Interview: Millennials, The ESG/Energy Stock Debate, And Big Fat Dividends From Telecoms
Last week, I interviewed Jimmy Butts about everything from the tech rally to homebuilders to crypto storage.
And so this week, I thought I’d pick my one of my other colleague’s brains, Nathan Slaughter, Chief Strategist of High-Yield Investing.
As always, Nathan and I covered a lot of ground. We discussed why investors should pay attention to Millennials, why investors can have it both ways with “green” stocks and traditional energy stocks, as well as why he’s such a big fan of telecoms (hint: big, fat, dividends).
But before we get to that, I want to invite you to check out something you may have missed… It’s the first in what we hope will be an ongoing series about the fast-paced, evolving world of cryptocurrency. Be sure to check it out here. And as always, let me know what you think.
But first, it’s Nathan’s turn. My questions are in bold…
One topic we’ve discussed before is that my generation (millennials) is now the largest generational cohort. And as we enter our prime earning (and spending) years, we’re spending money a little bit differently. Can you explain why investors should pay attention to this?
Absolutely. Look, a lot of our readers over at High-Yield Investing tend to be closer to retirement (although I’d argue that income investing is for everyone, but that’s another story for another day). So they may not be aware of this stuff.
But it’s important to realize that Millennials and Gen Z-ers (pretty much anyone under the age of 42) have grown up in a different world from the rest of us.
Source: Visual Capitalist
For starters, everything and everyone is on social media. And they’ve grown up in it.
Nearly one-in-five Millennials intend to be “forever renters.” Part of that is a generational mindset shift. Part of it is the fact that housing is more expensive in both relative and absolute terms than in previous generations.
We could debate the causes and argue about policies. But from an investment perspective, that has some ramifications.
Also, Millennials tend to spend more on “experiences” over “things.” Visa and Mastercard have the data to back this up. That’s not to say they’ve renounced all material goods — it’s just that more is spent on vacations, sporting events, music festivals… things like that.
I get that it’s easy to roll your eyes at the younger crowd. But you can’t ignore this stuff.
About 90% of Americans plan to travel the same or more in 2023 than they did in 2022. More than 90 million tourists will pour into National Parks this year. A lot of that is because of Millennials. And as an outdoorsman myself, I think that’s a good thing. (They’re even buying RVs and camper trailers.)
So while the traditional shopping mall is dead… mixed-use developments with things like restaurants, high-end shopping, and apartments are where it’s at.
I could go on. But you get the idea. Invest accordingly.
You’ve advocated for both lithium and oil & gas stocks. How do you reconcile this, and why are they both worth a look for investors?
That’s a great question. I won’t get into the debate over ESG (environmental, social, governance) investing, but I will say this…
We all know that the calls for electrification are growing louder by the day. And we can’t have EVs without lithium.
And we’re going to need a LOT more of it. So for that reason, I’m actually a fan of lithium from an investing perspective.
But the world isn’t going to suddenly stop on a dime and stop using oil and natural gas, either.
All of the smart players know this. They have to prepare for the future while exploiting the current resources available. That’s their job. It also helps that the oil & gas industry has gotten much smarter and more efficient. A lot of them can remain profitable with oil prices at $40 or even $30 per barrel.
So even if demand starts to wane, a lot of them will be fine. And they’ll have plenty of cash to spend on buybacks and dividends.
You recently wrote about the “beautiful business” of telecoms. Can you explain the appeal?
I tried to order a snack on a plane recently and was informed that the airline didn’t accept cash or debit/credit cards for in-flight purchases. Payment could only be made via an American Airlines smartphone app. It’s almost more of an obligation than a choice — you can barely function in society anymore without a phone.
And a wireless plan.
While not technically compulsory, there are now 310 million smartphone users in the United States, one for nearly each of the 331 million citizens. And as we all know, that cell phone bill must be paid every 30 days.
This brings us to those two lovely words: recurring revenues. The Tier One wireless carriers generally charge $50 or so for standard monthly service, considerably more for unlimited data plans. So forecasting income is a simple exercise in second-grade math. Just multiply that figure by ‘X’ number of subscribers, and you have a ballpark idea.
There are other ancillary sources of income. And the top line may deviate somewhat from period to period as a few old subscribers jump ship and a few new ones come aboard. But with low industry churn rates of around 1%, this is one of the most transparent and predictable cash flow streams you’ll find.
Nearly all of the wealth has been concentrated in the hands of just three major players. You undoubtedly know them. Verizon and AT&T each control around one-third of the market and battle for supremacy. Both of them are paying investors over 7% right now, by the way.
T Mobile (following its merger with Sprint) is close behind, while some of the legacy cable companies and a host of smaller regional operators carve up the remainder.
But we’ve reached a point where the largest players are almost at parity and aren’t interested in pursuing a destructive price war just to gain a point or two of market share. That equilibrium is a good thing.
Now, put it all together, and that’s music to the ears of dividend hunters like us. It’s also why now is the opportune time to dial up my favorite player in this space.
Since I just made this pick, I can’t give it away. But, again, this is a small paying field. In the meantime, if our readers want to know more about what we’re doing over at High-Yield Investing, they can check out my latest report here.