TAKING STOCK: Gambling with your money

Dear Mr. Berko:

I have about $77,000 in a savings account, which earns less than 0.75 percent, and really need to improve my income. A broker I use occasionally recommends an Australian stock called Tattersalls, which is involved in the Australian lottery and betting. He says it is $2.50 a share and yields 8 percent. I think the gambling business is a good, stable business, and I could buy 4,000 shares for $10,000. What do you think of this stock? This broker also recommended a telephone, Internet and cable stock called Windstream, which is in Little Rock, Ark. The stock is $10.35 a share and pays a $1 dividend, which is almost 10 percent. And I think the telephone, Internet and cable businesses are stable and solid businesses. So what do you think of this stock? I would buy 1,000 shares. I have $57,000 more I would quickly like to invest in stocks paying 8 percent or better, which is a lot more than the rates I get today. Please tell me the names of some stocks paying 10 percent or better and whether you think I should buy Tattersalls (which I can't find on the stock exchange) or put that money in Windstream because it pays more than 8 percent. I'd like to get these good returns for all this money as soon as possible.

BD in Jonesboro, Ark.

Dear BD:

Whoa, girl! Slow down! Relax! Put a plug between your cheek and gums, and then catch your breath. Breathe in, and then breathe out. Over the past dozen months, almost every high-quality dividend stock has been bid so high that its current price makes it look unattractive. Most modest-quality dividend stocks are trading at record premiums above their normal trading ranges, while even the prices of lower-quality dividend issues have been pushed higher than reasonable values warrant.

And now the emphasis has been shifted to the flotsam and jetsam, the prices of which are also dangerous to your wealth. Low interest rates, via an epochal increase in the U.S. money supply, have always jump-started the economy in the past. Today they've had about as much effect on business activity as the impact of another fly to a slaughterhouse, and that's worrisome. Even lower oil prices, rising auto sales and a very modest improvement in the housing market have failed to produce the administration's vaunted 3 percent gross domestic product growth rate this year. The main beneficiaries of low interest rates via the slop-pot pouring of sloppy Joe dollars into the economy have been bond prices (not values) and income stocks. These sloppy Joe dollars smell good and taste good but have encouraged investors to seek high yields in dangerous places, increasing the possibility of a bond market bubble.

I remember my grandfather telling me how he used to bet on the ponies at the Tattersalls Club when business took him to Adelaide, Australia, in 1902 and 1903. Tattersalls, a centuries-old name, has been around since the U.S. Civil War. Today it is called the Tatts Group (TTS-$2.91) and is Australia's largest bookie joint/lottery/gaming company, with outlets in 5,200 stores on the continent. TTS is profitable and, like the liquor industry, should grow its revenues and income even in bad times. Its dividend has increased modestly, from 16 cents in 2006 to 22 cents today, but considering its higher share price, the current yield is 7.5 percent.

I don't object to owning that low-quality dividend issue, which may have attractive growth potential. But I wouldn't touch Windstream (WIN-$10.26) - a land line phone company with $5 billion in revenue - with a larded 10-foot pole. WIN provides high-speed broadband Internet access, digital TV and Voice over Internet Protocol to customers in 48 states but seems to be in a state of financial decay. WIN earns 51 cents a share, and its $1 dividend (twice its earnings) yields 9.9 percent. The company has a negative book value (if you exclude good will); management is trying to restructure its debt load; and its dividend, as well as its share price, looks shaky. I think WIN is a wrong number.

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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 website at www.creators.com.

© 2012 Creators Syndicate Inc.

Published: Fri, Aug 17, 2012

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