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Dear Mr. Berko: My broker wants me to sell my 2,094 shares of Wal-Mart and use $8,000 of the money to take what he calls a “businessman’s risk” and buy 2,000 shares of Tower Group International, which would pay a 66-cent dividend yielding 17 percent, at $3.89. His insurance agent represents Tower, which insists that management has no intention to cut the dividend because the company has plenty of cash. What do you think? My broker says Wal-Mart’s growth will stop dead if it pays employees $15 an hour, which he says would increase its labor costs by 35 percent. He says a $15 hourly wage would ruin Wal-Mart and wants me to put that money in an indexed annuity. Your advice, please.

R.J.

Wilmington, N.C.

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Dear R.J.: I liked your broker until he recommended an indexed annuity – a product that is the cause of more complaints than you can wiggle your toes at. Yuck! Indexed annuities, as a wise uncle Remus might say, “are like walkin’ barefoot tru da briar patch.”

But if you can chew bottle glass, complete 50 push-ups on a bed of nails, bathe in molten lava and then head-butt a unicorn, you might consider owning Tower Group International (TWGP-$2.88), a property and casualty insurance products and insurance services firm with $1.4 billion in revenues. Tower Group is home-ported in Bermuda, a delightfully British territory with exceptional banking laws. Tower Group was trading at $22 last August, when management reported losses exceeding $12 a share, or more than $500 million. Resulting doubts about the adequacy of its loss reserves collapsed the stock 18 points in the following months.

Still, Tower Group has a $10.09 book value, including $2.12 a share in cash, and is rumored to be able to return to profitability this year. So some observers feel the 66-cent dividend (totaling about $38 million), yielding a blinding 17.3 percent, won’t be cut. However, Mike Lee – the chairman, CEO and president – sold more than 1.2 million shares last September between $10 and $12 a share. So I’d call Tower Group a flaming rank speculation rather than a “businessman’s risk.” Meanwhile, an insurance mogul I know at Travelers, one of the large companies with which Tower Group coordinates its business, agrees. If you can afford the risk, risk it!

I didn’t care for Wal-Mart (WMT-$77.67) a dozen years ago, when revenues were $248 billion, earnings were $1.80 a share, book value was $8.95, the dividend was 30 cents and the stock was $64. This year, revenues may reach $497 billion, and earnings should increase to $5.65. The book value could be $28, and the dividend may be raised to $2.10. But the stock still is trading at a middling $78. But big deal! During that same dozen years, Costco (COST-$113.99) tripled its revenues, its earnings and its share price. And yes, a wage increase covering Wal-Mart’s 2.2 million employees to $15 an hour would be ruinous to its 3.6 percent net profit margins.

Wal-Mart continues to increase revenues, earnings and dividends, but its share price lags the market. How much longer can Wal-Mart maintain its impressive growth? At some point, companies like Wal-Mart begin to self-destruct or hit a Chinese wall. Carl Sagan, an astronomer/philosopher, addressed this phenomenon in his musings about bacteria that reproduce by dividing into two every 15 minutes. This means four doublings an hour and 96 doublings a day. Although a bacterium weighs a trillionth of a gram, its descendants, after a day of wild sexual abandon, will collectively weigh as much as a mountain. In two days, they’ll weigh more than the sun, and before long, everything in the universe will be made of bacteria. But something always impedes this kind of growth; they run out of food, poison one another or become shy about reproducing in public.

Now, Wal-Mart isn’t a bacterium, but in a finite world the retailer could find it difficult to double every 15 minutes or maintain its impressive growth. And if Doug McMillon, Wal-Mart’s new CEO, makes one slip in the next few years, the Street won’t take kindly to the stock. Sell it, but you need to find a money manager whom you can trust.

Address your financial questions to Malcolm Berko, c/o The Daily Journal of Commerce, P.O. Box 8303, Largo, FL 33775, or email him at [email protected]. © 2014 Creators.com