Dear Mr. Berko: I'm looking at Frontier Communications since its buyout of Verizon's land line business. The $1 dividend, according to Yahoo Finance, yields 14 percent and I was thinking of buying 700 shares as a gamble on a high-yield stock. What do you think? Meanwhile what can you tell me about the new federal real estate tax? Our son, who is in the title insurance business, says that Congress will pass a 3.8 percent tax on all real estate sales in the next session. He insists his source is "impeccable" and is advising us to sell our home now. Don't the voters have any idea what they vote for? We were going to sell in two years, downsize and move to your neck of the woods, where the winters are warm.
—T.R., Joliet, Ill.
Dear T.R.: Holy cannoli and tiramisu, too. Frontier Communication (FTR-$7.28), formerly known as Citizen Communications, just gobbled up a chunk of Verizon's (VZ-$28.51) wire line assets and in the process issued $5.4 billion of new FTR shares to VZ stock holders.
But you gotta stop relying on Yahoo for financial information. Those fools wouldn't know a dividend from a deutschmark. FTR reduced its dividend from $1 to 75 cents but it will probably take Carol "Big Mamma" Bartz (Yahoo's inutile CEO) and her clueless understrappers a year to figure that out. Yahoo's financial data is dangerously unreliable.
FTR, prior to digesting VZ's wire line asset, was a $2.1 billion revenue provider of most communications services know to man except wireless. FTR is a rural, small-town phone company that does broadband, Internet, data transmission, directory assistance, white pages, yellow pages, green pages (some rural towns prefer green), TV, cable and so on and provides wholesale services to other carriers. But it does not provide mobile or wireless phone services.
The VZ purchase triples FTR's customer base and cements its position as the largest rural carrier in the U.S., but it's hugely dilative to shareholders and significantly increases FTR's debt. However, even with debt increasing to $8 billion, the acquisition should triple FTR's annual free cash flow from about $450 million to about $1.5 billion. And this places the current 75 cent dividend on firm ground with a strong 10.2 percent yield.
I think FTR should perform well over the coming few years and would still be comfortable owning 700 shares as a reasonable gamble.
Would you believe that a member of the Florida legislature (one of the most crooked legislatures in the nation) also told me that the Obamacare bill imposed a 3.8 percent tax on the sale of all real estate? This numbskull lawyer legislator I've known for 30 years also told me that the Florida legislature is considering a $10 million tax on the sale of all real property in the state.
Well, the 3.8 percent Obamacare tax is a "hoe-ax" that is gleefully making the rounds as if it were gospel. It's incredulous that so many intelligent people are so ready to attribute so many far-fetched, outlandish claims to the Obama legend. Now, I admire Obama as much as any conservative, but this 3.8 percent tax on the proceeds of all real estate really takes this cupcake. It ain't true so here's a simple explanation on how this Medicare tax buries:
Beginning in 2013, if you have a profit on your home above the $250,000 individual capital gains threshold, you will pay a 3.8 percent tax on the amount above the threshold amount. So if you make a $300,000 profit selling your home, you will owe the IRS 3.8 percent of ($300,000 less $250,000) $50,000 or $1,900. And if you're married, the threshold rises to $500,000.
If the Florida legislature passes a $10 million tax, the same formulae will apply. This country is living proof that people who go to polls decide nothing but its people who count the votes who decide everything.
Please address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, FL 33429 or e-mail him at mjberko@yahoo.com. To find out more about Malcolm Berko and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com. COPYRIGHT 2008 CREATORS SYNDICATE, INC.
