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Dear Mr. Berko: My broker has recommended 1,500 shares of Consolidated Communications for growth and income. As you know, it yields 7.6 percent and is in the telephone/communications industry, which is growing faster than the general economy. Also, what do you think about the Vanguard REIT fund for income and as an inflation hedge? My broker recommends I buy 500 shares.

B.W.

Wilmington, N.C.

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Dear B.W.: This year, Consolidated Communications (CNSL-$20.58) expects to sell $615 million worth of communications services – including long-distance and local phone service, digital TV, high-speed Internet, and network capacity services over its fiber-optic network. Consolidated Communications’ business and residential customers live and communicate from their homes and businesses in Pennsylvania, Kansas, Texas, Missouri, Illinois and California. And Consolidated Communications’ $1.55 annual dividend, yielding 7.6 percent, hasn’t changed since Citigroup and Credit Suisse First Boston took it public at $13 in 2005. While revenue growth has been consistent and nearly doubled in that time frame, earnings have creaked up and down like a broken elevator. And I can’t figure out why a company that has never earned more than 94 cents a share (2009) insists on paying a $1.55 dividend; while doing so, it has created a working capital deficit exceeding $35 million.

Except for Consolidated Communications’ high dividend payments – a large portion from cash flow – I can’t figure out why Reuters, S&P, Value Line, “Jaymond Rames,” Jefferies, Wells Fargo and Davidson rank it as a “buy.” Their recommendations further confound me because Consolidated Communications’ 5.5 percent net profit margins are half of those of others in the telecommunications industry. Here’s a company with $1.2 billion of debt that may report $640 million in revenues and 90 cents in earnings next year, and Value Line writes that Consolidated Communications’ “earnings momentum” and long-term “total return possibility” make it worthy of Value Line’s “highest rank for timeliness.” I spoke with two analysts about why these big brokerages like this stock, and the best they would give me is: “Management is getting its financial house in order,” and “consumer and business demand is growing,” and “dividend coverage will improve due to better product and service offering.”

Yep, the dividend is attractive. It was steadfastly maintained through the thick and thin of the most recent economic downturn even though revenues fell by more than 10 percent. My concern is that Consolidated Communications may not be able to come through another recession as well as it did recently, especially if interest rates rise as many expect they will. I don’t think analysts at S&P or Wells Fargo see or know anything more than I do about Consolidated Communications. Frankly, I can’t find a compelling reason to own 1,500 shares. However, sometimes you get what you pay for. My opinion cost you a couple of bucks (the price of this paper), and your broker’s opinion will cost you a commission of $325, so perhaps you ought to take a bite – but buy only 500 shares.

Vanguard REIT (VNQ-$74.08) is an exchange-traded fund. Its share price since 2004 has moved up modestly from $55, but its stinky up-and-down dividend has averaged 3.3 percent, giving investors a 10-year total return of about 6 percent. Vanguard REIT tracks the MSCI U.S. REIT index – including office, mall, apartment, industrial, hotel and health care properties – and is one of the 687 funds offered by Vanguard. Though a 6 percent total return over 10 years is OK, I wouldn’t touch this thing with a scythe, because there are so many better real estate investment trust opportunities out there. One that I have frequently recommended is W.P. Carey (WPC-$64.20), a global REIT paying a 5.5 percent dividend that has been raised annually for the past dozen years while its share value has doubled. W.P. Carey is a much better inflation hedge than Vanguard.

Meanwhile, because you’re capable of investing $30,000 a pop, you should consider employing an experienced, caring money manager to guide you. Your current adviser is a dullard, a dunce and a dork, and he seems to peddle only what his firm tells him to. So it’s time for you to grab the bull by the tail, look it in the eye and say three times, “I divorce thee.”

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