Dear Mr. Berko: I am 54 and have $40,000 to invest in my Individual Retirement Account. Because I want safety, my broker recommended that I invest half in a 4 percent government bond fund and half in a 2.25 percent fixed annuity, which he says would be unaffected by a steep decline in the market. I have my doubts about the future of those investments for me and would like to hear your recommendations.
Dear RP: I’d rather grow potatoes in Puerto Rico than own those products. Use that $40,000 to buy AT&T, which yields 5.7 percent and has the likelihood of small dividend increases annually.
There are no stocks (or any investments, for that matter) whose earnings, dividends and market values would be unaffected by a steep decline in the Dow Jones Industrial Average. But among those issues that would be least affected and would probably continue to prosper, though very modestly, is AT&T Inc. — or Ma Bell, as it was once known.
Ma Bell’s profound impact on the economy and culture of 20th-century America is legendary. And it’s more than reasonable to believe that AT&T’s impact on the 21st century can be as significant. So I say that brokster ought to have his head examined. And a psychiatrist in your city I know might see him this week. AT&T (T-$32.16) will probably increase its dividend every year — between very modestly and barely modestly — in the coming dozen years.
A dozen years ago, T's revenues were $38 billion, and those revenues should grow to $129 billion this year. Since then, net income has improved from $4.8 billion to $13 billion — even though net profit margins have declined to 9.8 percent, their lowest level in 30 years. Though the dot-com bubble launched T to $59, its crash dropped the share price to $21 a few years later. Still, T increased the dividend in 11 of the past dozen years (77 percent), from $1.02 to $1.80 in 2013. No matter how the crow caws, those are very respectable numbers, and with T shares trading at their lowest price-earnings ratio in a quarter-century, the stock is darn fairly priced. At $32, T is one of the most attractive income/growth investments on the planet.
Still, most brokers consider T as boring and bland as consomme. Remember that these guys and Wall Street make money only when customers buy and sell things. Smart investors make money by holding stocks such as T for dozens of years. However, in the next dozen years, there will be epochal changes in communications technology that will exponentially eclipse the technology advancements of the past dozen years.