DEAR MR. BERKO: Every August, we get between $6,000 and $6,500, which comes to us from our renting 240 acres of pastureland in Indiana that we inherited from my uncle. Every year, we intend to put that money in savings, but something always comes up, and that money is spent on paying bills for things we need. In August 2004, a broker had us invest about $4,300 to buy 150 shares of Hawaiian Electric at $28. He had us buy 100 shares again at about the same share price in August 2006 and 2008, and then he had us buy 150 shares at about the same price in August of last year. We don’t know anything about stocks, and now we question this buying advice and wonder whether it is any good. We are in our late 30s, and we teach grade school. We would be thankful for your advice. ─ LL, Columbus, Ohio
DEAR LL: That broker is as brainless as a feather mop. Hawaii may be an attractive state, but Hawaiian Electric Industries (HE-$26) has been a terribly unattractive investment for young folks like you. There is not much about this utility (HE supplies power to 95 percent of the state’s population) that deserves mention. But its value today is basically unchanged from what it was when you bought it, and its 4.5 percent dividend has remained steadfastly fixed at $1.24 a share during the past 14 years. The dividend is subsidized by its wholly owned subsidiary, American Savings Bank, a $5 billion bank that provides HE with 40 to 50 percent of its share income.
Then you should also know that the dividend has been subsidized during the past five years by a 70 percent increase in average revenues per kilowatt-hour, from 20.53 cents in 2008 to 34.12 cents this year. And while kilowatt-hour rates were increasing, return on capital and return on shareholder equity have declined ignominiously, certainly the result of an inutile management team that needs to be replaced. HE’s dysfunctional board of directors (Adm. Tom Fargo, former head of U.S. Pacific Command; Peggy Fowler, former CEO of Portland General Electric; Maurice Myers, former CEO of Waste Management; and Don Carroll, former chairman of the Oceanic Time Warner Cable advisory board, to name prominent figures) should be sued for failing to represent the shareholders and for the return of its $90,000 in wasted annual directors’ fees, perks and other compensation its members haven’t earned. Those directors are an embarrassment and ought to publicly apologize to shareholders for their grievous failure to guide the company. Deutsche Bank, Morningstar, Robert W. Baird & Co., Thomson Reuters, Prudential, Value Line, Wells Fargo and Market Edge don’t care for the stock, and obviously, neither do I. So sell your 500 shares, because this stock is a stinko.
Then I suggest that you are not getting enough rent for your 240 acres. Rent for pastureland is usually based on one of the following methods: return on investment, forage value, rent per head per month, carrying capacity and rent per pound of grain. Because I’m most familiar with the return on investment concept, I figure you are shortchanging yourself by a lot of money and should consider renegotiating that lease. Rent for pastureland ranges between 2.5 and 3.5 percent of market value. For example, pastureland with a market value of $2,000 per acre can easily be rented for $50 to $70 per acre ($2,000 times 2.5 percent or 3.5 percent equals $50 or $70). You have 240 acres, so your check should be somewhere between $12,000 and $16,800. You should be able to verify these numbers by contacting the department of economics at Ohio State University. The people there will be pleased to give you comparative data and won’t charge you a fee. Meanwhile, there are a few real estate firms in your area that are familiar with methods of computing pasture rental rates. They may also be able to help you renegotiate your current contract for a nominal fee. Good luck, and save every dollar you can.