Dear 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 change 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?
EP in Kankakee, Ill.
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.