Dear Mr. Berko:
I received a $53,000 settlement, and my lawyer who did an excellent job for nearly three years and only took a $4,500 fee has advised me to buy 30-year Treasury bonds yielding 3.9 percent. He thinks the stock market will continue to lower. We own some of the good-yielding investments you recommended, and my wife and I want more than 3.9 percent. We are both 61, on disability and feel we would need at least 6 percent to give us some wiggle room. If you want us to follow the lawyer’s advice, we will, but we would really like to do better. Can you help us?
D.G., Aurora, Ill.
Dear D.G.:
Darn. Double darn and triple darn. Back in early 2009 when the Dow looked as if it would plunge into the hobs of Hell, I reached into that black hole and bought a few hundred shares of Boeing, DuPont, Progress Energy, Avery Dennison, American Express and five other blue and pale blue chips at ridiculously low prices. I bought them because their prices had collapsed way beyond what I considered to be ridiculous because each company produced a vital product and paid a dividend in excess of 5 percent.
I figured I could hold on to those 10 issues and get a solid 5 percent to 7 percent return while I waited for their prices to return to normal. And by January of this year, those issues nearly tripled in value – though, today, their values have only doubled.
But I made one terrible mistake, which I continue to regret. I only bought 200 shares of each issue – I didn’t have any guts. Hindsight is an exact science, and of all the forms of wisdom, hindsight is the most unforgiving.
Well, you might not forgive yourself if you fail to buy AT&T (T-$26.10) that pays $1.68 and yields 6.20 percent. And you may not forgive yourself if you don’t purchase Verizon (VZ-$29) because its $1.90 dividend yields 6.40 percent. Then you may chastise yourself for not buying Deutsche Telekom (DTEGY-$11.95) because the $1.03 dividend yields 8.6 percent.
And you might berate yourself if you fail to buy Telstra Corporation (TLSYY-$13.29), the Australian telephone company that pays a $1.29 dividend yielding 9.7 percent. You might also kick yourself if you passed up BT Group (BT-$19.51) that pays $1.29 and yields 6.5 percent.
And finally, you’d probably say, “Darn, I wish I’d bought CenturyLink” (CTL-$34.71), formerly known as Century Telephone, which yields 8.3 percent because it pays a dividend of $2.90.
Certainly, these are historically excellent yields. And until AT&T finds a way to commercialize telepathic communication, the telephone industry (cell phones, Internet, data and video services, etc.) will remain a commercial force.
However, if you feel that the market will continue to weaken, you should consider placing open orders with your broker to purchase these issues at even lower prices – which, of course, will improve the yields.
Now, go wiggle. Consider buying a few shares of each at the current price and placing an open good to cancel order to purchase a few more shares at a price that is 10 percent to 15 percent lower.
While the interest of 30-year Treasury bonds is safe as sunshine, I have two major concerns. I know interest rates will rise and that they will rise significantly. But I don’t know how long the Fed will be able to maintain this low interest rate environment. So if you invest that $53,000 in 30-year Treasuries as your lawyer suggests, at some point, when long rates are 6 percent or 8 percent, you will be crying in your beer. And your tears will flow even heavier because those 4.5 percent T-bonds will be worth 70 cents or less on the dollar.
And while the phone stocks may also decline, there’s still an excellent probability that they will grow their dividends.
By the way, I like your lawyer.
Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775 or e-mail him at mjberko@yahoo.com. Visit Creators Syndicate Web site at www.creators.com.
© 2010 Creators Syndicate Inc.
