Dear Mr. Berko: I'm a 74-year-old widow with an $87,000 certificate of deposit coming due next week. I visited two brokers. Each wants me to buy a variable annuity, and both sounded very good. I've enclosed my notes and the pamphlets and prospectuses in this envelope. What do you think? If you don't care for them, please recommend five or six stocks paying at least 5 percent that a gal like me could comfortably live with. I can afford moderate risks.
RT, Gainesville, Fla.
Dear RT: Train loads of brokers peddle annuities because they are too dumb to select common stocks. I'm not familiar with those specific annuity products, and I don't have the time to read the prospectuses. Several months ago, I told a couple to have their stockbroker enumerate, on his firm's letterhead stationery, all the wonderful assurances he had made about the annuity he was proposing. I suggest you do the same. Failing that, I recommended the follow issues, which the couple now own.
Kinder Morgan Energy Partners (KMP-$85.65), a $9 billion pipeline master limited partnership yielding 6 percent, has a 20-year history of consecutive dividend increases. The current $5.04 dividend, mostly nontaxable, should be increased to $5.26 this year. KMP, which recently bought El Paso Corp., is the nation's largest pipeline operator, covering 29,000 miles with 180 terminals. This issue should provide modestly attractive capital appreciation, a dependable and growing dividend, and low volatility. And it may split 2 for 1 this year.
AT&T Inc. (T-$35), with $127 billion in revenues, yields 5.2 percent. The Street expects the $1.80 dividend to continue higher each year, along with revenues and earnings. AT&T's new video and broadband offering continues to advance subscriber growth, which should continue to pick up nicely as the iPhone supply improves and its new shared data plans gain traction. T could trade in the high $30s to low $40s in the next 24 months.
W.P. Carey Inc. (WPC-$58) is a $300 million-revenue global real estate firm yielding 4.5 percent. WPC's $2.64 dividend, which has increased for 14 consecutive years, is largely nontaxable and may be increased this year to $2.80. Its $12 billion real estate portfolio is composed of commercial properties, generally triple net, leased to major corporate tenants. WPC has below-average volatility, and the consensus believes that shareholders will benefit from the company's good long-term revenue, earnings and dividend growth. WPC also should be a good inflation hedge.
Reynolds American Inc. (RAI-$43.95), with $8.4 billion in revenues, is the second-largest tobacco company in the United States (Winston, Kool, Camel, Salem, Vantage, Doral), with a dividend yielding 5.4 percent. Revenues should improve to $8.6 billion this year, and the dividend, with a long record of annual growth, could increase from $2.36 to $2.44. RAI's smokeless tobacco (Grizzly), one of the company's bright spots, helped improve RAI's operating profits by 20 percent in 2012. Last year's $2.95 earnings could increase to $3.15, with net profit margins improving to 20.2 percent. RAI could trade at the $46-$48 level this year.
Old Republic International Corp. (ORI-$11.67), a $4 billion-revenue multiline insurance company trading below its $14 book value, pays a 6 percent dividend. Revenues for 2013 may grow by 3 percent, and the 71-cent dividend, which has enjoyed 15 consecutive annual increases, could move a penny higher, to 72 cents. However, when interest rates increase, ORI's portfolio is likely to generate higher earnings, to be passed on to shareholders in the form of increased dividends. There's good recovery potential in ORI shares, and the stock is expected to trade up 20 percent or more this year.
GlaxoSmithKline PLC (GSK-$44.13) is a global $43 billion-revenue research-based drug company yielding 6.1 percent. GSK has a long history of revenue, earnings and dividend growth plus a good pipeline that should prove nicely profitable in the coming five to six years. Sources suggest that the $2.76 dividend is likely to grow by 5 to 7 percent annually for the foreseeable future. The shares could trade in the high $40s this year.
Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at email@example.com.