By Malcolm Berko
Dear Mr. Berko:
We have been with our broker, who may be getting long in the tooth, 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
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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, Virginia, 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.
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Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email 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.
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