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Dear Mr. Berko: What do you think of Sprint? Does it have a convertible issue that pays a 5-percent or 6-percent dividend I could buy $5,000 worth of? Do you think Sprint is worth a $5,000 investment today? I always like to get a dividend when I buy a stock because I鈥檓 earning money while I wait for a stock I own to move up in value. Please advise ASAP.

And I (my wife, too) really appreciate your answer to our question we wrote you on the Internet regarding our son鈥檚 529 College Plan. We are taking that advice to heart because it makes such good sense.
B.L.
Wilmington, N.C.

Dear B.L.: I鈥檝e been a Sprint (S-$3.95) critic since Gary Forsee was CEO. Forsee is an engineer with zero people skills. Plus, if you stand close enough to him, you can hear the ocean. Sprint is now run by CEO Dan Hesse, who is so smooth that he could convince a shark to become a vegetarian. I like the guy, and Sprint has become a much stronger company since he took the helm over a year ago. Hesse is a people person with a warm smile and a 鈥渓et鈥檚 get it done right鈥� attitude.

Forsee鈥檚 botched merger of Sprint and Nextel was a nuclear disaster, and the ensuing difficulties led to huge subscriber losses. Sprint is still losing customers, but at a much slower rate. The company now has 40.1 million subscribers, including its very profitable and less-costly resellers like Boost and Virgin Mobile. And as consumers continue to squeeze their wallets, they gravitate toward less-expensive prepaid plans that don鈥檛 require lengthy service contracts. Sprint, under Hesse, now owns 17 percent of this market, which is expected to grow about 4 percent annually over the next five years.

I鈥檇 buy the stock. I think Sprint could move to the $18-$21 level in three to five years because it now has the resources to regain its lost footing. After a wave of consolidations, Sprint is the third-largest wireless carrier in the U.S. And Sprint is the only one of the Big Three cellular companies that is not affiliated with a major phone company. This independence makes Sprint an ideal choice for cable companies and others that desire to offer wireless services to its customers. Meanwhile, Sprint鈥檚 cost controls have begun to show results, and customer service has improved markedly. Recent restructuring actions have produced $1.2 billion annual cost savings, and discussions with Ericsson and Level 3 regarding tower management and long-distance access will provide future annual cost benefits. Liquidity exceeds $6 billion, with free cash flow per share exceeding $2.25. Sprint will probably lose $0.35 a share in 2009, but Wall Street expects a nickel profit in 2010 and as much as $1.10 a share by 2013. The stock trades a couple points under its $6.40 book value, and management believes it can post $33 billion in revenues this year. And while I believe Sprint shares have the potential to increase four- to fivefold by 2014, I would be derelict for not telling you that there鈥檚 still substantial risk and that Sprint is suitable only for those with high risk tolerance.

I know that Sprint does not pay a dividend, but you might consider the purchase of 350 shares of the common stock plus 100 shares of PYG ($15.76), which is the ML Depositor Trust 7-percent Sprint Capital Certificates. In a sense, you鈥檙e creating your own artificial convertible bond. The $1.75 PYG dividend produces an 11-percent current return on a $15.76 cost basis. And the combination of 350 shares of common stock plus 100 shares of the Sprint PYG will cost about $2,925 and provide a 6-percent current return.

The Sprint PYG is rated BB and is callable at $25. And as Sprint鈥檚 income statement improves, I believe that PYG could potentially move to the $20 level in the coming three to five years. Meanwhile, there are some junk buyers who might want to own just the PYG because of its lovely double-digit return.

Address your financial questions to Malcolm Berko, c/o The Daily Journal of Commerce, P.O. Box 8303, Largo, FL 33775, or e-mail him at [email protected]. 漏 2009 Creators.com.