by Travis Johnson, Stock Gumshoe | February 12, 2019 1:40 pm
We get “rebate” and “refund” and “enrollment” check teasers all the time, it’s a popular way to give investors, especially inexperienced investors, the illusion that there’s some free way to get money that they don’t know about (which many people always suspect, anyway)… the story typically is that all you have to do is sign up for a newsletter to get all that valuable inside info, and before you know it checks of $1,000, $2,000, $5,000 or more will just start appearing in your mailbox every month.
That’s never how it works, of course, but let’s look at the specifics of this latest one — the ad is from Mike Burnick, selling his Infinite Income newsletter, and he begins by providing some context that makes you start to believe that maybe there is really free money out there waiting for you:
“It doesn’t matter if you use Medicare every single day…
“Or if you’ve never used it a single time in your life…
“You’ve been paying into the Medicare fund your whole life in taxes….
“$672 BILLION and growing FAST….
“And every year, that much money is taken from YOUR pockets and housed in the Medicare Trust Funds.
“But it doesn’t stay there for long.
“In fact, some smart Americans have found an investment that actually taps into this cash flow…
“And they get to cash regular checks — ranging from up to $640… to $3,200… to some as much as $9,600 or more…
“Capturing income from the very companies that profit the most from Medicare’s $670+ BILLION-per-year payout!”
When you throw that $672 billion number out there, it starts to anchor your expectations. Then you set a range of $640 to $9,600, and that’s what sticks in the reader’s mind… subtly pushing us to think, “hey, even the bottom end of that range ain’t bad!”
To Burnick’s credit, he does use the word “investment” — some of these pitches never mention the word “invest” or give you any context about the fact that what you get back is a function of how much you invest. More of his words:
“It’s finally a chance to capture income from a VICIOUS healthcare market.
“Now… these “Medical Rebate Checks” aren’t literal rebates.
“In fact, they’re actually much better…
“Since this isn’t some handout from the government…
“It means ANYONE can invest in order to collect this cash.”
And he pulls in some quotes from respected sources, which ads use to buttress their claims and get people to keep reading… after all, if they talk about Forbes and the Wall Street Journal it can’t be scammy, right?
“Maybe that’s why Forbes describes a few of these specific ‘Rebate Checks’ a ‘No-Brainer’ and ‘Perfect for Retirement.’
“Barron’s reports that these ‘rebates’ are ‘an important part of the story and generally reliable.’
“And The Wall Street Journal says, ‘Follow the [‘Medical Rebate Checks’]’.”
And while he does continue to include those words like “investment” in the body of the ad, the headlines and the bolded stuff keeps pressing the receiving part… never is the actual amount you have to invest to receive these checks mentioned. Here’s more:
“Even if You’ve Never Spent so Much as a Penny on Aspirin at Any Point in Your Life…
“You’re Able to Start Receiving
“These Checks Immediately
“Regardless of your age, your income, if you receive Medicare coverage… or anything like that.
“Heck, you could set yourself up to start securing these checks starting as soon as February 15.”
And there are many, many more examples of the folks who are collecting big “medical rebate checks” of $935 to $9,600 per month, staggering sums for most people. The lowest actual number I saw in the ad was that $640 a month, though they do, again, do a better job than some similar ads in covering their butts on the low end…
“That’s because the more you put in, the more you collect.
“You could collect anywhere between a few bucks a month… and as much as $9,600.”
My favorite individual example is the story Burnick includes about “Harold Walker,” someone who apparently has a huge income thanks, in part, to those “rebate checks.” Readers must find these individual examples with names to be powerful, because all these “you’re gonna get checks” ads use similar techniques.
Here’s part of that story from the ad:
“From Unsung Science Fiction Writer to $100,000+ Income Thanks in Part to ‘Medical Rebate Checks’!
“Harold Walker isn’t a particularly accomplished writer…
“His work is mostly short stories in pulp magazines and a few novels — no bestsellers or awards to his name.
“But according to his interview…
“He didn’t let that stop him from generating an incredible yearly income partly in thanks to ‘Medical Rebate Checks.’
“He reported his total yearly income from this investment strategy across all kinds of companies was an incredible $146,194.
“All because he’s been collecting checks for more than 30 years. He keeps track of his money in a spreadsheet.”
“Harold Walker,” it appears, is actually Hayford Pierce, whose story — not all that unique or easy to emulate, sadly — was told in this Motley Fool story back in 2011.
I shouldn’t say that… it’s not all that unique, because we hear tales of investors every day who socked away a little bit in dividend-paying blue chips each month and became millionaires after a few decades… and the fact that he started with a nice little inheritance to jump start the portfolio meant it would be hard for many people to emulate, but his strategy and process are certainly easy to emulate even as they’re not particularly fun or sexy — he just mapped out a long-term investment plan that was designed to pay growing dividends over decades and get him to a sustainable dividend-only income that would support his lifestyle in old age.
That article also points to some of the problems with this kind of long-term strategy — he had a lot invested in GE when it collapsed in the financial crisis, for example, and as of the time of the article in 2011 he had shifted a lot of his investments to high-yield Master Limited Partnerships, which, if he held them through the collapse in 2014 and 2015, would have lost half of their value and dropped his dividend income considerably.
But still, he was focused on the long term and disciplined in his saving and planning, and those are good things — we’re not here to pick on Pierce, and I imagine he did just fine. I hope he’s still in good health.
No, we’re here to help point out that chasing rainbows doesn’t lead to good returns — and “Harold Walker” didn’t have some sort of secret “Medical Rebate Check” that instantly gave him a good income, he patiently invested in dividend-paying stocks and his portfolio and income grew nicely over decades as a result.
Yes, one of the stocks he had a large allocation to (may still, I don’t know), was one of the steadier dividend-paying stocks in American history, Johnson & Johnson (JNJ), and I guess you could twist that into describing JNJ dividends as “medical rebate checks” in some fashion… though the other two stocks that gentleman held as of the time he was interviewed by the Fool were Altria (MO) and Philip Morris International (PMI), which might be thought of as the opposite of “medical rebate check” generators by some (though smoking has certainly led to a lot of business for doctors and hospitals over the years).
Incidentally, those three are still among the most solid dividend-paying stocks you can find… and yes, it is true that long-term dividend growth stocks have generated some of the best possible returns for investors over the past 80 years. Whether that’s true over the next five years (or even the next 80), well, I don’t know… but getting a check in the mail each quarter does historically improve your odds a bit.
So yes, these “medical rebate checks” are… wait for it… corporate dividends. From pharmaceutical companies, in this case.
If you don’t know what that is, don’t start investing in individual stocks just yet. Dividends are essentially the portion of profit that a company chooses to share with its investors instead of using it to pay down debt or invest in new growth or do whatever else a company might do with surplus cash. They are popular with investors both because you get cash in hand, which does provide some income, and because a dividend policy tends to support the share price to some extent and make it a little smoother (not always, I said “tends”).
One of the most powerful strategies for investing is simple dividend compounding in companies that have stable and growing businesses and a long history of growing their dividend, since letting those dividend payments get reinvested in more shares each quarter means your money is making more money… but it does take many years for that strategy to bear any fruit, and a stock that collapses quickly (like GE has a few times in recent decades, for example) can quickly wipe out those gains that you patiently made over many years, so diversification is important.
This is not a secret, of course. Any patient investor knows that dividends generate a large chunk of the return over time… and this compounding of earnings and dividends is what powers many of our indexed or passive investments in retirement accounts and mutual funds.
But anyway, yes, he’s talking up dividend-paying stocks that have something to do with the medical sector. What are they? How much are the checks going to be? Let me go on with some more from the ad and we’ll find some names for you…
“So Where Exactly Are All These
“‘Medical Rebate Checks’ Coming From?
“Like I mentioned, this income isn’t coming from a government program…
“But after I show you how to “follow the money” for these “Medical Rebate Checks”…
“You’ll soon see exactly how Americans from all over have tapped into the monstrous healthcare cash flow.”
And then we get into the specifics:
“… several pharma companies are actually sending portions of their huge profits back to certain hardworking Americans…
“In the form of these ‘Medical Rebate Checks’!
“So unless you’re positioned to receive ‘Medical Rebate Checks,’ you’re indirectly contributing to this flow of money…
“But you’re not getting paid!”
And then, yes, we get some clarity:
“As a company shareholder, you’ll be set up to collect ‘Medical Rebate Checks’ from them — for as long as you want!
“As Forbes reports, ‘Some well-known Big Pharma companies pay solid [‘Medical Rebate Checks’].’
“That’s why I’m so excited to bring you this idea today…”
So how do you get yourself on the “Medical Rebate Distribution List” that Burnick talks about?
Um… you buy the stocks. And for each stock you own when a dividend date rolls around (almost all of them pay quarterly), you’ll receive a check for the amount of dividend you earned with your shares. Or you’ll probably actually get it electronically in your brokerage account, or maybe even will have your dividends automatically reinvested in new shares, depending on how your account is set up… not many people actually receive quarterly paper checks anymore, but the money is the same.
Which of these stocks is Burnick recommending? He goes through hints about a few:
“This Big Pharma Company in North Chicago Paid $4.1 BILLION in ‘Medical Rebate Checks’ Last Year…
“But you probably didn’t know…
“It was buried on page 58 of its 212-page yearly financial report!”
OK, you might not have known… but it certainly wasn’t buried or hidden. Companies announce their dividends and make them as public as they can… paying a dividend is part of how they attract new investors, it’s not a secret.
More clues about this specific one:
“Some smart Americans have tapped into the ‘Medical Rebate Checks’ from this Chicago company…
“Which makes its money selling over 40 different prescription drugs.
“Best yet, this company has increased the amount of money it contributes to your ‘Medical Rebate Checks’!
“As Forbes reports, ;So far this company has not disappointed, raising its [‘Medical Rebate Checks’]… annually.'”
We know that dividend growth is a good thing, right, so that sounds awesome… what kind of checks can we get? More hints:
“You could join these insiders who are collecting their own extra-large ‘Rebate Checks’ from this company too:
“Like Daniel Wilson, who cashed his ‘Medical Rebate Check’ for $7,337…
“Tom Perez, whose last ‘Medical Rebate Check’ was made out for $4,482…
“Clarence Pearce received a ‘Medical Rebate Check’ from this company for $1,823…”
So yes, this one is good old Abbvie (ABBV), a $120 billion company with growing earnings and an unusually large dividend yield of about 5% (that just means the expected annual dividend is about 5% of the current share price).
They just raised the dividend again, to $1.07 per share per quarter as of mid-January, so yes, you could collect checks if you buy ABBV shares (or, better yet, let those dividends get reinvested and buy more shares, compounding your earnings over time… assuming, of course, that the stock doesn’t lose value over time). And you’ve missed this next dividend, it doesn’t get paid until February 15, so I guess that’s the source of the date in the ad headline, but you had to own the stock on the ex-dividend date, January 14, in order to receive this next dividend… if you buy today they will presumably pay the next quarterly dividend, almost certainly in the same amount, to shareholders who own the stock as of early April.
Getting amounts like those teased would require a major investment, though, even at that nice yield — to catch up with Daniel Wilson’s “Medical Rebate Check” of $7,337 each quarter you’d have to buy about 6,857 shares at a total cost of almost $550,000. Most likely they just took insiders from the list of board members and executives and used them as examples, that’s almost exactly the quarterly dividend that Robert Michael will receive each quarter on the shares he’s been granted over his years at the top ranks at the company (he’s one of the smaller fish, but maybe they didn’t think it would be believable or relatable to refer to the $306,000 that Chairman Richard Gonzalez receives in dividends each quarter on his $23 million shareholding).
So yes, if you have half a million dollars to invest I can pretty easily suggest a few stocks that might earn you close to $30,000 a year in dividends… though shooting for $15-20,000 instead will probably mean you’re taking less risk. Usually stocks that have above-average dividend yields are perceived as being at risk of declining earnings, or at least stagnating earnings, and that’s the case here — though it seems to have a specific cause. Abbvie has plenty of profit from which to pay this dividend now, but the fear is that they’ve built this immense profit machine on the back of a single drug, Humira, which is losing patent protection now in Europe and will start to lose protection in the US in about four years. That’s the likely cause of the drop from $120 to $80 over the past year, and it’s a rational fear — Humira is the best-selling drug in the world, and losing that patent protection will hit the bottom line very hard unless AbbVie can come up with some replacements.
It’s not that they’re not trying, of course, and they have a full pipeline of other drugs and a few others that are of really meaningful size… but you don’t come across a Humira every day. Since AbbVie is from North Chicago, maybe we should think of it this way: Michael Jordon won six titles in eight years with the Chicago Bulls, making that seem normal and expected and, frankly, like the birthright of all Chicago sports fans… and after he retired (and his championship team essentially imploded) the team spent six years being terrible and didn’t make it back to the conference finals for 13 years (which they lost), and they’ve had some great players on the team in the decades since Jordan’s retirement but none have been “greatest of all time” caliber. Replacing a record-breaking legend requires luck and good timing, not just diligent work.
Patent cliff concerns can be overstated, of course — investors are a fearful lot. Pfizer (PFE) recovered from the loss of patent protection on Lipitor, the only patent expiration that really comes close to comparing to Humira for AbbVie, by a combination of battling to extend protection and throwing lawyers at the problem and building a replacement income stream with new drugs. The stock still stunk for a while, but investors anticipated the decline long before it really hit the bottom line (they had peak sales in 2006, but Pfizer managed to extend their patent to 2011 before the real collapse in revenue came, and by that time the stock had already passed the bottom… partly because of the 2008/9 market crash, one assumes, but still, PFE was rising again by the time Lipitor had its year of seeing Lipitor revenues crash from $10 billion to $2 billion. And Pfizer still hasn’t quite recovered to its high-rolling days of 2000, when Viagra was the new star on the scene and Pfizer had just bought Warner-Lambert to get at Lipitor.
Sometimes the market overreacts, or reacts too early, and Humira will probably continue to generate tens of billions of dollars in revenue for Abbvie over the next five years. Earnings are still likely to rise every year for the next several years, analysts think ABBV will earn $10.46 per share in 2021, so you can decide for yourself how much you want to discount the shares by as you anticipate that Humira revenue line beginning to drop in 2023 or so (assuming a slow decline from 2021, ABBV could still earn a total of close to $45 in profits per share over the next five years… though the stock has also dropped by $40 in value over just the past year, so deciding when the seesaw swings into the right balance for you as an investor is as much art as science).
And, thankfully, the ad does remind us that these are investments… this isn’t a “rebate” program that you just sign up for. They don’t really emphasize that concept, however, with their talk of big monthly checks, so I’ll emphasize it for you. These are Mike Burninck’s words, with my bolding:
“Remember, this is an investment opportunity…
“So how much you get is completely up to you, and how much you put in!“
What would it take to receive monthly checks of $640, the lowest amount that I saw specifically floated in the ad? Well, they pay quarterly, so that would be $1,920 per quarter. Each share will get you $1.07 in dividends per quarter this year, so you’d need to start with 1,794 shares. At $80 a share, that’s an initial investment of roughly $143,000 to get your “monthly rebate” of $640.
OK, so that’s one of ’em… how about the others?
“This Big Pharma Company in New York Paid $7.66 Billion in ‘Medical Rebate Checks’ Last Year
“… buried on page 56 of their 148-page financial report….
“That would be enough to give every American around $23
“Again, Americans have tapped into this company’s ‘Medical Rebate’ stream.
“As Barron’s reports, ‘A lucrative sale could help this company pay its hefty [‘Medical Rebate Checks’].’
“And Forbes says, ‘This company’s [‘Medical Rebate Checks’] are hefty… and have grown annually.”
We get the examples, too…
“That’s helped folks who have collected ‘Medical Rebate Checks’ average as much as…
“$4,263 per month for Jake Crowder…
“$5,998 per month for Patrick Riley…
“$1,144 per month for Greg Gadenhire…
“And even an extraordinary $9,562 per month for Francis Drake.”
Well, whaddya know — that’s Pfizer (PFE). And yes, to continue the math, Pfizer’s 36-cent quarterly dividend means that you’d have to have more than 3,000 shares to collect even the relatively paltry $1,144 that Greg Gadenhire earns in “rebate checks” — and that’s per quarter, not per month. Buying 3,000 shares of Pfizer today would cost you about $126,000… not a completely unreasonable amount for a relatively affluent person to invest in a single dividend-paying stock, but probably not the up-front investment that most folks who read this newsletter ad are picturing to earn their $381/month in “rebate checks.”
Pfizer has been a long-time dividend payer as well, and a very lucrative one for those who bought a decade ago or 25 years ago, though not as much for those who bought during the height of the Viagra and Lipitor excitement from 1999-2001. I wrote about Pfizer just a couple weeks ago, it’s far more diversified now in the post-Lipitor years and has had a strong run lately, deserving the “blue chip” status that typically goes with a $240 billion market cap. And it’s reasonably valued, at about 14X forward earnings. Investors don’t expect much growth, and there is the overhang of general societal concern about drug pricing, but Pfizer looks about as strong as anyone in the sector.
More examples of these “Rebate Checks?”
“For Example, THIS London-Based Company Paid $3.56 Billion in ‘Medical Rebate Checks’ Last Year….
“Forbes calls this company ‘rich’ and says that it ‘has one of the strongest pipelines in the pharmaceutical industry.’
“That means it’s a prime candidate to send out ‘Medical Rebate Checks.’
“Sure enough, I found out about Sean Burgher, a man on the inside of the company, who is set to get a ‘Medical Rebate Check’ for an extraordinarily large $10,898!”
That must be our old friend AstraZeneca (AZN), which is another biggie ($94 billion market cap), pays a dividend of almost 4%. AZN trades at a somewhat loftier 17X forward earnings, with no real growth in the current year expected, though there is some indication that investors expect the earnings to pop a bit higher in 2020… perhaps they have a big new drug maturing now, I haven’t looked into it. They don’t pay quarterly dividends, but pay twice a year — the initial dividend should be in the next few weeks, usually followed with a larger one late in the year, but I haven’t seen an amount announced just yet (US companies typically pay quarterly and try to pay a dividend that gradually rises, European companies are not as tied to that tradition and often pay once or twice a year, with amounts that fluctuate based on both that year’s profit and, for US investors, on the value of the home currency).
He goes through a few others, but the story is essentially the same… yes, most of the large and established pharmaceutical companies (indeed, many others in healthcare as well) pay decent dividends, and it has long been a solid sector for retirees who count on that dividend income. You do still have to pay attention to major regulatory changes and to big patent expiration “cliffs” for most of these companies, but over time, for the best companies, a lot of that gets smoothed out.
You could also, of course, just buy an ETF or mutual fund that focuses on pharmaceuticals… though those don’t tend to have dividend yields that are nearly as high as the 3-4% average for most of the large players, partly because they also invest in a lot of smaller and growing companies that don’t pay dividends. Here’s a list I pulled of the biggest pharmaceutical companies and their trailing dividend yield along with the three-year growth in the dividend (I haven’t checked the data, it’s from YCharts):
And, of course, you don’t have to restrict yourself just to “medical rebate” dividends, there are dozens of “dividend” and “dividend growth” ETFs that include big and relatively stable stocks like Apple (AAPL), JP Morgan (JPM), Microsoft (MSFT), Verizon (VZ), Procter & Gamble (PG) and other “blue chip” type large cap companies that pay above-average and growing dividends, and, in face, even the S&P 500 dividend yield is approaching 2% now, so even those super-boring broad market index funds will provide a bit of dividend income.
It’s pretty boring, but it has worked well for a long time… as long as you can add to your investments over time and diversify to reduce the risks posed by the occasional collapse, or avoid selling at the worst times… and as long as you don’t go into it really expecting to earn $7,000 a month from some “rebate check” program.
So, sadly, no free checks… no “rebate” for paying into Medicare for all those years (other than your continuing Medicare coverage in retirement, of course), and no lusty revenge scenario against the big pharma bad guys… just dividends for being a part owner of a profitable enterprise. Hard to argue with it, but it requires patience and discipline to build an income stream that would really catch your attention.
That’s all I’ve got for you today — ready for your “Rebate Checks?” Have any big dividend payers that you think are particularly attractive? Let us know with a comment below.
And, of course, we always want to know what our readers think of the newsletters they subscribe to, so if you’ve ever subscribed to Mike Burnick’s Infinite Income, please share your experience with your fellow investors by clicking here.
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