TAKING STOCK

These 8 are enough

Dear Mr. Berko: I bought 100 shares of each of those bank stocks you recommended back in December and I'm losing money. Those were lousy choices and I'm disappointed in you for those selections. Because I'm young enough to be your son, I selected my investments so they will produce good dividend income to provide my wife and me with a solid retirement in 25 years. So how about redeeming yourself and give me, and your readers, a better-researched list of dividend issues because the last list was a real bust and I'm not a happy camper.

E.L.

Syracuse, N.Y.

Dear E.L.: There are a lot of lads out there who are young enough to be my son and while you consider long-term to be four to eight weeks, their definition of long-term is several years or more. You've got 25 or so years till you hang up your slide rule - so be patient and you'll endure! And yes, they're off a tad and I'm disappointed, too.

First Horizon (FHN-$27) after 26 years of consecutive increases, reduced its dividend by 50 percent to strengthen its capital structure. Still, it's two points lower than your purchase price. In total, those recommended bank stocks, except for Regions Financial Corp. (RF-$22.46) are down less then 1.5 percent. Today's prices on those issues may look awfully cheap in 18 to 24 months hence and I strongly suggest that you buy 100 more of each.

If you're an income/growth investor at age 40 or age 70 I'm willing to wager my signed 1964 first edition volume of Chairman Mao's "Little Red Book" that the following income/growth issues will be much higher within one year after the installation of our new president. And I promise that you will not be disappointed again if you promise to make me three promises:

1. Buy 100 shares of each of these eight issues.

2. Be a long-term investor.

3. Reinvest the dividends every quarter.

Pfizer Inc. (PFE-$22.52) is five-star rated by Morningstar. Its $1.28 dividend, which has been raised for 27 consecutive years, yields 5.7 percent. The last few years have been a little confining but it's about to change.

Wachovia Corp. (WB-$33.03) also has Morningstar's five-star ranking. This classy bank has a superb dividend record ($2.56), which yields a swell 7.4 percent. WB has little capital exposure and earnings for the next couple of years look just fine.

Bank of America Corp. (BAC-$42.50) is another five-star issue with a $2.56 dividend yielding 6 percent. Its purchase of Countrywide should be very earnings positive and its exposure to the subprime market has already been written off.

American Capital Strategies Ltd. (ACAS-$35.28), a business development firm, is given a solid 10, which is MSN's highest possible ranking. Its $4 dividend yields a hearty 11.5 percent and 2008 earnings look positive.

MCG Capital Corp. (MCGC-$12.60) is also a business development firm and rates MSN's highest score of a 10. The $1.76 dividend yields 14.3 percent and next year's earnings look strong.

Ares Capital Corp. (ARCC-$13.72) another business development company has also been given a 10 designation by Morningstar. The $1.68 dividend is worth a 13 percent yield and earnings for this year are looking good.

Now neither Morningstar, Value Line, MSN, Yahoo, Goldman Sachs, Prudential, Citicorp, Oppenheimer nor Lehman like The New York Times Co. (NYT-$16.60) whose 92-cent dividend yields 5.5 percent. The stock has fallen over 50 percent in the last two years and it's on the cusp of a solid turnaround.

Warwick Valley Telephone Co. (WWVY-$11.20) has been providing phone service in New York/New Jersey since 1902. And today WWVY does everything that AT&T does but on a much smaller scale. Its dividend growth is modest but dependable and the 80-cent payout yields a strong 7.1 percent. However, there isn't an analyst or research organization with whom I'm familiar that follows Warwick, though it's rumored that Jack Nicholson owns a few shares.

And finally Deerfield Capital Corp. (DFR-$6.22) is not recommended by a single firm, a single analyst or a single research organization whose name I would recognize. Not even Merrill Lynch, Goldman Sachs or Credit Suisse would touch this issue. The company focuses its efforts on extremely risky residential mortgage-backed securities as well as unsecured loans, credit default swaps, collateralized debt obligations and distressed debt securities. This egregiously risky issue pays a dividend of $1.68 (25 percent yield), which must certainly be reduced to 75 cents this year providing investors with a 12 percent yield. An extremely dangerous stock with a good risk-to-reward ratio. Buy 300 shares.

Please address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, FL 33429 or e-mail him at malber@comcast.net.
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