Dear Mr. Berko: We’re very close to a couple in their early 70s who live two doors from us. They have a $16,000 certificate of deposit coming due, and as you know, interest rates are so low that it’s impossible to get a decent return. They have asked my opinion on an annuity their bank wants them to buy. It sounds as if they have all the facts, and the salesman seems honest. They can take out 8 percent annually, and there’s no upfront commission on that $16,000. But the different types of guaranteed minimum income benefits, flexible guaranteed minimum withdrawal benefits, fixed income options, different riders, enhanced death benefit, fixed account balances, withdrawal limitations, future earnings accumulation, etc., are confusing to them and to me.
They also visited a stockbroker at a small firm we’d never heard of. That broker told them to buy Southern Co., the iShares U.S. Preferred Stock ETF and Energy Transfer Partners. They don’t have a computer and asked me to write you for your opinion on the annuity and the three stocks.
— G.H. for S.S., Moline, Ill.
Dear G.H. for S.S.: I doubt that the bank’s broker mentioned the 9 percent commission on that annuity that’s paid from their $16,000 investment. I also doubt the bank’s broker told them about the 3.75 percent annual cost charged by the annuity for mortality costs, account management and other expenses. Accuracy requires facts, but honesty requires full disclosure. That there’s a highway to hell but only a stairway to heaven says a lot about the traffic numbers of annuity salesmen at brokerages and branch banks.
The small firm you’d never heard of (Stifel) has been around for 120 years and is listed on the New York Stock Exchange, and its recommendations are usually spot on. Southern Co. (SO-$50.95) is a $16.8 billion-revenue electric utility. SO’s board has increased the dividend every year since 2002, and today’s $2.24 dividend, which may be raised to $2.32 next year, yields 4.7 percent. SO’s recent $7.9 billion acquisition of AGL Resources, a Fortune 500 natural gas utility, should enable SO to sweetly improve earnings and enhance its steady dividend growth. Some analysts believe that beginning next year, SO should be able to grow its dividend between 4.5 and 5 percent annually. Good choice, that!
