Dear Mr. Berko: I’m a 41-year-old happily married woman with two boys. Before my dad passed away in late 2008, he invested $60,000 and bought 2,300 shares of AT&T at $26 a share for me. He told me to keep it for the rest of my life and said it would be the icing on my retirement cake if I reinvested all the dividends each quarter. That was over 10 years ago, and the Dow Jones Industrial Average has increased from about 10,000 to over 25,000 since then. But my AT&T investment has only doubled in value, and I am automatically reinvesting the dividends. My original 2,300 shares of AT&T have grown to 4,000 shares, worth about $120,000. Two stockbrokers my husband and I have talked to want us to sell all of the shares because AT&T is a “slow-to-no-growth stock” with little future to help us in retirement. Frankly, AT&T’s share price is hardly higher today than it was when Dad bought it for me.
One of the brokers, from church, wants us to put this money in six growth mutual funds (list enclosed) that have earned an average of 11 percent a year since 2008. The other broker wants us to buy two annuities. One would be a bond annuity and be very safe with little risks, while the other would be a growth annuity with good potential for long-term growth but with risks. Please advise us on what to do. — HG, Moline, Ill.
Dear HG: The first thing you should do is visit the amen corner of your church and say a special prayer for your dad. Tell him I said “hello.” Then say something nasty and impolite to those two brokers. Then do nothing.
AT&T (T-$30.85) doesn’t leave contrails in the sky. It’s not a high-powered, showy growth company, and its research and development, though impressive, lacks the glitter and hype of other telecommunications companies that scream, “Buy me!” Nonetheless, T is a strong, steady telecom that owns AT&T Wireless, BellSouth, DirecTV and Time Warner. Its list of media properties is considered the eighth wonder of the world. And the expected impressive growth of advertising revenues that wise observers believe is headed AT&T’s way will contribute to the near certainty that AT&T will experience a continuing stream of higher revenues, increasing earnings and annually growing dividends.
In 2008, you started with a $60,000 investment, and it’s worth about $120,000 today. In those 10 years, each AT&T share has paid you a total of $19.80 in dividends. Today you generate a bit over $8,000 in dividends. And your total annual 10-year return since owning AT&T is 7.1 percent. But wait.
Let’s assume that in the next decade, everything remains the same, except that AT&T’s dividend grows 2 percent annually. At the end of 20 years, the reinvestment plan will contain 8,723 shares of AT&T with a dividend of $2.48 a share. That’s $21,000 in income, and you’re now 51. And in 10 more years (assuming little change in AT&T’s operations), if you continue to reinvest and follow Dad’s advice, you may have 19,484 shares, each paying $3.04. So at age 61, you should be able to spend the $60,000 in dividends earned from Dad’s $60,000 investment of 2,300 shares made 30 years previously. If so, you’ll have earned a 7.1 percent compounded annual total return for 30 years. And millions of American investors would kill for that return. Tell those brokers to butt out.
A wise man once said, “Better the devil you know than the devil you don’t.” Continue with your dad’s advice. This is his legacy to you. It’s possible that the annuity and other products offered by the other salesmen will outperform AT&T. But it’s also possible they will fall flat on their derrieres. Stay the course. Be comfortable earning a slow $10 rather than a fast $20. Believe me! And believe me when I tell you that Argus Research, Morningstar, Value Line, Market Edge, Thomson Reuters. J.P. Morgan, UBS, Bank of America, Citigroup, Cowen and SunTrust agree with me.
Malcolm Berko has a book of poetry coming out on Amazon at the end of March, titled “Poetry and Musings.” 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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