Dear Mr. Berko:
I'm looking to invest $50,000 in four high-income stocks, and I'm willing to speculate to get 10 percent annually. My stockbroker recommends AllianceBernstein, Waddell & Reed, Duff & Phelps Select Energy, Apollo Investment and BlackRock Capital Investment. We'd appreciate your thoughts on these five stocks. We figure that your recommendations might limit any potential loss.
-KL, Joliet, Ill.
Dear KL:
You're giving me too much credit, though I'm mindful that losing money is like stepping on a snake. You must be careful out there. Too many investors are seeking high yields, and too many brokers are taking too many chances betting on borderline stocks.
AllianceBernstein's (AB-$22) $2.68 dividend yields 11.7 percent. AB, a global investment management firm, provides research, investment management and related services to institutions, trust departments, private wealth accounts and brokerages. AB's services span numerous investment disciplines, including customized target date funds, hedge funds, taxable and tax-exempt strategies, global and regional portfolio strategies, dynamic asset allocation, private equity multi-asset allocation, enhanced index solutions, and more. Jeez! Last year's $3 billion in revenues should improve to $3.15 billion this year, and earnings should come in at $1.95 a share. Opinions on Wall Street vary widely, from "avoid" by Market Edge to "hold" by Thomson Reuters to "outperform" by S&P Capital IQ. I agree with S&P.
Waddell & Reed Financial's (WDR-$16.76) $1.84 dividend yields 10.9 percent. WDR is a brokerage firm that provides investment management services to the public, product underwriting, mutual fund administration, open-end and closed-end fund distribution, life insurance, and annuity products. Revenues for 2017 are expected to come in at $1.02 billion, lower than 2016's revenues of $1.3 billion, which were lower than 2015's revenues of $1.5 billion and lower than 2014's revenues of $1.6 billion. But WDR has an impressive balance sheet, with $900 million in cash, $10.79 in cash per share and a book value of $10.35. WDR expects to earn $1.53 a share this year, and the Street believes that its substantial cash position will enable it to maintain the dividend. Bank of America, UBS and Ned Davis Research rate WDR "neutral" and suggest the dividend will be maintained from cash flow. But I say forgetaboutit. Meanwhile, WDR's flagship mutual fund's (Ivy Funds) performance stinks.
Duff & Phelps Select Energy MLP Fund (DSE-$7.80) pays an 88-cent dividend yielding 11.2 percent. DSE invests at least 80 percent of its assets in energy master limited partnerships. Energy Transfer Partners, Enbridge Energy Partners, Sunoco, Targa Resources, AmeriGas, Genesis Energy and Williams Partners are some of the top MLPs in DSE'S $280 million portfolio, which trades at a 3.1 percent discount to net asset value. About 30 percent of this portfolio is leveraged. The dividend was reduced from 32 cents a quarter in 2014 to today's 22 cents a quarter, and the share price has ranged between $4.95 and $8.53 in the past 52 weeks. Some suggest the dividend is secure, though I think it could drop to 18 cents a quarter. That would be a 9.2 percent yield. DSE is a definite "maybe."
Apollo Investment Corp.'s (AINV-$6.42) 70-cent dividend provides a 9 percent yield. AINV, with $3 billion in assets, is a business development company specializing in middle-market companies providing equity capital, mezzanine and senior secured loans, and subordinated and unsecured debt. AINV also invests in public companies that are thinly traded and acquires investments in the secondary market. AINV primarily invests between $20 million and $250 million in its portfolio companies. Market Edge has a "buy" recommendation, and so do Value Line and S&P Capital IQ. The shares trade below their $7.10 book value, and the Street expects the dividend to be raised this year. I agree!
BlackRock Capital Investment Corp.'s (BKCC-$7.20) 72-cent dividend yields 10 percent. This business development company's prime directive is to produce high current income and capital gains through its debt and equity investments. BKCC provides middle-market companies with financing solutions and generally invests between $10 million and $50 million in targeted companies. The dividend was reduced this year, and the consensus for 2017 is that revenues probably will decline as they did in 2016, 2015 and 2014. Some on the Street think BKCC will report a loss in 2017. BKCC doesn't uncork my wine bottle.
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Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at mjberko@yahoo.com. 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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Published: Thu, Apr 13, 2017
