Taking Stock: Don't rule out the immediate annuity entirely

Dear Mr. Berko:

I am 87 years old and in very good health. And that is my problem - I think I will outlive my income, so I need more income. I don't want to buy an immediate annuity that will give me a 10-plus percent return, because I want to leave what's left of my $213,000 to my children. So I'm trying hard not to invade my principal. I have a CD that comes due next month for $32,000, and I need to find some way to get $300 a month from this money. Is there anything out there that yields 10 percent that won't go broke and will continue to pay a high dividend, and that will be worth at least as much as I paid for it when I pass? I've never written a columnist before, but I'm getting older and decided I need help.

DS in Bethlehem, Pa.

Dear DS:

As Mr. Whipple would say: "Life is like a roll of toilet paper. The closer we get to the end the faster it goes." Oh, well, you're never too old to do something stupid like saving all that money for your kids. At age 87, an immediate annuity could probably pay you 11 percent to 12 percent a year with no "ifs," "ands," "buts" or "worries." I figure the best time to give money to your kids is when you're alive so you can watch them enjoy it, not when you're dead and can't. Yes, there are still a few "decent but speculative" issues out there paying 10 percent. Here are a few that I can recommend, with the caveat that these are egregiously speculative but probably among the best on the list of egregiously speculative issues.

APOLLO INVESTMENTS (AINV-$10.02) is a business development company (BDC) that invests in middle-market companies involved in consumer products, health care, media, cable TV, business services and chemicals. AINV looks for investments with 5- to 10-year durations. The dividend was reduced from $2.08 in 2008 to $1.04, and was raised to $1.12 in late 2009. Revenues are growing modestly, and the dividend could be raised next year. Meanwhile, the 11.2 percent current yield should make you smile.

FIFTH STREET FINANCE (FSC-$11.29), also a BDC, finances acquisitions, expansions, management buyouts, bridge financing and recapitalizations. Their expertise resides in businesses that are involved in construction and engineering, food and restaurants, educational services, advertising, and manufacturing. Its dividend has been on the decline since 2008, but management is realizing an increase in revenues as well as profits this year and next year may consider raising the dividend by 15 percent. The current $1.28 dividend yields 11.6 percent

MCG CAPITAL (MCGC-$5.76) is a BDC with a 68-cent dividend yielding 11.3 percent. MCGC eschews volatility, investing primarily in acquisitions, growth financing, organic growth, recapitalization and leveraged buyouts. Management usually takes a minority or controlling equity position. The dividend nearly disappeared in 2009, but has increased in every quarter since 2010. Revenues and earnings should be higher this year and next, and a dividend increase can be expected.

As you surely noticed, I've recommended only three issues, but I suggest you only invest $16,000 of your $32,000 CD. The remaining $16,000 should be invested in an immediate annuity with Pacific Life, Nationwide, Mass Mutual, Met Life or The Hartford.


Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775 or e-mail him at mjberko@yahoo.com. Visit Creators Syndicate website at www.creators.com.

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Published: Fri, Aug 5, 2011