Several readers have asked me this week what “Dividend Superstations” are… so that’s the target for the Thinkolator today.
The ad comes from Brett Owens for his Contrarian Income Report, which is usually sold as a service that looks for a “secure 8% ‘no withdrawal’ return” for retirement — an admirable goal, and not terribly out of line with what income-focused newsletters have typically aimed for.
But the “Dividend Superstations” ad is much more specific than “buy some high-yielding stocks” — it talks up the impact of Tesla’s Supercharger stations, and the backdoor income investment potential that they provide. So what’s the story?
Well, here’s a little taste of the ad to get you revved up…
“Unknown to most investors, a network of money-payout machines is quietly being developing in all 50 states…
“And you can tap into this secret to collect monthly checks worth as much as $5,441.
“Keep reading to see how you can receive your first payment by November 24th, 2017.”
He includes a map of the Tesla Supercharger locations, including those that are built and those that are planned — and other than the fact that it’s a little out of date, the map is an exact match for what’s on Tesla’s website.
And though Tesla owns those Superchargers and will probably not pay a dividend for at least another decade or so, you can somehow make money from these — how is that? More from the ad:
“Tesla’s investor relations people say they don’t pay any dividends, and have no plans to.
“But anyone who enrolls is legally required to collect checks.
“This is not a temporary thing. You can continue collecting payments for as long as you want.”
And, more oddly:
“This is the missing piece to every retiree’s dream: A way to collect a steady stream of income without having to dip into their nest eggs.
“And getting started is easy. All you have to do is sign up and the checks will start rolling in every month.
“As long as Tesla keeps making cars, you’ll get a steady stream of payments – regardless of their stock price.
“If their shares keep pumping higher…
“You can collect monthly checks worth $2,720 to $5,441.”
So clearly there’s some attempt to connect this income investment to Tesla’s nosebleed-valuation stock price, but what he’s teasing is a Real Estate Investment Trust (REIT)… we know that because he cites Public Law 86-779, which is the law that set up the special tax rules for REITS (they avoid corporate taxation as long as they pass along 90% of their taxable income to shareholders, who will then inherit that tax liability).
So what’s this REIT that somehow benefits from Tesla’s Superchargers? More from the ad:
“Tesla built a network of stations around the country called Superchargers.
“These are the Dividend Superstations I’m telling you about.
“They not only solves the biggest problem plaguing the entire electric-vehicle business…
“But also creates a network of ‘cash cows’ that you can tap into for dividend checks.
“And right now, a lot of money is up for grabs.”
Then we get the implication that somehow it’s selling the Supercharger electricity that will be the source of our dividends…
“Tesla… had no choice but to shell out $270,000 to install each Supercharger and pay for the electricity for anyone who used it. The success of the company depended on giving Tesla owners this sweet deal.
“But with more and more people wanting to buy a Tesla, and a growing waiting list for their cars, that’s no longer the case.
“And on January 1, 2017, they made a landmark announcement.
“They said that from then on, folks would only get 400 kWh for free—good enough for a 1,000-mile road trip.
“Anything after that, the driver is on the hook for. The exact rate is displayed on the in-car touchscreen display and can range from $0.08 to $0.26 per minute.
“That makes a trip from San Francisco to Los Angeles about $15. Not bad for a 383-mile haul. And cheaper than gas for sure.
“Now here’s where your cut of the deal comes in…
“Anytime someone stops to charge their Tesla, you can be getting a piece of the pie!”
It’s 400 kWh a year now, in case you’re curious — and after that the fee is still less than refilling a gas tank, at least at current gas prices, though it would not be surprising to see prices go up (free Superchargers have already been abused by regular “recharge every day” users who use it instead of plugging in at home or at work, so instead of the long-haul “range anxiety” solution it was designed to be some Superchargers effectively became congested gas stations with long fuel lines in some heavy Tesla-ownership areas like Northern California… after all, it still takes far longer to recharge a battery than to refill a gas tank, even if you only need a 15-30 minute top-up on the battery… sometimes you have to charge more for something just to get people to use it less).
But how is it that you’re “getting a piece of the pie?” Lets see what other clues are dropped… he runs through some examples of folks who have been “averaging” huge monthly payouts…
“… average monthly income of $4,391!
“On a $1 million nest egg…
“That’s the equivalent of bagging a 5.9% yield!
“More than double what the Dividend Aristocrats and S&P 500 are paying.
“So how does a program that flies under the radar of the mainstream manage to make such high payments?”
I get a 5.2% yield for that calculation, but close enough… and yes, we remind ourselves, this is on a one million dollar investment — these ads like to repeat over and over the huge “monthly income” or “big payout” numbers of four or five thousand dollars a month, but rarely emphasize the fact that to get that kind of regular income you have to put a large investment of capital at risk. That is, after all, what you’re doing — you risk some money to buy into a company or an asset, and you collect a portion of the return… it’s just that when it comes to REITs, much of your return is usually in the form of dividend payments.
Owens then tries to get us thinking “safety” and “income” by comparing Supercharger stations to both electric utilities, which are traditionally “safe” income investments (they are, after all, just delivery systems to sell electricity to customers), and to gas stations (which he says are the “downstream” businesses responsible for the lion’s share of the profit of high-yielding companies like ExxonMobil or Shell).
“Now imagine if you could combine the monopoly power of utilities companies…
“With the downstream business of Big Oil.
“You’d end up with an investment that can easily pay 6% (or more) every month.
“On a portfolio of $500,000…
“That’s like getting a $2,500 check in the mail every month.”
Then we get another spiel about how this money Tesla owners pay to charge their cars will be flowing into your pocket… prepare to be a bit skeptical here:
“Here’s a back-of-the-envelope calculation for you…
“The Department of Transportation reveals that the average American drives 13,474 miles per year.
“The cost to “fill up” a Tesla every 300 miles is $16.35 according to ARK Investment
“That means a Tesla driver will spend $734 to charge a car every year.
“Doesn’t seem like a ton of money.
“But when you multiply it by the 542,000 (and counting) people who own Teslas…
“That creates a $398 million jackpot that’ll be paid out to anyone who enrolls in this secret dividend program!
“If you recall, Public Law 86-779 requires that 90% of this money must be paid out to YOU.”
OK… so somehow the money Tesla owners spend to charge their cars, most of which is actually done at home overnight, will somehow be available to owners of this investment, whatever it is, and subject to REIT dividend rules? Adding the specific numbers doesn’t make that any more true, that’s just a made-up premise… and yes, it was estimated last year that there have been a total of 542,000 plug-in electric vehicles sold in the US, including plug-in hybrids, but probably only about a quarter of those are Teslas. Elon Musk does want to sell half a million Teslas a year, mostly the cheaper Model 3, but the troubles they’ve had in ramping up production remind us that we’re a ways from that becoming reality.
But then we get to the part that’s a bit more “real” ….
“A Tesla takes about an hour to charge at a Supercharger. Unlike filling up on gas where you might grab a quick coffee or snack and then hit the road, Tesla owners have much more time to kill.
“And what happens when people have downtime?
“Yep, you guessed it…They spend money.
“Supercharger stations are located around shopping centers, resorts, and restaurants.
“Basically, anywhere people can spend money in an hour.
“And listen to this…
“Sometimes people will even call it a day after driving 300 miles. They’ll check into hotels near Supercharger locations for the night and spend cash there.
“And those folks are spending $131 per visit on average.
“A bit of all that money they spend could be going into your pocket as part of Tesla’ Secret Dividend Program.”
Ahhh, now we’re talking. So shopping centers, restaurants, hotels… those places sometimes have electric vehicle chargers, either Tesla Superchargers or one of the many other options available… and those kinds of properties are very often owned by Real Estate Investment
But… which one? The ad implies that there are at least two investments that Owens likes for this “rise of electric cars” idea, but the clues are not particularly specific… I’ll toss this last bit into the Thinkolator:
“Given all the places that charging stations are popping up, you’ll see they’re not all created equal. Some see more traffic and some have other businesses that rake in revenue—just like a gas station that rakes in money selling doughnuts, coffee, and beer.
“I’m going to show you how to tap into the Northern California market, with the highest concentration of Teslas in America. You can get a piece of their charging rates, as well as the money they spend on food, lodging, and other business travel expenses.”
So what do we get from the Thinkolator? Well, there are a lot of potential matches — a great many hotel, shopping center, office and apartment-owning REITs have either dabbled in or fully committed to making vehicle charging available to their tenants… especially in areas like Northern California, where EV ownership is relatively high.
But I think our best match here, particularly if we’re looking at a single company, is Hospitality Properties Trust (HPT)… which is a REIT that owns a unique combination of travel-related properties — limited-service business hotels (think Courtyard by Marriott and the like) and truck stops.
HPT is not shockingly different than other hospitality REITs in terms of their financial performance, but the presence of those 200 or so travel centers in the portfolio does provide some diversification… and travel centers, according to HPT’s financials, can more easily cover their rent obligations than the externally managed hotels can.
HPT is an externally managed REIT — meaning that it effectively pays management fees to RMR instead of hiring management staff, which can bring up concerns about fees and whether the client REITs are getting a good deal. The RMR Group also manages the REITs GOV, SNH, TRMT and SIR… and manages some operating companies, including the hotel and travel center companies whose properties are owned by HPT, so there’s a lot of intermingling… including on the ownership side, since RMR itself is about half-owned by the REITs it manages (a deal that also raised some eyebrows when it was done a couple years ago). I don’t know if there’s anything nefarious about RMR, but I do know that externally managed REITs sometimes have a bad reputation and are often avoided by big investors (RMR gets singled out for negative attention sometimes, like in this Seeking Alpha piece from last year, but I can’t say that I’ve ever examined them very closely).
Incidentally, RMR itself has been a far, far better investment than any of the REITs it manages — the stock has only been traded for about two years, but has a total return of about 390%… compared to 32% for HPT, 53% for SIR and 64% for SHN (TRMT just went public this past summer). That’s not necessarily a fair comparison, the REITs are being bought for high current yields and RMR is really positioned as more of a financial services growth stock, but it’s worth remembering that sometimes more of the money in real estate is made by the folks who move money around, not by the folks who own the properties.
Still, HPT is an interesting one… if only because of the mix of properties — they used to own Travel Centers of America, one of the major truck stop chains (they spun it out about ten years ago… ticker TA), and now they own most of the properties that TA operates. Those are solid businesses, though much of the revenue depends on trucking volume — I’m sure some Travel Centers probably have electric vehicle charging stations, but it’s not material to their operation enough to have them even be a searchable item on their website (that goes for big competitors like Loves and Pilot Flying J as well, incidentally, they’re currently much more likely to make it easy to find CNG fueling stations for the trucks who used compressed gas than they are to focus on electric vehicle charging).
Still, electric vehicle charging is a logical addition to pretty much any truck stop — most of them are on interstates and have plenty of space, and they already cater to truckers who stop for a shower or a nap or a sit-down meal so they know the benefit of a driver who stops for an hour compared to one who stops for three minutes to fill his gas tank. Maybe it will be an important part of their business someday.
And likewise, many hotels, including some of the properties owned by HPT, which focuses on the “suburban office park” variety of business hotel, will feature vehicle charging — it’s fairly common at hotels who are trying to distinguish themselves from competitors, and who would like to attract the relatively affluent customers who drive electric vehicles (on average, reports indicate that electric vehicle owners earn roughly twice as much as the average person). Superchargers are owned by Tesla, however, and generally are not revenue-generators — the bargain much of the time has been that Tesla makes the investment (they cost a couple hundred thousand dollars to build), and the property owner promises to give Tesla access for 5-10 years, in exchange for the hoped-for increase in traffic from fancy Tesla owners. Hotels are much more likely to spend a few thousand dollars to put up something that’s more like a beefed-up version of what you would install in your garage if you had an electric car… and in some cases, I would expect, to grumble about the fact that they’ll have to sell 1000 extra room nights to pay for it.
HPT is not a fast dividend grower, but they do have a high current yield — roughly 7% at today’s price, and they have been able to grow the dividend every year (the annual dividend increases have recently been about 2%, so they’re keeping up with inflation). And though the margins at the hotels are not super compelling, they report that the hotels are able to cover their obligations to HPT (minimum payments and rent) with a 10-20% cushion… my guess would be that they’ll mostly be fine as long as we don’t have a recession, but that a meaningful downturn in business travel would put the hurt on a pretty wide swath of their tenants and maybe cause some of them to have trouble paying rent.
They are relatively conservative compared to some hotel REITs, it appears, in holding something akin to a “security deposit” and offering more upside to hotel operators in exchange for somewhat firmer downside protection, but I don’t have any idea how those agreements will play out if they’re really tested. At this point, they can easily cover the dividend with their adjusted funds from operations (AFFO) — the dividend payout right now is only about half of AFFO, which is much more conservative than most REITs I’ve looked at, though to some degree that’s true of their competitors as well — hotel REITs often have higher yields and lower AFFO payouts in general, perhaps because hotels require more maintenance capex than many properties and so the “depreciation” is more of a real and recurring cash flow obligation than it is in some real estate companies. Hotels are also among the safest real estate investments during inflation scares, since they can reset their rents every day if they want to… but that’s not such a draw right now, after our long period of persistent low inflation.
You can see their latest investor presentation here to get more of an overview of the company.
So… this may not be the precise answer, there are certainly other REITS that have a meaningful Northern California presence and also mention electric vehicle charging as one of the benefits for their tenants, like American Assets Trust (AAT, current yield quite low at 2.75%)… even big ol’ Realty Income (O, 4.5% yield) owns quite a few gas stations and talks up electric vehicle charging as one draw of their properties. But Owens has written glowingly about HPT in some of his free articles in the past (including calling it a “Thing of Beauty” last month), and it’s the best match I can identify for the clues.
And I’ll leave you there, dear friends — no, you can’t really earn steady income from Tesla Superchargers, not in any direct way… but I suppose you can buy REITs that own properties which might get some marginal benefit from electric vehicle charging. HPT is one, and their combination of suburban business hotels and travel centers is an interesting strategy for a REIT… whether it appeals to you is, of course, your call — if you’ve got a take on investing in this REIT, or any other (or, indeed, a strategy for investing in electric car charging stations), feel free to share it with a comment below. Thanks for reading!