AABP Award 728x90

Yields may be high risks certainly are


Dear Mr. Berko:

I’ve got $14,000 with which to gamble. Could you give me another list of convertible issues that have a 10 percent yield or better? I did very well on your last high-yield list and I’m up almost 12 percent in the past six months.

I’d like four issues you think have a good chance of maintaining their payouts. I’m interested in the capital gains, but more interested in getting as much yield as I can with an equivalent amount of risk.

C.C., Port Charlotte, Fla.

Dear C.C.:

Ten percent or better? That’s a long reach. I assume you realize that the higher you reach, the further you can fall. There are a few issues that still have life with 10 percent current yields. However, I would not even recommend them to my mother-in-law. However, you paid for this paper, and I’m going to give you your money’s worth. Check out the following four issues.

Apartment Investment & Management $2.525 convertible preferred (AIV.P.Q-$26.84) has a 9.4 percent current yield. The symbol for the common stock of this company is AIV and it trades at $35.43 a share. AIV buys, owns and redevelops apartment properties and manages apartment properties for third parties.

At the end of last year, AIV owned or had an equity interest in 1,788 apartment properties comprising 315,000 individual units in 47 states. This company is one of the largest multifamily residential real estate investment trusts, and the stock was recently added to the Standard & Poor’s 500 index.

Dividend growth has been fairly strong over the past five years. Net income will probably be lower this year due to a slower economy and by near-record single-family home purchases. The convertible preferred’s 9.7 percent yield appears secure.

Callon Petroleum Co. $2.125 convertible preferred (CPEPrA-$25.25) has a current yield of 8.4 percent. The common stock symbol is CPE. It trades at $8.12 a share. Callon develops and explores oil and natural gas properties, primarily in the Gulf of Mexico and onshore in Louisiana and Alabama. This is a small, $67 million revenue company that lost 22 cents a share in 2002 but expects to earn 31 cents this year and hopefully 38 cents a share in 2004.

CPE has a fair cash position and trades about 90 cents over its $7.20 book value. CPE is quite speculative, but I feel that the convertible dividend will be maintained.

Nuevo Energy Co. $2.875 convertible preferred (NEVPrT-$31.50) yields 9.1 percent. The symbol for the common stock is NEV and it currently trades at $16.70 a share. Nuevo explores for and produces oil and natural gas offshore and onshore, primarily in California and West Texas. NEV also does some exploration (successfully) in West Africa and the Congo.

Standard & Poor’s believes that per-share earnings this year will come in at $1.50, up from last year’s $1.32 but its analysts have a “sell” recommendation on the company. They believe its balance sheet is highly leveraged and that 2004 earnings will be 67 cents a share. S&P is right on both counts; however, the company’s dividend obligation on the convertible does not appear to be in question.

Mirant Corp. $3.125 convertible preferred (MIRPrA-$17.41) has a current yield of 17.9 percent. The symbol for the common stock is MIR and it was a Wall Street favorite several years ago. Today, the common stock is $3.46 a share and has a $2.56 book value.

Mirant develops, owns, builds and operates power production and delivery facilities around the world and has a direct interest in more than 22,000 megawatts of generation capacity. MIR should earn about 75 cents a share in 2003, down from last year’s $1.02. The shares are very risky, but recent disclosures do not suggest insolvency. I feel the $3.12 dividend is fairly secure.

Please address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, Fla. 33429 or visit his Web site at www.berkoradio.com.

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