NO NO NO USA 1 5 69 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.