Dear Mr. Berko: I am 77 and have an $80,000 5.1 percent municipal bond, which my father left me 22 years ago, that just matured. The $2,040 in interest every six months is very important to me. My income, not including this bond, comes from Social Security, a pension and a small structured settlement — totaling $3,139 a month. I owe $2,300 on my car and $1,700 to Visa, but my home has no mortgage. The stockbroker who has my bond money says I could get between 8.5 and 13.6 percent if I invested $20,000 in each of the following: Apollo Global Management, KKR & Co., Plains All American Pipeline and Tribune Publishing. That would come to about $8,000 yearly and would be twice as much as I was getting with the bond. But my accountant, who says he knows you, told me these issues are "too speculative" and wouldn't advise buying these shares. However, he said I should ask for your opinion. Should I put $10,000 in each, which would almost replace what I used to get from the bond? — PS, Oklahoma City
Dear PS: I met your man 25 years ago, when he was an auditor for the Federal Reserve. He wasn't a talkative fellow. Rather, he's the type of guy whom, when there's a loss in the family, you'd want along as a mourner. And if he says investing $20,000 each in Apollo (APO- $15.22), KKR (KKR-$15.68), Plains (PAA-$23.51) and Tribune (TPUB-$9.36) would be "too speculative," he's right as rain. Put that money in a certificate of deposit for now.
Apollo Global Management, a $1.1 billion-revenue global investment firm, manages hedge funds and mutual funds primarily for U.S. clients. Its private equity investments include traditional and distressed buyouts, recapitalizations, restructuring, acquisitions, and turnarounds. APO also trades oil, agriculture commodities, mining properties, chemicals and various metals. It also raises, invests and manages money for pensions, endowments, institutions, individuals and sovereign wealth clients. APO has $160 billion under management and offices in India, Singapore, Hong Kong, Germany, the U.K., Luxembourg and the U.S. Because 2016 earnings may come in at $1.93 a share, the $1.40 dividend, yielding 9 percent, appears safe and could be raised. But in today's market, APO's business model makes me a bit itchy.
KKR & Co. is in the same business as APO, though by comparison, its revenues and income exceed APO's nearly sixfold. The $1.40 dividend, yielding 8.7 percent, is easily covered, and expected 2016 earnings of $2.37 a share would be better than this year's $1.74. But KKR, with worldwide offices, has much more exposure to world events than APO, which scares the bejabbers out of me. In this crazy market, Jose, no way!
Plains All American Pipeline, a $27 billion master limited partnership, transports, stores, terminals and markets crude oil, refined products and liquefied petroleum gas. PAA has 17,800 miles of pipeline and 73 million barrels of storage capacity. PAA has little exposure to volatile commodity prices because it doesn't own product in its pipelines. Rather, it's more like a railroad, collecting fees for transporting energy products. PAA trades at book value, and even though the $2.80 dividend, paying 14 percent, looks safe, it gives me conniptions.
Tribune Publishing was spun off from the huge Tribune Co. in 2014 on a 1-for-4-share basis. TPUB owns the iconic Los Angeles Times, the Chicago Tribune, the Sun Sentinel, the Orlando Sentinel, The Baltimore Sun, the Hartford Courant, The San Diego Union-Tribune, The Morning Call and the Newport News Daily Press. Though revenues of $1.65 billion won't improve much in 2016, earnings will rise from this year's 96 cents to $1.35, from lower operating costs, improvement in digital marketing and content syndication. The 70-cent dividend yields 7.2 percent but probably won't be raised in 2016. J.P. Morgan is bullish, and so is Oaktree Capital, with Value Line writing: "We see significant share-net growth over the 2018-2020 stretch. ... Based upon a conservative valuation there's plenty of room for upward share-price movement." That broker finally gave you a rank recommendation I like. Still, it's too bloody speculative.
Consider a reverse-annuity mortgage. At your age and stage, a RAM could pay you about 5 percent of the market value of your home every year, tax-free. And your accountant would approve.
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.
Photo credit: Jeffrey Zeldman