Dear Mr. Berko: I’m 56, and both my wife and I work in real estate. We have about $285,000 in stocks plus a $122,000 annuity we just bought from our stockbroker. We hope to retire in 10 years and then work just part time. Now we are looking for income and growth. We own 146 shares of Costco, which we bought at $43 in 2005, and have reinvested all the dividends — which have increased each year, so each year, I get more shares. We do this with all our stocks, which is what you recommended to us years ago.
Unfortunately, Costco yields only 1 percent. Because we’re now looking for more income, our broker wants us to sell Costco (I have a large tax-loss carryforward in two other stocks our broker sold us) and buy Wal-Mart because it yields 2.9 percent. Wal-Mart also has a good record of dividend and profit growth. This would triple our income, and we would stay in the same investment sector, which makes good sense to us. My wife and I would appreciate your opinion and good advice.
— L.L., Fort Lauderdale, Fla.
Dear L.L.: Jumpin’ Jehoshaphat, that stockbroker has cracker crumbs on his brain and is dangerous to your wealth. If his annuity recommendation is as bad as his stock recommendation, then you folks are in big trouble. Fire this cad before he gives you any more stinking advice. As certain as the sun will shine somewhere in the world today, that sleazeball has given you the worst possible stock advice. I strongly recommend that you get your account reviewed by a knowledgeable, wise and experienced professional whom you can trust. There are some highly qualified brokers in your area, so I suggest that you ask your accountant or one of the lawyers you work with for a couple of names. And after your interviews, if you come back to me with their recommendations, I will help you select the right professional to help you and your spouse meet your retirement goals. Meanwhile, don’t you dare sell Costco.
Costco (COST-$164), with 505 wholesale membership warehouses in the U.S. — plus 91 in Canada, 36 in Mexico, 28 in the United Kingdom, 12 in South Korea, 12 in Taiwan and eight in Australia — is one of the finest mega-retailers in the world. Because less than 25 percent of its merchandise is imported, COST is well-insulated from potential changes in the tax code, if Congress has the guts to follow through with trade tariffs. (Some 68 percent of Wal-Mart’s merchandise is imported.) Membership trends continue to be solid. The 89 percent renewal rate is the best in the industry, and based on the successes of prior increases, I suspect that management will hike its membership fee later this year. It takes about seven or eight quarters for such a fee hike to be fully felt on the income statement, and a small hike would add importantly to COST’s bottom line.
