Dear Mr. Berko: We have been with our broker since October 2008. Our original $525,000 investment, from which we take $1,200 a month, has grown to $557,000. Because we would like to take more money out of this account and not touch any of the principal, he wants us to buy the following three stocks: 7,000 shares of Atlantic Power at $3.70 because it pays 10 percent, 7,000 shares of Intersections at $4.60, paying 18 percent, and 10,000 shares of China Nepstar chain drugstore, which pays 13 percent, at $2.43. Please give us your thoughts on these income stocks.
ST, Oklahoma City
Dear ST: I don’t know what your real objectives are, but if you invested $525,000 in late 2008 and have taken out only $1,200 each month, your account value should be a lot higher than $557,000. Frankly, I would be telling that cirrhotic bumbler of a broker to take a long walk off a high Alp.
During the past five years, we have enjoyed a stock market so spectacular that even a drunken monkey could have given you more income and better performance. Where did this stumblebum come up with those doozies?
In January of last year, this Atlantic Power (AT-$4.06) traded in the $12-$13 price range and paid $1.10 a share.
The following month, the dividend tanked to 36 cents, and Atlantic headed to the toilet but still pays almost 10 percent.
AT is a power generation and infrastructure company that owns, operates and maintains 28 power generation facilities in the U.S. and two in Canada plus a 300-megawatt wind facility, a short drive from your home. Together these facilities produce 3,300 megawatts of power, which AT sells to utilities and other large users under long-term purchase agreements. Revenues in 2013 grew to $551 million, but its long-term debt inched to $2 billion.
AT hasn’t made a dime in the decade it’s been in business, and I see no reason the next decade should be any different! There’s no joy here.
China Nepstar chain drugstore (NPD-$2.38) is the Chinese version of Walgreen Co., with 2,100 retail drugstores in 77 cities across 14 of China’s 23 provinces.
In the past 10 years, revenues have more than doubled, to $2.7 billion, but earnings have been pathetic, and so has the stock performance. In the summer of 2009, NPD traded at between $7 and $8, and its dividend was $1.50. Now the dividend has been lowered to 30 cents, though it does yield a hefty 12.1 percent.
Earnings this year will come in at less than a dime, and Reuters, the only brokerage on Wall Street following NPD, believes 2015 earnings will come in under a nickel. I suspect that NPD will cut its dividend again. I don’t trust Chinese accounting practices. I don’t trust their corporate managers. I can’t read a Chinese income statement or a Chinese balance sheet, though I can read a Chinese menu.
I’m a sucker for Chinese food, even though everything tastes the same, but I’m not enough of a sucker to recommend NPD, even if it yields 12.1 percent.
Intersections (INTX-$4.01) pays an 80-cent dividend, which yields a too nifty 17.9 percent. In the summer of 2011, a reader who had inherited 65 shares of INTX from his father asked whether she should round out her position to 100 shares. When I told her “no,” she was insulted and accused me of besmirching her “father’s memory.” And I’m also going to tell you “no,” because I can’t find a single brokerage company on the Street that covers this Chantilly, Va., company, which sells subscription-based consumer protection services.
According to its filings with the Securities and Exchange Commission, INTX had $297 million in revenues in 2013 and lost 14 cents a share. I have no idea whether INTX will be profitable or be able to pay its dividend this year or next. Run away from this stock.
I don’t know what your account looks like, but I suspect that it’s littered with detritus similar to the three above. Please have a professional review your portfolio ASAP. This character is dangerous to your wealth.
Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at email@example.com.