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Nov 05

The Surprising Yield of Simple Home Upgrades

Like most of my readers here at Dividend Tactics, I really love getting dividends from companies that I hold within my investment portfolio but I am not so fond of paying bills.  After I got my last electricity bill in the mail I recalled a study I performed a while back at work about how LED lighting compares to conventional incandescent bulbs.  The result was that the savings in energy costs paid for the cost differential over about seven years of normal use, if I recall.  But this spawned another interesting thought – what if I considered the purchase of an LED bulb an investment, and what sort of dividend would the annual energy savings equate to?  Then I thought about other upgrades, say like buying a new LED TV to replace an older plasma TV – what sort of energy savings would this switch produce and what would the “equivalent dividend yield” be?

 

home upgrade

1.  LED Light Bulbs vs. Incandescent Bulbs

LED bulbs are fantastic devices:

  • They use about 20% of the electricity that a conventional incandescent bulb uses
  • They last for about 10x as long as incandescent bulbs
  • They do not contain mercury and can be used outdoors (unlike compact fluorescent bulbs)

A 60W equivalent LED bulb produced by Philips only consumes 12.5W of electricity and retails for $16.98 plus tax (lets say $18 total).  If I put this in a frequently used room where the light would be on for approximately 3h a day, in a year I would save about 52 kWh a year.

My current electricity plan has a fixed rate of $0.0888 per kWh; therefore, in one year I would save $4.62 in energy costs.

If I consider each bulb a “share”, the $18 the market value for each “share” and the $4.62 in savings the annual dividend we get a whopping 25.6% yield!  Tax free and guaranteed!  Not even the best dividend stocks come close to matching this.

What’s the catch?  The “share” price is effectively zero once you buy and install them, so there is an inherent capital loss right from the start.

When I first looked at this a few years back the LED bulbs were about $30 each.  With them running over $12 cheaper each now, the buyback period is only 4 years.

2.  LED TV vs. Plasma TV

Need to justify to your significant other why you need to buy a new TV?

The older 50″ plasma TVs use up about 420W (at least the sticker on the back of mine says so).  A newer LED TV of comparable size uses much less.

I found a nice Samsung LED TV online that claims to use about 50W on average e for $985 plus tax (let’s say $1050).  If I bought that unit to replace my plasma TV and assume an average of 4h usage per day, I would save about $36 a year in energy costs.

This gives me an “equivalent dividend yield” of about 3.4% – not bad, considering it is also guaranteed and tax free.  Plus I can’t remember ever hearing about someone who could watch Family Guy or play Call of Duty on their JNJ shares….

3.  Installing Solar Panels

Costs for installing a solar panel generation system can certainly vary depending upon whether you do it yourself or hire a contractor, and there are efficiencies of scale to be considered as well.  To make this assessment easy, I googled up a real life story where the owner paid about $50K for a professional installation (down to about $30K after government rebates), and generated 12.05 MWh from this installation over one year of operation.

Using this scenario and my electricity rate of $0.0888 per kWh, the owner would have saved/sold electricity over the year at a value of $1,070, giving them an “equivalent dividend yield” of about 3.6% after those installation rebates are considered.  The added bonus here is their home value would also increase from the installation.

Summary

For the relatively low entry cost and the added value of reducing your overall energy footprint, I would recommend that everyone who pays electricity bills on their home seriously consider replacing any frequently used lighting with LED bulbs.  They have come down in price considerably since only a few years ago, and the cost savings on energy usage alone pays for itself in only a few years.

As for the TV upgrade, if you have the cash and watch TV enough, this one is an easy sell.

Installing your own solar power system for your home is a bit more complicated.  If you are seriously considering this you should really do your homework – it might make more financial sense to just invest the same amount of money a solar system costs into a basket of dividend paying stocks and avoid the installation and maintenance hassle…but remember to keep a few bucks aside to buy some LED bulbs.