Editor’s Note: Today’s article opens with Duke Energy making its 100th consecutive annual dividend payment — a century of recurring income that began before the first transatlantic flight. Our colleague Robert Rapier has built Utility Forecaster‘s framework around exactly that idea: find the essential-service businesses that raise their payout year after year, and hold them long enough for the math to compound against a cost basis that never moves. See where that compounding runs furthest →

What a milestone.

Back in March, Duke Energy (NYSE: DUK) handed out a quarterly dividend of $1.06 per share. A routine transaction… except that this marked the 100th consecutive year of steady distributions. This remarkable streak began in 1927, before the first transatlantic flight.

A century later, and the electric utility is still making reliable cash payments to shareholders. This cash flow stream is fed by 9 million power customers across the firm’s various service territories. New customer acquisitions may have slowed in recent years. But that’s not really a problem, because all those existing residential and business users continue to make dutiful remittances every 30 days or so.

That means the company will collect 27 million individual bill payments this quarter – and another 27 million next quarter – even if it doesn’t connect a single new account. Keep in mind, some of those customers may have initially gone on the books back in June 1987. Or November 2002.

This isn’t really about Duke. It’s about recurring income.

Those two words are music to my ears.

The textbook definition of recurring is something that “occurs again repeatedly.” Such a prosaic description. To be fair, not all recurring events are welcome… like vehicle maintenance. But when we’re talking about income, repetition isn’t exactly a problem.

Think of it as an ongoing paycheck for work long completed.

Just ask any famous musician. Their song catalogs may be dated, yet those old recordings can still earn gobs of money from radio play, music streaming sites, album sales, and other sources. So the artist keeps on cashing royalty checks in perpetuity. Heck, Elvis died back in 1977 and his estate still took in $17 million last year.

Or how about actors who open their mailbox each month to retrieve residual checks from reruns of old shows? The last episode of the 90s sitcom Friends was filmed 20 years ago, yet the cast members are contractually entitled to a 2% “backend” stake of the yearly syndication revenues – about $20 million each.

Now, I’m not suggesting you pick up a guitar or join a theatre group. Certain businesses rake in billions in recurring income each year while barely lifting a finger. They can’t put you on the cover of Rolling Stone magazine… but they can lead you to a lavish lifestyle over time.

Of course, most companies don’t operate this way.

The business world is far more accustomed to one-off dealings that end at the point of sale. A lightbulb goes out, so you run to the nearest store and purchase a new one. The cashier puts the money in the register and hands you a bag and a receipt.

Transaction over.

These kinds of sales are booked today. But tomorrow, the company must start back over at zero. There is no carry-over to the next quarter or next fiscal year. If the business doesn’t close any new deals, then it doesn’t report any revenue for that period.

By contrast, those with recurring income continue to feed off yesterday’s sales, sometimes for decades.

Take Invesco (NYSE: IVZ), one of the world’s largest asset managers. Between hundreds of ETFs, mutual funds, and privately-run accounts, the asset manager has $2.4 trillion in assets under management… $490 billion in the Invesco QQQ Trust (NSDQ: QQQ) alone.

Every penny is hard at work earning asset management fees. This existing pile of assets generated $1.8 billion in revenue last quarter (Invesco converts 20 cents of every revenue dollar into operating profit). As long as these investments stay in house, they will continue to earn fees – day and night. The company received another $62 billion in net client inflows last quarter. But even if new deposits dried up, the business would remain highly profitable.

Then there’s Verizon (NYSE: VZ), which has built up a base of 147 million wireless connections over the years. Retail employees around the country will clock in at 9 AM tomorrow fighting for more. But even without signing up a single additional customer, that’s already a massive pool of recurring revenues to fall back on.

Verizon welcomed another 500,000+ new devices and broadband internet connections to its network last quarter. These new customers will generate incremental income starting day one – and every day forward until they switch providers.

You can see why recurring income can be preferable to one-and-done transactions, where yesterday’s sales count for nothing today – let alone tomorrow. The beauty of repeatable revenues is that they continue to flow long after the initial sale has been made, even during economic slumps and down-cycles.

That’s what makes companies like Duke, Invesco and Verizon special.

Their slate isn’t wiped clean at closing time each day. It builds. And builds. Instead of melting away the moment it falls to the ground, this kind of cash snowfall accumulates. Even when the economy is shaky. Even when inflation runs rampant. Even when interest and borrowing costs are rising.

For dividend investors, recurring income is truly the gift that keeps on giving. After all, dividends are themselves recurring, thus requiring a strong conviction in future cash flows that don’t bounce around too much. If nothing else, this model eliminates much of the analytical guesswork.

If you have 1 million subscribers paying $29 per month for a service, then predicting next quarter’s revenues is a simple exercise in elementary-school arithmetic. Sure, you might lose a few subscribers here and gain a few there. But you have a pretty good idea where revenues (and by extension earnings) will land.

In the unpredictable financial world, this is a coveted trait.

As we all know, product sales (be it home décor or sporting goods or anything else) can be choppy from quarter to quarter as demand fluctuates. But recurring income tends to be smooth and consistent, leveling out all the ups and downs.

That’s one reason why many enterprise software developers and other product vendors are transitioning away from physical sales to fee-based subscription models. You’ve probably heard of software-as-a-service (SaaS). Or infrastructure-as-a-service (Iaas).

Even mighty Amazon (Nasdaq: AMZN) has undergone a major shift. The e-commerce giant now gets less than 50% of its total revenues from traditional product sales. More than half comes from recurring income tied to cloud services and Prime membership fees.

How can Costco (NSDQ: COST) be so profitable on such thin gross margins? Well, mostly because it has more than 80 million shoppers paying a $65 annual membership fee. About $100 million this week. Another $100 million next week. That’s a decent chunk of recurring change.

One of my retail portfolio holdings is following the same playbook.

Best Buy (NYSE: BBY) was once viewed as a showroom where prospective buyers “kicked the tires” on new gadgets before ultimately buying them somewhere else. Revenues sagged for years, as did share prices. But management has since embarked on a multi-year turnaround plan centered on an improved multi-channel shopping experience featuring a suite of new products and services.

Management understood that most shoppers lack the time, inclination, or simply the technical know-how to mount and wire a home theatre system or install live streaming security monitoring equipment. To ease those concerns, the company built a network of advisors that provide in-home consultations.

The Total Tech Support program guarantees unlimited help with any device or appliance (regardless of where it was purchased). There are other perks to this program, including free shipping and discounted installation and repair. Having an expert troubleshooter on stand-by removes a big sales roadblock. More importantly — just like Costco memberships — it generates ancillary recurring income.

Membership, which runs $199.99 annually, went nationwide in 2021 and quickly attracted four million subscribers within the first year. That total reached 5.8 million a year later, at which point it was re-branded into the multi-tiered “My Best Buy” program.

While still a small part of the company’s $40 billion annual sales, this $1.2 billion high-margin income stream is starting to move the needle.

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The recurring income Nathan traces across these businesses — the utility making its 100th consecutive annual payment, the asset manager collecting fees on $2.4 trillion in assets, the carrier billing 147 million wireless accounts every month — is exactly what our colleague Robert Rapier has built Utility Forecaster around. The publication has covered essential-service businesses continuously since 1989, and its portfolios still hold positions entered that year, in 1994, and in 2000. Every year those companies raise their dividend is a raise their shareholders never had to ask for.

See where that compounding runs furthest →