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“Prime Profits” — is Jeff Bezos really “Tossing a Lifeline to Cash-Starved Americans?” Answers to the teaser pitch from The Wealth Advisory…

What's the "Billionaire Income Secret" pitched by Jason Williams?

This is an ad we’ve seen in varying forms in the past, but it’s getting some play lately from the Outsider Club folks… and I haven’t updated my thoughts on it in a couple years, so let’s dig in and see if anything has changed.

The pitch is pretty compelling, at least for folks who are a little freaked out about the market’s recent turmoil:

“The reality is that investors need a stable stream of income to weather any economic downturn, no matter how ugly it gets out there.

“And what if I told you that Jeff Bezos is the answer?

“That’s right. Amazon stands to be the “lifeline” to investors looking for consistent cash flow.”

And where does that lifeline of cash come from, you ask? Jason Williams says it’s from a “fee” — here’s how he puts it in his promo emails:

“After nearly three decades of exponential growth, Amazon has been accused of being anti-competitive.

“So it’s been quietly hit with a ‘fee’ it has to pay in order to keep running its monopoly…

“That ‘fee’ adds up to nearly $2 billion this year alone. And gets dispersed to certain investors every four months.”

Oooh, that makes me mad. I hate it when people talk about these secret income streams that only “in the know” folks can tap into, and that will be revealed to you as soon as your credit card payment clears (The Wealth Advisory is currently being pitched for $49/yr).

We’ve already missed this next payment, they say, since it’s hinted at as a June 14 deadline — but that’s OK, it’s not an “anti-monopoly” fee that is being dispersed to secret investors, and it’s not particularly lucrative for those investors in any given moment, either.

Why is that? Well, it’s because what they’re teasing as “Prime Profits” is really just “buy shares of one of the real estate investment trusts (REITs) that leases space to Amazon, and collect the dividends that essentially all REITs pay out as a result.” I jump to that answer for you so quickly only because Jason Williams, and his predecessor Briton Ryle, have been using this same “Prime Profits” spiel for years — the first time I covered it was in September of 2018.

Is it still pitching the same stock, though? Well, let’s dig into the details and see… here’s the lead-in to the ad, just to give you some of that flavor:

“Over the next 60 seconds, Amazon will ship 2,083 packages.

“That’s more than 1 billion packages every single year.

“And practically every time a package leaves a warehouse of this $1.7 trillion tech giant…

“A small group of Americans will celebrate, as a dedicated cut of that revenue goes into a pot of more than $1.7 billion in legally obligated payments.

“I call these “Prime Profit” payouts. And until recently, only a small group of the world’s elites knew about them.”

And since this is always pitched as a “normal folks get massive payouts” idea, we get some examples of the winners as well, with the unstated implication being that maybe these are the same folks who subscribe to The Wealth Advisory

“Take Edward N. He’s worked in construction since the ’90s. Today, he lives in Denver and recently collected $257,688 from this secret income stream.

“Or look at Eugene R. He works for a warehousing company, lives in Boston, and collected $106,242 throughout 2017. That’s an extra $8,853 every single month!

“And there’s Lydia K. She used to work at Los Angeles World Airports (LAWA) and now lives in Glendale, California. She received $37,556 last year from the same income stream that you’ll be getting an inside look at today.

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“Just imagine! That’s a home renovation paid for with leftover cash, the latest Cadillac with all the bells and whistles, or just more money to enjoy your retirement, doing the things you want to do.”

OK, so yep, that’s a carbon copy of the pitch that was made a few years ago, they didn’t even bother to update the numbers. Edward N. is actually Edward Nekritz, who is the Chief Legal Officer for Prologis, the largest industrial REIT in the world and a pretty big Amazon landlord. So yes, “Prime Profits” is still a pitch to buy shares of Prologis (PLD), the same stock they’ve been similarly touting for four years or so.

Mr. Nekritz actually owns almost no shares right now, so his “secret income” from ProLogis dividends is not particularly high, but he has at times had large share holdings, and the Outsider Club folks haven’t updated these numbers in at least a few quarters — his compensation in 2020, for example, included $8.8 million worth of restricted stock, and he currently has some kind of employee options on almost a million shares of Prologis. He’s an upper C-suite executive at one of the biggest companies in the world, he’s not counting on PLD dividends to cover his kitchen renovation or buy himself a Cadillac, though he does also reportedly have 1,836 shares of PLD in his 401(k) — that’s worth a little more than $200,000 and, at the current dividend rate of 79 cents per quarter, per share, would get him about $1,450 in income per quarter to compound in his retirement account.

And yes, the other names are still insiders, too — That Eugene must be Eugene Reilly, who is the Chief Investment Officer for Prologis, and Lydia Kennard, an Independent Director on the Prologis Board (she’s almost making this a full-time job, she’s also on the boards of Freeport-McMoran, AECOM and Healthpeak Properties, all huge companies).

But no, they’re not “regular folks” who listened to Jason Williams’ advice and started collecting this “secret income.” They’re insiders and multi-millionaire executives and board members who are, for the most part, being given big chunks of shares of Prologis as part of their compensation. To the extent they hold the shares they receive, or exercise their options, yes, they’ll receive dividends like any other shareholder… but the scale is pretty different. If you can get an appointment to the board of a large public company, or get a job with Prologis that comes with hefty share-based compensation, go for it — that’s a nice path to some serious cash… but if you have to buy your Prologis shares, like a normal investing shlub, then the picture is a little less dramatic.

Prologis shares have taken a huge hit in the markets of late, the growth-focused REITs have faced some challenges as growth slows down and inflation heats up, which has led to a double whammy — income investments tend to get clobbered when interest rates rise, since all of a sudden you can get a 3% yield from a guaranteed safe investment like a Treasury Note, and that offers more competition for income investors than the 1.5% yield did last year; and growth investments, including “growth REITs” that pitch both dividend growth and corporate expansion to justify trading with relatively low dividend payouts, are also hurt because they’re inherently a bet on the future, and the future is less valuable than the present if investors have high future inflation expectations.

Neither of those concerns are particularly Prologis-specific, they’re hitting all of the large growth REITs — the data center operators, the cell tower REITs, they all had relatively low current dividend yields and high dividend growth and future growth expectations at the start of the year, and most of them are down pretty sharply. In the case of Prologis, the shares are down about 30% on the year, which means that what was a 1.5% yielding growth REIT six months ago (that’s about what the yield was from 10-year treasuries back then, too) is now, thanks to the share price collapse and a nice 25% increase in the dividend, yielding about 2.8% (10-year treasuries now yield about 3.5%, thanks to rising inflation fears).

The big news for Prologis recently is that they’re making yet another large acquisition — they’ve been buying up competing industrial landlords for years, and the latest target has been Duke Realty (DRE), which for a long time has been the second-largest industrial REIT in the US. Prologis got rebuffed a couple times on past offers, but announced this week that a deal has been made, they’re planning to acquire Duke Realty in an all-stock deal, making Prologis the owner of an estimated 8% of the industrial real estate in the United States (as well as a major owner of similar properties globally). That should improve the book at Prologis a little, since they have also been the most richly valued industrial REIT most of the time, getting the “blue chip” benefit of the doubt from investors in a way that the smaller competitors have not, but it won’t be a massive impact right away… and, of course, the fact that the Prologis share price has been falling makes the deal a little less lucrative, and a little more dilutive (PLD will exchange 0.475 shares of PLD for each DRE share, assuming the deal gets shareholder and regulatory approval).

And yes, even before the Duke Realty deal Prologis is a major Amazon landlord… but it’s not exactly the lion’s share of their business. Prologis owns warehouses and industrial properties that are operated by dozens of large firms around the world, Amazon is by far their largest single tenant, generating 7% of their average annual lease revenue (second place is FedEx, at 2.1%), but that’s still only 7% of their revenue — so presumably it also amounts for roughly 7% of the dividend paid, indirectly, which is meaningful… but probably not enough to really take the “Amazon must pay you ‘Prime Profits'” bit very seriously.

The earnings at Prologis vary pretty substantially in any given year as they acquire or dispose of properties and account for depreciation, but as a REIT they also report their Funds From Operations (FFO), which is a cash-flow number that’s meant to give you an idea of how much cash they have available to pay dividends and/or expand — they posted $4.15 in FFO per share in 2021, roughly 9% growth from 2020, so the run rate has been more than enough to cover their dividend, and they have already boosted their guidance for expected 2022 FFO per share once this year, to now $5.10-5.16 per share, as they see demand remaining strong for their warehouse spaces, and strong embedded rent growth in their existing lease terms in addition to the incremental revenue they’re also making by bundling other add-on services for their vast number of properties and tenants. That’s 23% growth in FFO, which is excellent for a company of this size… and that number is likely to improve a little if the Duke Realty deal closes, though that may not be until late this year or early next year.

So yes, Prologis is still fairly richly valued — that’s 22X 2022 FFO, and that certainly means you’re paying a premium valuation for growth and dominance and past performance. It’s not nearly as high as the premium has been in the past, however, and it’s a lot more appealing than the 40X trailing FFO valuation Prologis traded at a couple months ago, when it was in the $160s. The combination of still-strong dividend growth (almost 25%) and strong FFO per share growth even without the Duke Realty acquisition, and the likely small improvement next year from adding DRE’s properties to the portfolio, makes Prologis look a lot better to me here.

The challenge, of course, is that Prologis is an indirect beneficiary of long and complex supply chains, retail sales, and heavy spending on e-commerce infrastructure — they own both “normal” warehouses and distribution centers for big chains and highly automated warehouses run by Amazon and FedEx, in addition to some non-warehouse industrial properties, and it may well be that they end up getting some vacancies if a recession causes some of their major retail or wholesale tenants to pull back. Heck, we’ve already heard from Amazon that they overbuilt their fulfillment infrastructure during COVID, and many of their competitors are in similar straits. The average lease term for Prologis’ portfolio of properties is over ten years, so a few hurting tenants or renegotiated deals or even bankruptcies won’t necessarily hurt the bottom line all that much, but it certainly could cause investors to worry and drive the share price down further.

And as an income investment, they’ll continue to be buffeted by changing interest rates — the benefit of a dividend growth REIT like Prologis is that you can be pretty sure the dividend will go up over time, at a rate well above the rate of inflation, so your income will keep up with inflation… but the challenge is that investors are a little leery of risk, and today you can get more income this year from a 10-year Treasury Note than you can from buying PLD shares.

That actually makes dividend growth REITs (or any dividend growth company) a much better buy than a safe bond if inflation is going to remain high, since that Treasury Note you buy today will pay the same 3.5% yield for ten years and Prologis will almost certainly keep raising its payout (it has increased its dividend per share by more than 50% in the past five years), but, of course, there’s no getting around the fact that investors are scared right now. Prologis shares have lost a third of their value in the past two months, and that might not give the same warm feeling as a guaranteed bond from the Treasury Department.

Despite the collapse in the share price this year, Prologis is still one of the largest REITs in the world, and has much better long-term shareholder returns than the average REIT — though not nearly as strong as the often-popular “tech REITs” that own cell towers (American Tower (AMT) or Crown Castle (CCI), for example, or data centers (Digital Realty (DLR) or Equinix (EQIX)), and all of those have had similarly terrible performance so far in 2022, so it is getting tempting to buy into some of these high-growth, still relatively low-yield REITs again. Those are also the main drivers of the broader REIT index, since industrial, cell tower and data center REITs make up about a third of that index, so you can also get exposure to these kinds of names more passively, with an ETF like Vanguard Real Estate (VNQ), and REITs in general have a good track record of holding up pretty well during periods of inflation (not immediately, but over time — some have flexibility to raise rents quickly, like hotel or apartment REITs, some raise a little more slowly given longer lease terms and limited annual increases, but over time land tends to hold its value).

I haven’t said this in a long time, but I’m starting to get tempted by Prologis again — great company, got wildly too expensive last year thanks to Amazon and e-commerce enthusiasm, and might well be getting too cheap this year because of current inflation fears. I don’t own it, but it’s starting to make sense again.

Just to reality check, though, here’s what a more normal person might see as their “prime profits” — if you buy $10,000 worth of Prologis shares, for example, that would be about 87 shares. Those 87 shares would pay you a dividend of about $69 each quarter. It adds up, particularly if you allow your dividend payments to compound (buying new shares with them, instead of taking the cash), but you don’t quickly get life-changing income from large, relatively steady blue chip REITs unless you invest life-changing amounts of money in the first place. And the ride can be bumpy — Prologis has been a leader in this sector for decades, but it also lost almost 90% of its value during the 2008 real estate crash… to say nothing of the more recent 30%+ drop both this year and in the early days of the pandemic.

If PLD continues to increase the dividend by at least 12% a year, and the share price, on average, goes up by at least 8% a year (typically the shares rise in tandem with the dividend, though with rising interest rates that might be more of a challenge), then you’ll earn a total of about $10,000 just from dividends over the next decade, and will end up with roughly $34,000 worth of PLD shaers and will be, at that point, earning almost 30% on your initial investment from dividends alone. That’s great, that’s why you invest in dividend-growth stocks and let your dividends compound, but it takes time… and there’s no real secret, other than holding on and letting it ride, and crossing your fingers that you chose the right company. I’d agree that Prologis is a good one, and it’s hard to even come up with a second place player in their space now that they’re acquiring Duke Realty, but that’s no guarantee that the future will work out like the past, or that the shares are done going down this year.

So… no magic secrets, other than the magic of compounding, but there you have it — “Prime Profits” is still primarily a pitch for Prologis shares. He also hints at other “prime profits” payers who earn money from other large tenants, including from Amazon’s AWS service, so he’s presumably also touting some of the data center REITs as well — they used to pitch CoreSite (COR) as their favorite in that group, but that company has since been acquired by American Tower, and all the small data center REITs have been picked off by acquirers now so you’re pretty much stuck with the two giants, Equinix or Digital Realty. Both have done very well over time, DLR is the “income” play and EQIX the “growth” play in that scenario, and both have also gotten clobbered this year.

And I’ll leave you there, dear friends — a pitch from the past that remains terribly misleading, but a company that has gotten more attractive this year, at least for those with a strong enough stomach to buy on the way down. It’s your money at stake, so what say you? Ready to get back to dividend growth investing, or does inflation scare you too much? Have other favorites in this space? Let us know with a comment below. Thanks for reading!

Disclosure: Of the companies mentioned above, I own shares of Amazon, American Tower and Crown Castle. I will not trade in any covered stock for at least three days after publication, per Stock Gumshoe’s trading rules.

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Sonny
Guest
Sonny
June 15, 2022 6:57 pm

Not sure if buying this is a good idea , given the coming rise in interest and general crapping of this type of market

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bloomingrose
June 15, 2022 7:48 pm

Well that was disappointing. You mean the regular Mom and Pops are not getting rich off this stock?

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Lawrence Rayb urn
Member
Lawrence Rayb urn
June 15, 2022 8:29 pm

Senior Supplemental Income

Travis, what’s your advice for an old couple that owns a 15 acre farm in west Texas free and clear with home who have only
$2019/month in SS income (his–he’s 73, none for wife…she’s 53). They barely get by each month and could use something that would double their income to be more comfortable.

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JOHN FRANCIS LYNCH
Member
JOHN FRANCIS LYNCH
June 15, 2022 11:42 pm

I funds or I bonds….Treasury notes they say pay about 8=10% is what I heard on TV….Larry Cudlow…

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Andy Hoffarth
Irregular
June 16, 2022 4:16 am

I am so glad I finally got the whole story on Amazon Prime Profits. The real story seems to be a whole lot different than the hype story.

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