Dear Mr. Berko: My $50,000 CD came due, and good riddance to it.
The rate was 1.2 percent and, while I didn’t lose any principal, I lost money because taxes on the interest plus inflation really gave me a negative return.
I’m not much of a risk-taker but would be willing to take some modest risk for a higher return on some common stocks. So are there any issues that haven’t run up in the past few years that pay dividends of 2 percent to 4 percent that are financially strong and stable and have some annual growth potential of 4 percent to 6 percent over the next few years?
I would appreciate your recommendations. Someone told me you recommended bank stocks. Would any of those be good? — S.S., Cleveland
Dear S.S.: In November, I discussed seven bank stocks, each trading below $10 a share, each of which have plausible reasons to improve their market values. If your paper wasn’t able to publish that column, Google “Malcolm Berko bank stocks” for a copy of that column. Several are way up, and several haven’t budged. And those that haven’t budged should or may.
Meanwhile, there could be attractive long-term opportunities in the major drug issues. Health care reform seems to be less of a contentious issue today than a year ago.
Investors believed that higher rebates, new government legislation, plus an avalanche of additional costs, would neuter earnings of the major players. And to some extent they have, but their overwhelming size and diversity have mitigated the impact on earnings.
Over the next three to five years, these factors will continue to diminish. And higher demand, a consequence of a larger insured population, will also offset additional costs.
As a result, I believe investors now consider drug industry issues much more attractive than they did a year ago. So the performance of the following six major players could be nicely rewarding for patient long-term investors. And the reward might be even more attractive considering that each issue pays a handsome dividend.
GlaxoSmithKline (GSK, 52-week high of $42.10 as of Oct. 14), London-based, earned $2.35 in 2010 and should earn $3.45 in 2011. The $2.03 dividend yields 5.2 percent, and I’m fairly sure GSK will raise its dividend at least a dime this year.
AstraZeneca (AZN, 52-week high of $53.53 as of Aug. 10), another London pharmaceutical, should earn $6.05 in 2010, and estimates place 2011 earning at $6.72. The trailing annual $2.41 dividend yields 5.1 percent, and the Street expects a minimum dividend of $2.63 this year.
Novartis (NVS, 52-week high of $60.07 as of Oct. 13), home ported in Basel, Switzerland, earned $5.10 in 2010 and should earn $5.50 this year. The trailing $1.99 dividend yields 3.40 percent and could be raised to $2.10 this year.
Bristol-Myers Squibb (BMY, 52-week high of $28 as of Sept. 21) earned $2.15 in 2010 and expects $2.27 this year. The $1.32 dividend yields 5.1 percent and could be raised to $1.36 this year.
Pfizer (PFE, 52-week high of $19.33 as of Feb. 2) earned $1.05 in 2010 and may earn $1.40 this year. The 80-cent dividend yields 4.6 percent and may be raised to 88 cents in 2011.
Finally, Merck (MRK, 52-week high of $39.72 as of Feb. 2) posted earnings of $3.35 in 2010 and expects $3.85 this year. The niggardly $1.52 dividend yielding 4.4 percent has not risen in six years and may not be raised this year.
Do not cherry-pick this list.
While I expect all these issues to rise in value, they won’t. Some will, others will remain the same and a few will decline in value.
So invest equal dollar amounts in each issue, and you will earn 4.6 percent on that $50,000. Reinvest all the dividends, and in three to five years, I think, this portfolio could reward you with a 7 percent to 12 percent average annual total return.
Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775 or e-mail him at email@example.com.