Except for a handful of telecom issues, 'P.U.!' to the EU

Dear Mr. Berko:

I've been advised to invest 15 percent of my assets in European issues to diversify my portfolio, which is valued at $665,000 as of this evening. My advisor believes the European markets will recover very soon, that the European Union will emerge stronger than ever and that the euro will challenge the dollar as the world's currency. I'd really appreciate your opinion.

GL, Akron, OH

Dear GL:

Your broker must have fallen off a stupid tree and hit every branch on the way down - either that, or he's French.

Now, as certain a fortnight is two weeks, I'm certain that the European markets will recover like pet rocks on amphetamine and dawdle closer to their previous highs in the very distant future. But one of the major impediments to the EU's recovery is its French and German leaders, who eased the EU into an undemocratic, elitist organization in an attempt to create a European superstate.

The original purpose of the EU was as a trade union to promote economic cooperation between member states - a grand idea back in 1957. But since then, the EU has functioned under the control of those power-hungry egos from Germany and France. And while the euro has become a major currency since its 1999 introduction, there's some doubt it can survive the growing economic crisis.

The EU has become a (SET ITAL) boula baise (END ITAL) with too many sovereign states that poison the broth. I'm not sanguine about the long-term economics of Europe. There are only two things I like about Europe: its hoi polloi and its phone companies. So if you must invest a portion of your portfolio in European issues, I'm comfortable recommending European telecommunications companies for their high dividends and because they are less affected by negative economic conditions than retail, manufacturing, chemical, transportation and other sectors.

Of course, the attractive dividend yields on the following issues can make a long recovery time more palatable. And by the way, each of these issues trade on the Big Board, which is a lot closer to Akron, Ohio, than Paris, Lisbon, Rome or London.

Portugal Telecom (PT-$7.52) pays 94 cents and yields 11.9 percent. PT operates in Portugal, Brazil and sub-Saharan Africa. PT's debt was recently downgraded, but certain deleveraging ahead portends a higher stock price. PT is trading at its 52-week low and expects record earnings of $1.21 in 2012.

Telephone Italia (TI-$9.82) pays 62 cents and yields 5.9 percent. TI has a healthy cash flow and other communication assets outside Italy. TI is trading at its 52-week low, and analysts expect 2012 earnings to exceed $1.80 a share. So higher earnings could translate into higher dividends, which could mean a higher share price.

France Telecom (FTE-$15.52) pays a $1.45 dividend yielding 8.8 percent. FTE, which trades at its 52-week low, spent the last 18 months repairing its balance sheet after a shopping spree that enabled FTE to report $66 billion in 2010 revenues. The Street believes earnings will grow to $2.14, so it's possible that the share price could move higher too.

Vodafone (VOD-$24.91) is five nickels above its 52-week low, and its $1.92 dividend yields 7.4 percent. This is one of the largest mobile telecom companies in the world, and its crown jewel is its 45 percent equity in Verizon Wireless through a joint venture a dozen years ago. Higher earnings are expected for this year and next as well as its usual "special" dividend from its Verizon joint venture.

If you travel to England, France, Italy or Portugal on vacation, I suggest you also visit the corporate offices of your investments. An aggressive CPA might suggest that you deduct a portion of your travel costs. But check with your tax professional before you book a flight, not after.


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.

© 2011 Creators Syndicate Inc.

Published: Fri, Sep 30, 2011