A look at different stocks and what they yielded
June 19, 2012 8:36PM
Updated: July 21, 2012 6:01AM
D ear Mr. Berko: I have $9,000 that I would like to invest in some safe, solid stocks and get a safe yield of at least 5 percent and also get some growth. What would you recommend to me? I also have $9,000 that I would like to invest in some stocks that can have a chance for growth and get 10 percent or better. I already own some of those mortgage REITs, but they don’t have any growth potential, so please don’t recommend any of those kinds of stocks. And what do you think of Facebook now that it is public? Do you think I should buy the stock?
Dear EP: AT&T (T — $33) yields 5.3 percent, and I think it’s a jim dandy, long-term income stock with modest but definite, long-term growth potential. But owning T for appreciation is as exciting as watching iron rust and waiting for it to appreciate may test your patience. Its dividend, though, which was increased in 15 of the last 16 years ( 86-cents in 1996 to $1.76 in 2012), should warm the cockles of your heart. AT&T, which by government decree was forced to divest its subsidiaries in 1983 when land line costs were $8.99 a month, has “re-morphed” into a semblance of the old AT&T and is now Southern Bell, Ameritech, BellSouth, Pacific Telesis and Cingular.
I’m certain there’s modest appreciation potential, and certainly AT&T will trade lower when the market falls. But even as AT&T trades lower the dividend, which is almost certain to grow each year, it’s dependable as a mud pie in July. While it may not double its share price in a dozen years, its dividend can increase significantly in that time frame.
Next, look at Altria (MO — $31.25), which makes popular brands like Marlboro, Benson & Hedges, Virginia Slims and Merit. MO also sells cigars, wines, owns 27 percent of SABMiller and all of U.S. Tobacco. MO’s current $1.64 dividend yields 5.3 percent and can grow at a 6 percent annual rate over the coming decade. In fact, MO has increased this dividend 45 times in the past 42 years. MO also has a strong, levered cash flow, good interest coverage ratio, EBITDA for 2011 increased by 15 percent and an aggressive share buyback program. And while the share price will fall in a declining market, I’m confident that MO’s dividend will remain stable and move higher. I suggest you purchase 150 shares of AT&T, 150 shares of MO and reinvest the dividends every quarter.
Now if you insist on high yields and spice in your life, consider Niska Gas Storage Partners, LLC (NKA — $11.07) which owns and manages three gas storage facilities: one in Canada, one in Oklahoma and one in California. I don’t care for NKA even though the $1.40 dividend yields 12.10 percent, but a fund manager I know thinks the shares are a winner. Rentech Nitrogen Partners, LP (RNF — $22.80) produces natural gas-based nitrogen fertilizers and industrial products for agricultural uses. Revenues of $210 million derive mostly from users in Illinois, Iowa and Wisconsin. Reuters has a strong buy recommendation on the company, and the $4.24 dividend yields a whopping 18.5 percent.
Finally, Exterran Partners LP (EXLP — $18.30) provides natural gas operations services including design, sourcing, operations, installation, repair and maintenance. EXLP also owns and operates a natural gas pipeline with a 10-million cfpd capacity. EXLP has revenues of $436 million, just 38 million shares out and a $1.99 dividend yielding 10.1 percent. I like this company and so do Fidelity Equity Income, Nuveen Dividend Value and Royce Total Return Fund. These are terribly speculative issues and are not recommended for widows of limited means, male orphans who lack the backing of a trust fund and retirees under the age of 87 whose only income source is social security. However, if you purchase 100 shares of each, a moderate gain in share price and dividends can be considered a plausible extension of realty.
Facebook’s share price exceeds the current and future value of its earnings. However, in this social media market, neither earnings nor value are important in determining share price.
Address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at firstname.lastname@example.org.