Dear Mr. Berko: My wife and I are 56, and together, our two individual retirement accounts, which own the same stocks, are worth $146,000. Why was AT&T taken out of the Dow Jones industrial average? Our broker of nine years retired last month, and the young new broker working in the same office says we should sell our AT&T stock (almost 1,000 shares each) because it was delisted from the Dow. He said that when a stock is delisted from the Dow, it falls in price, and he named a few examples, including Eastman Kodak and General Motors. We invest for income, and he recommended we buy 1,400 shares each of ALPS' U.S. Equity High Volatility Put Write Index Fund at $24, which pays 9 percent. We like the yield but never heard of this issue. — HD, Durham, N.C.
Dear HD: Jumpin' Jack Flash, that broker's either smoking hash or drunk on sour mash! Hop on your mopeds, and then turn the throttle and get out of there as fast as you can, 'cause that meathead is dangerous to your wealth. And don't you dare sell your AT&T (T-$34), which is a stock that you can keep for the best of your retirement life.
Apple recently replaced AT&T on the Dow Jones industrial average. The Dow needed more representation in modern technology, and because the Dow is price-weighted (not weighted by market value like other indexes), T's relatively low price made it a logical choice. Eastman Kodak was delisted because it couldn't keep up with the digital universe, and GM got the ax because it declared bankruptcy. Though T had been a member of the Dow since 1916, its recent delisting may be more positive than you realize. Altria and Honeywell were delisted in 2008, and they are up 142 percent and 82 percent, respectively. Citigroup was axed in 2009, and it's up 60 percent. Hewlett-Packard and Alcoa are up 60 percent and 75 percent, respectively, since their exclusion in 2013. AT&T has been flat since 2013, and this event may move the stock higher, surprising many AT&T devotees.
The delisting may have injured the company's pride; however, it has zero impact on T's fundamentals. This conservative, low-risk, compelling investment has a utility-like status and a strong, attractive dividend (5.7 percent), which has been increased for 31 consecutive years. Earnings won't explode, but they will grow modestly and steadily between 2 and 5 percent a year — and perhaps even better if management reaches its goal to improve net profit margins from 9.9 percent to 12.6 percent by 2019. Of course, the future will be even brighter if the $49 billion DirecTV deal is approved this summer by the Federal Communications Commission and the Justice Department. However, with or without the DirecTV deal, the analysts at Morningstar, Credit Suisse, Argus Financial Services and Standard & Poor's currently have "buy" ratings on the stock. Some of the smart money on Wall Street believes that AT&T could trade between $43 and $48 in the coming few years, and the $1.88 dividend may grow to $2.25.
I don't have any opinion on the stocks of Antero Resources, Splunk, SunEdison and Whiting Petroleum. I've never heard of them, though they are among the most prominent portfolio holdings of ALPS' U.S. Equity High Volatility Put Write Index Fund (HVPW-$23.70). HVPW writes out of the money put options on these and other portfolio issues. Management has been doing this since early 2013 and has earned some attractive premiums in a very strong market. But the guys who run this exchange-traded fund haven't been tested in a down market, and I suspect that HVPW is a very volatile investment. Meanwhile, "ALPS" is either a mountain range in Europe or an abbreviation for autoimmune lymphoproliferative syndrome — the latter, I suspect, if the Dow goes into a funk and slumps 10 percent.
This delisting is an excellent opportunity for stockbrokers to recommend the sale of AT&T and generate fees. But this is a commission business, and if a broker fails to buy or sell you something, his paychecks may come up short. I understand that, but this ALPS thing really takes the cupcake.
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.