Very Speculative High-Yield Issues

By Malcolm Berko

June 24, 2015 5 min read

Dear Mr. Berko: We met when you spoke in Oklahoma City in 2001. You told me to buy 50 shares of Apple at $22. I did! Now, after two splits, I have 700 shares, and that good luck seemed to follow in my business. I am 54 and have been a self-employed interior decorator for 27 years. The past dozen years have been exceptionally good for my clients and me. However, my stockbroker is one of those fellows who go by the book, so I know his answer to my question before he responds. He recommends that I have 60 percent of my $260,000 retirement portfolio in stocks and 40 percent in bonds. And because I plan to retire in 12 years, he has started buying bonds in my retirement account. But I have $53,000 in cash with which I don't have to go by the book and can afford to be really risky. I would like to have some fun. I know there are stocks paying 10 to 25 percent, and I'd like to invest that $53,000 in some high-yielding stocks you think can continue to pay 10 percent and will still be around 10 years from now. I would appreciate your recommendations. — SR, Oklahoma City

Dear SR: Your broker was probably an actuary in a previous incarnation. It's been my experience that folks who go by the book lead very boring lives, have very boring wives and will never enjoy a beer at the Porthgwidden Beach Cafe in St. Ives.

Going by the book is for folks who are not spontaneous, who lack creativity, won't take chances, have weird friends and need an authority figure for guidance. A portfolio of 60 percent stocks and 40 percent bonds when you retire — most good interior decorators never retire — is by the book and industrial-strength stupid. If you were retired today and 40 percent of your portfolio were in bonds, you'd be collecting food stamps, using Medicaid, applying for housing assistance and shopping at Dollar Tree, The Salvation Army and flea markets.

Most good stocks deliver better inflation-adjusted returns than bonds; issues such as Procter & Gamble, AT&T, Johnson & Johnson, Verizon Communications, Exxon Mobil, Southern Co. and Consolidated Edison are only a few of the hundreds of common stocks, exchange-traded funds and mutual funds that have put bonds to shame and will continue to do so. These issues raise their dividends annually, whereas bonds, which are fixed-income investments, are a very poor hedge against inflation because fixed income never increases. Please be mindful that you're making a significant error in judgment if you allow this schnook to manage your retirement account by the book. Have a talk with him immediately, or find another broker who is not afraid of his own shadow.

If you can gargle with battery acid, swallow swords and wrestle alligators, then you qualify to own the following extremely risky issues:

Calumet Specialty Products Partners (CLMT-$26.65) sells production chemicals for the oil and gas drilling industry and jet, diesel and auto fuels and lubricating oils used for basic automotive, industrial and consumer goods. The $2.74 dividend yields 10.4 percent, and CLMT should produce $5.7 billion in revenues next year.

CVR Partners' (UAN-$12.80) $1.80 dividend yields 14.1 percent. UAN distributes nitrogen fertilizer and ammonia products for agricultural and industrial companies. Revenue and earnings should improve in 2016, and UAN's price may also improve.

Linn Energy (LINE-$10.17) is a $3.2 billion-revenue oil and gas company that recently cut its dividend, from $2.90 to $1.25, but yields 12 percent. It's an interesting speculation.

American Capital Agency (AGNC-$19.74) invests in mortgage obligations for which the principal and interest are guaranteed by a government agency or a government-sponsored enterprise. Revenues have increased significantly. The $2.40 dividend yields 12.1 percent, and Wall Street has a 12-month target price of $23.

Northern Tier Energy (NTI-$25.01) operates a huge bakery, 165 company-owned convenience stores plus 95 franchised convenience stores (all with gas stations) under the SuperAmerica brand name. NTI is also an independent downstream energy company that operates a 455,000-barrel-a-day pipeline, and its $4.32 dividend yields 17.7 percent. The Street's 12-month consensus is $28.50 to $34.

Please remember to reinvest all the dividends on these terribly rank speculations.

Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at [email protected] 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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