Why I love the subscription business model and my latest stock buys

I love REITs. OK, I love any business model that receives regular payments for just owning something and letting others use it. Imagine owning a car and someone paid you just to drive it. No matter what happens, you are getting paid. You can use that revenue to keep your business afloat and invest in new endeavors.

Roughly around 50% of my portfolio is currently in REITs. I love the high yields and business model, but they aren’t the companies that follow the subscription theory, here are some of my favorite companies that have a consistent reoccurring revenue business model.

Verizon – Nearly everyone has monthly cell phone payments, and even when you pay those off you’re paying monthly just to use the phone and data. Each month Verizon is making a profit off you and you’re not likely to quit using your cell phone. Plus with Verizon becoming a major player, it’s one of my favorite subscription business model stocks.

Aflac Incorporated – While I hate paying for insurance, everyone has it. You pay monthly in the event that you may need financial assistance in case something happens to you. I don’t know too many people who can say that they’ve received more from insurance than they’ve put in. For the fact that people will pay their monthly insurance bill regardless of economy, I like this subscription model.

Microsoft – While I believe their cloud service is subscription based, I am really anticipating Microsoft to make all their software this way. Currently they have made strides making Microsoft Office 365 subscription based for around $99 a year. I think this will be the trend for Office Home & Business in the future as well as their operating system, Windows. They are the main player in the market of office applications and if they do this, everyone will continue to pay. Even Apple is now bundling Microsoft Office when you buy a laptop or iPad, if Apple has given in, so will I.

My latest REIT though is Iron Mountain Incorporated (IRM) which I bought 8 shares at $31.46. I like this company for the same reason I like Digital Realty Trust (DLR). IRM sells data space (in addition to physical space for storage) for companies. So companies will pay monthly for IRM to hold on to their records be it digital or physical (some laws require you to hold onto paperwork for up to 7 years). This is where IRM comes in handy since physical paperwork takes up space and in the corporate world, every square foot counts they are willing to foot that monthly bill. They are utilizing their current assets for storage and investing in digital storage space for the future. I love a company that looks ahead.

Lastly I recently invested in 4 shares of Comcast Corporation (CMCSA) where I bought in at $59.93 a share. Yes, their customer service is awful and yes there are fewer people paying for TV subscriptions, but I like them for their internet provider service. People now-a-days can’t live without the internet and in many places, Comcast is the only option or cheapest option and they will continue to pay monthly through thick and thin. I believe Comcast’s internet service will continue to grow and I’m excited to hop on board. Especially if telecoms move toward a “The more you use, the more you pay” model towards internet usage. It’ll cut down on Netflix subscriptions, but be great for telecoms.

Do you guys have any subscription based business stocks you favor?

2 replies
  1. Mike H.
    Mike H. says:

    The only real issue with this philosophy is you have to be pretty darn sure about the long-term sustainability of the underlying business model. For instance, I agree about REITS, but I disagree about Microsoft. Now, I like Microsoft as a stock, but they’ve already committed to not making Windows a subscription service. Since almost everything else they do is being replicated – in some cases, improved – by lower-cost and more-free-if-not-totally-free-of-bugs software developers…I have my doubts about the long-term plans here.

    Just my two cents. I did knuckle under and buy 9 shares of O, despite my previous objection that they were at the peak of a cycle. My thought was that it was better to own now than not own now, and if the price drops I’d by happy to cost average down.

    • Wallet Squirrel
      Wallet Squirrel says:

      Thanks Mike for the comment. I somehow missed that they committed to not making it a subscription service. I just figured that sales with Office 360 which is subscription based for tablets, would eventually roll over into desktop for Office and Windows. Appreciate the feedback though!

      As far as your recent purchase, O just has a great business plan. Even if they do dip, they’ll get right back up. Awesome call.


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