ed. note: The first version of this article was originally published in September of 2018, when we initially saw these ads rolling. It has been re-circulated several times, most recently because of the attention Jeff Bezos is getting for becoming the wealthiest person in history, so readers are asking again and we’re re-posting the answers and our analysis. The answer is the same as it was when our teaser solution for the first version of the pitch was published two years ago, my analysis and commentary were updated in mid-June so are slightly out of date, but the prices of most of these stocks are still fairly close to where they were then.
Another day, another “secret” that we’re told billionaires are using to grab big ol’ checks… all promised to you in exchange for your subscription to a newsletter.
This time, it’s The Wealth Advisory from Briton Ryle over at Angel Investing — that’s an “entry level” newsletter (now $99/year, though has often been sold at $49) that seems to focus on income investments… and the big pitch is that he’s got a secret way to earn “Prime Profits” from Amazon and make up to $48,000… without buying Amazon shares.
Here’s a taste of why Gumshoe readers were intrigued:
“You see, despite doing $200 billion in revenue last year…
“With more than 300 million customers around the globe…
“And more than 560,000 employees…
“Amazon is legally obligated to hand over Prime Profits to people like you. All you’ll need to do is take advantage of a little-known law to start collecting life-changing checks.
“In other words, every time someone buys a book…
“Every time someone orders toilet paper…
“Every time anyone buys anything…
“You’ll get paid!”
We know it’s not going to be that simple, of course, but that’s how they draw readers in. Much of the ad is about how this is a secret that only billionaires know, that there are secret piles of money available — which feeds into the common suspicion that there are just buckets of money sitting around waiting to be grabbed by in-the-know folks. That’s not really true, of course, and if it were no one would sell this “secret” for $99… but we have a tendency to suspend disbelief when that “greed” impulse clicks in.
More from the ad:
“As business magazine Inc. reports: ‘Billionaires know that there is a market for secret or hidden money…'”
That, of course, would be “reporting” that got someone fired if they worked for an actual news organization… that quote is from a silly reprint of a clickbait Quora exchange that, yes, did appear on Inc.com. It doesn’t mean anything.
So where does this money come from? Can we collect it? Why does it exist? Let’s sample some more from the ad…
“… mega-banks and investment firms, like Vanguard, BlackRock, State Street Corporation, JPMorgan Chase, Bank of America, Morgan Stanley, and Deutsche Bank.
“They’re all collecting checks from this legally mandated ‘tax’ on Amazon’s profits.
“And now, for the first time ever, I’ll reveal how everyday Americans can start collecting their own Prime Profit payout.”
Where does this “payout” come from? Well, there’s no clear mention anywhere in the ad about buying something, at least that I saw, but I can promise you that yes, there are checks going out — but they’re not going out to “everyday Americans,” they’re going out to people who invested in that business in some way.
Maybe that’s you, maybe not — but this is probably a dividend-paying stock of some kind, and if you don’t own shares you don’t get dividends. The “there is no free lunch” rule still applies…
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…but we’ll get into more of that in a minute, let’s first check the clues and see what investment it is they’re referring to… why is Amazon “obligated” to “hand over” cash to “everyday Americans?”
“… it’s all because of a law published in 1952, during former President Harry S. Truman’s administration. And no one can do anything to stop it from paying you….
“U.S. law Uniform Commercial Code (U.C.C.) Section 2-301 forces Amazon to send money back to you.
“That’s how you’ll start to collect $48,000 in Prime Profits this year.”
The Uniform Commercial Code is not a federal law, in case you’re curious, it’s a guideline that was used to try to standardize state laws — it was first published in 1952, and Truman was president then, but that Section 2-301 seems to me to be just a standard baseline of commerce, it says, in total, that “The obligation of the seller is to transfer and deliver and that of the buyer is to accept and pay in accordance with the contract.” I’m not a lawyer, but that sounds like sellers sell, buyers buy, and you better fulfill your contractual agreement on both sides.
So yes, pretty much all of commerce is probably somehow connected to that clause of the UCC (though basic “sell something and get money for it, as agreed” transactions also have other backing in law in the US and elsewhere). That’s essentially a meaningless hint, designed to make these “Prime Profits” seem both legitimate and mysterious.
We also get some chatter about Amazon itself in the ad…
“Amazon recently announced that it’s bumping the cost of its Prime membership by $20. And that will add $2 billion to its bottom line.
“That’s not pocket change.
“But that announcement only moved Amazon’s share price 7% higher, enough to turn $10,000 into around $10,700.
“I can’t speak for you, but that’s hardly a mind-blowing profit to me.
“If you want to really tap into Amazon’s tremendous size and growth, and you should, then Prime Profits will let you collect $48,000 — or more — this year…”
Still no mention then of the fact that you have to invest to receive this money… but they are clearly setting up an expectation — by using that “$10,000 turns into $10,700” example in the same discussion, they teach you to imagine that $10,000 is what you invest… and that you’ll then collect $48,000 or more this year.
That, to put it simply, is crazypants.
Which is followed by more of this “enroll” talk, which, of course, takes us away from that cruel “it takes money to make money” reality:
“Whatever you’d do with an extra $48,000 this year, I’m urging you to ‘enroll’ today…
“Because there have already been 80 payouts since Amazon started paying Prime Profits.”
They didn’t update that number… presumably there have now been at least 85 quarterly payouts… but I digress.
And apparently these “Prime Profits” payments have been rising…
“Prime Profit payouts will be getting even bigger.
“In fact, they’ve already increased seven times since I started following this opportunity.
“And not in pocket change, either…
“They’ve almost doubled in size, 89% bigger to be precise.
“The latest bump came a few months ago.”
So that’s a fair number of clues — 89% increase in “Prime Profits” over some undetermined amount of time, and seven increases in the payout… plus at least 80 payouts over some undetermined amount of time (since there are some other references to quarterly “Prime Profits” checks, that probably means this business or program has been around for 20 years).
But why would Amazon have to pay you? This is when it gets a little crazy again:
“Remember when Amazon was accused of being anti-competitive, of building a de facto monopoly, and of ripping off USPS?
“Well, the U.S. federal government doesn’t stand for that.
“And it has two ways of punishing Amazon:
“It could choose to break up the tech giant like it once ordered Microsoft to do in 2000.
“Or it could ensure that Amazon continues to pay out millions of dollars every single year to individuals like you and me.
“That last one may sound unusual, but it’s actually a little-known way that Washington puts dollars back into the pockets of everyday Americans.”
OK, we’ve gone beyond “crazypants” here and into something that’s actively misleading. They call up the consumer relief payments that the big banks have been forced to make, mostly to mortgage customers who were scammed, in the years following the financial crisis… which has absolutely nothing to do with Amazon paying out “prime profits” or the government considering antitrust action against Amazon or taking advantage of the postal service or making President Trump mad.
And here’s one last bit from that pile of compost that’s designed to make you believe that you’re about to get free money from some obscure government program that was previously reserved just for billionaires:
“Now, Amazon has struck a deal with a branch of the U.S. government to get cash into the hands of everyday people. And it’s grown to the tune of more than $1.498 billion every single year.
“That’s also the reason why you probably haven’t heard of Prime Profits before…
“They make Amazon look like it’s done something wrong. And it would never admit that.
“And that’s why this insider knowledge has only been on the minds of America’s elite billionaires.”
OK, so no, none of that is really true. Amazon has not “struck a deal” with the government to distribute cash to “everyday people” — at least, not in the way I think any ordinary person would define those terms.
So… at this point it probably won’t surprise anyone to learn that those legal references and the chatter about a “deal with the government” or about distributing cash flow are all misleading ways of describing Real Estate Investment Trusts (REITs), which were set up by the government over 50 years ago (under President Eisenhower, in 1960) to “democratize” real estate investing. They make it easier for investors to buy shares of real estate owning or operating businesses, and companies that choose REIT status don’t pay corporate taxes as long as they pass along at least 90% of their “taxable” income to shareholders in the form of dividends (and then, of course, you pay the taxes on those dividends, so the government gets its cut that way — unless you hold them in a Roth IRA or something like that). REIT shareholders also got a bit of a break on the tax bite from those dividends in the latest tax cuts, in the form of a 20% deduction on this kind of “pass through” income.
So when you see these comments about a stock that’s “legally required” to pay you checks, it’s very often a reference to something like a REIT, a company that is indeed required to pay out their profit in dividends if they make a profit. In practice, many REITs actually pay out much more in dividends than they would have had in “taxable income,” mostly because depreciation can be very high and that depreciation, though real, is not a cash cost — and many REITs have been quite successful at selling new shares and borrowing money to acquire new assets or fund capital projects, rather than setting aside their depreciation expenses to maintain the business, which helps to keep dividend payments rising. They know that rising dividends drive rising share prices, and most management teams are compensated in stock and also collect dividends… incentives matter, and they’re not dummies, they know that maximizing the dividend is important (within reason, of course, and keeping the payout ratio in a safe range to make sure the company can keep operating).
What does this have to do with Amazon? Not all that much, except for one thing: Amazon rents space for offices, warehouses and other logistical requirements for their sprawling enterprise… and some of that money they spend for space goes to pay for leases from REITs, so, indirectly, some REITs are paying out a portion of the rent money that they get from Amazon.
So no, it’s not accurate to say that “The U.S. government has quietly slapped a tax on Amazon using U.C.C. 2-301.” Nor is this “the government’s way of making sure that giant corporations can’t get away with being anti-competitive.”
One last bit from Ryle:
“To start collecting Prime Profits, you’ll have to stake your claim in an entity that’s created to put money into the hands of people like you….
“But here’s the best bit…
“The entire jackpot of over $1.498 billion must be paid out, no matter what.
“You see, even if Amazon’s stock drops by 20% overnight…
“Even if the whole market falls through the floor and people start to panic in the streets…
“You’ll still be collecting lucrative, consistent Prime Profit payouts.”
OK, that’s more or less true — REIT shareholders will collect dividends as long as the REIT is profitable, and the law requires Amazon (and every other business) to fulfill their contracts, which means, in part, that they have to pay the rent on their leased properties. That doesn’t mean REIT shares can’t “fall through the floor” when the market collapses, particularly if their tenants face hardship and can’t pay the rent or the REIT borrows too much and can’t make its interest payments… or when there’s overbuilding and rents fall… though over time, REITs have usually been less volatile than the overall market.
In fact, for some very long periods of time REITs have beaten the overall market — though, as with everything, a lot depends on when you buy and whether you reinvest the dividends. The total return (not including dividend reinvestment) for REITs has been much stronger than the market over the past 19 years (that’s when the iShares US Real Estate ETF launched, for comparison’s sake)…
Though over the past 10 years, shifting to the Vanguard Real Estate ETF (VNQ), which is younger and my preferred REIT ETF, they have pretty much been in line with the market most of the time — beating the S&P for many years after the financial crisis, but falling behind over the last year or two when interest rate expectations rose and large-cap tech stocks began to really drive the S&P 500, with REITs falling just as badly as “normal” stocks during this coronavirus crash….
That’s just for some broad context, though — Ryle is teasing a specific REIT (or perhaps a couple of ’em).
Then we get a bit of a stretch:
“Other Americans are trying to squeeze out 5% returns by investing in Amazon. But you’ll be cashing checks that the tech giant is legally obligated to hand over.”
I don’t know where that’s coming from — I was probably the last person to finally give up on saying “it’s overvalued, I’ll wait for a dip” and buy Amazon shares back in 2017, and yet it has almost tripled since then. No one is buying Amazon shares in hopes of a 5% return.
But, of course, Amazon doesn’t pay any kind of dividend, and it’s a unique company that’s wildly overvalued by most of the fundamental metrics that investors use to value stocks. As with Shopify (SHOP), which we also talk about regularly in these parts, it’s a story about a massive shift in the retail economy and a belief that these companies will win by investing heavily in that shift.
So where does that lead us? Well, I did take another quick spin through the world of logistical and warehouse REITs just tao make sure… but it seems our teaser is still pointing at the same stock….
Prologis (PLD), the largest owner of warehouses and logistics space in the world and one of Amazon’s many landlords, went ex-dividend yesterday (meaning you had to buy it by September 15 if you want in on that next “check”), so that’s almost certainly still the primary stock being teased. The current ads don’t cite this payout date, but over the past couple years that has tended to be almost the only part of the ad that they update.
And since everyone was worried about real estate due to the coronavirus shutdown, it’s worth noticing what rents REITs are collecting — ProLogis noted that 24% of their tenants had asked for some kind of rent relief through the coronavirus shutdown, but monthly rents were coming in pretty well, at least compared to weaker office and mall REITs, and as of their second quarter they had ramped their forward guidance back up to a little above where it was in January… so the logistics business seems to be going just fine, and some of their tenants have reported a little weakness but there doesn’t appear to be any crisis.
The nice thing about being a huge company is that ProLogis can probably get through a tenant default or two a lot better than the smaller players might, but it’s not just Amazon they work with — many of their largest tenants are still quite strong, from Walmart and Amazon to FedEx and DHL, but they have hundreds of tenants… and companies that are really struggling right now, like department stores and other “bricks and mortar” retail operations, use distribution networks and warehouses, too.
Are there any other warehouse/logistics REITs you might want to consider? Think any of them are a better match for the clues? Let’s go through the list…
- Duke Realty (DRE) just paid their latest dividend a few weeks ago, they’re the only one that’s even close to being a real competitor and their yield and dividend growth has recently been about the same as ProLogis.
- WP Carey (WPC), which is partially a warehouse REIT, increases its dividend every quarter by a fraction of a cent… the ex-dividend date for the next payout will be in about two weeks — this one is seen as riskier by the market because they lease to single tenants and some of them are probably in financial trouble… though they were still collecting 95% of rent as of May, the second quarter report did not cause any panic, and the yield is still fairly high at 6%.
- PS Business Parks (PSB) has a good record of dividend increases and also went ex-dividend this week. I’ve actually looked at this one in the past and it’s somewhat compelling, but they’re not really an Amazon landlord and not as focused on huge warehouses — they tend to own smaller business park facilities that have a shop or warehouse in back and a customer-facing office out front, yield is about 3% but it has now been two years since they raised the dividend. Rent collection has started to recover for them, back up to 95% of rent billed being collected for August.
- Stag Industrial (STAG) pays monthly and has a somewhat higher yield than most at 4.5%… and they also raise the dividend regularly, though by an almost microscopic amount — they were collecting close to 90% of rent during the coronavirus shutdown, though they don’t update with monthly press releases like some. This has been publicly touted, along with ProLogis, by Briton Ryle in free articles since the first version of this ad appeared
- First Industrial Realty Trust (FR) goes ex-dividend in two weeks, with a current yield of about 2.5%… they have increased the dividend every year for seven years now, most recently by 9% in February. They said they had collected 99% of August rents last time they reported, so it never got very bad for them but they did bounce back pretty quickly.
- Rexford Industrial Realty (REXR) is fairly young in this group, and has raised its dividend five times since going public… their rapid dividend growth (15% this year) has boosted the stock, but the current yield is low, below 2%, and their ex-dividend date is in two weeks. They just announced that September rent collection is tracking at pre-pandemic levels, but that’s only about 96% for July and August so there’s still some weakness.
- EastGroup Properties (EGP) has hiked the dividend at least seven or eight times in the past decade, and does their dividend increasing in September so they just declared a 5% increase in the dividend a couple weeks ago — they go ex-dividend for the latest one on September 29 like many others, with the current yield coming in at a pretty average 2.4%. They say they collected 97.9% of rent in August, a bounce back from 95% or so a couple months ago.
- Lexington Realty Trust (LXP) is more like a smaller W.P. Carey, offering triple net leases to single tenants of all kinds, but some of their properties are industrial. They had been increasing their dividend very slowly, but cut it last year and it has been flat since, yielding just under 4% — though on the plus side, they said they did collect 99% of Q2 rents that were due, which is higher than the vast majority of REITs.
- Monmouth Real Estate Investment Corp (MNR) is quite small and hasn’t