Dear Mr. Berko: We have been with our broker, who may be getting long in the tooth, since October 2008. Our original $525,000 investment, from which we take $1,200 a month, has grown to $557,000. Because we would like to take more money out of this account and not touch any of the principal, he wants us to buy the following three stocks: 7,000 shares of Atlantic Power at $3.70 per share because it pays 10 percent, 7,000 shares of Intersections at $4.60 per share, paying 18 percent, and 10,000 shares of China Nepstar Chain Drugstore, which pays 13 percent, at $2.43 per share. Please give us your thoughts on these income stocks.
— ST, Oklahoma City
Dear ST: I don't know what your real objectives are, but if you invested $525,000 in late 2008 and have taken out only $1,200 each month, your account value should be a lot higher than $557,000. Frankly, I would be telling that bumbler of a broker to take a long walk off a high Alp. In the past five years, we have enjoyed a stock market so spectacular that even a drunken monkey could have given you more income and better performance. Where did this stumblebum come up with those doozies?
In January 2013, this Atlantic Power (AT-$4.06) traded in the $12-$13 price range and paid $1.10 a share. The following month, the dividend tanked to 36 cents, and Atlantic headed to the toilet but still pays almost 10 percent. AT is a power generation and infrastructure company that owns, operates and maintains 28 power generation facilities in the U.S. and two in Canada plus a 300-megawatt wind facility a short drive from your home. Together these facilities produce 3,300 megawatts of power, which AT sells to utilities and other large users under long-term purchase agreements. Revenues in 2013 grew to $551 million, but its long-term debt inched to $2 billion. AT hasn't made a dime in the decade it's been in business, and I see no reason the next decade should be any different! There's no joy here.
China Nepstar Chain Drugstore (NPD-$2.38) is the Chinese version of Walgreen Co., with 2,100 retail drugstores in 77 cities across 14 of China's 23 provinces. In the past 10 years, revenues have more than doubled, to $2.7 billion, but earnings have been pathetic, and so has the stock performance. In the summer of 2009, NPD traded at between $7 and $8 per share, and its dividend was $1.50. Now the dividend has been lowered to 30 cents, though it does yield a hefty 12.1 percent. Earnings this year will come in at less than a dime, and Reuters, the only brokerage on Wall Street following NPD, says 2015 earnings will come in under a nickel. I suspect that NPD will cut its dividend again. I don't trust Chinese accounting practices. I don't trust their corporate managers. I can't read a Chinese income statement or a Chinese balance sheet. I'm not enough of a sucker to recommend NPD, even if it yields 12.1 percent.
Intersections (INTX-$4.01) pays an 80-cent dividend, which yields a too-nifty 17.9 percent. In the summer of 2011, a reader who had inherited 65 shares of INTX from his father asked whether she should round out her position to 100 shares. When I told her "no," she was insulted and accused me of besmirching her "father's memory." And I'm also going to tell you "no," because I can't find a single brokerage company on Wall Street that covers this Chantilly, Va., company, which sells subscription-based consumer protection services. According to its filings with the Securities and Exchange Commission, INTX had $297 million in revenues in 2013 and lost 14 cents a share. I have no idea whether INTX will be profitable or be able to pay its dividend this year or next. Run away from this stock.
I don't know what your account looks like, but I suspect that it's littered with detritus similar to the three above. Please have a professional review your portfolio ASAP. Your broker is dangerous to your wealth.