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Dear Mr. Berko: I’m 49, and for each of the past eight years, I’ve invested between $8,000 and $12,000 in my simplified employee pension individual retirement account, which is now worth $119,000. My first investment was Johnson & Johnson in 2006, and the following years, I bought Microsoft, Colgate, Monsanto, CVS, Boeing, Becton Dickinson and General Dynamics. This year, my broker (who is unfortunately retiring in December) recommended I buy Verizon. This recommendation surprised me because Verizon is an uninspiring phone company that seems to me to have little appreciation potential. Before I commit, I need to think more about this stock and would appreciate your thoughts.

H.S.

Detroit

听

Dear H.S.: Kudos and a gold star to your broker, whom I would put in an exhilarated class. I like this guy and his recommendations. He has given you seven dandy stocks, and his 鈥渦ninspiring鈥� Verizon choice would be an exceptional addition to give your portfolio a strong foundation. Don’t sit there hanging in limbo; buy Verizon today, and remember to reinvest all the dividends.

鈥淰erizon鈥� is derived from the Latin word veritas and the English word horizon, meaning 鈥渢ruthful visionary.鈥� And if I can read the tea leaves, Verizon, yielding 4.3 percent, should be a ducky growth and income investment that you can depend upon for the best of your life.

Verizon Communications (VZ-$50.01) was formed in 2000, when GTE merged with Bell Atlantic, one of the seven Baby Bells divested from AT&T in 1984. In 2006, Verizon merged with MCI, and in 2009, it purchased Alltel. And in late 2013, Verizon purchased the remaining 45 percent of Verizon Wireless from Vodafone Group. This $130 billion deal, giving Verizon 100 percent ownership, was immediately accretive to the bottom line and enhances Verizon’s ability to generate above-average dividend increases.

Net profit margins (net profit from each dollar of revenue) are an excellent measure of management’s skills. In the early years of this decade, Verizon’s net profit margins ranged between 5 and 6 cents per dollar of revenue. (By comparison, AT&T’s net profit margins were between 10 and 11 cents per dollar of revenue.) But during the past few years, Verizon managers began eating their Wheaties. Here are some of their accomplishments:

鈥� New mobile plans have reduced the churn rate so much that the competition is worried.

鈥� An aggressive discount plan allows users to upgrade their phones each year without a down payment.

鈥� New add-ons and apps have increased Verizon’s average revenue per user.

鈥� Its FiOS network generates the fastest data speeds.

鈥� A new strategy to capture Internet, phone and TV customers from the cable companies has turned its fixed-line business into a growth sector.

鈥� Its marketing campaign has enabled it to capture a larger share of the highly valued, enormously profitable prepaid customer market.

鈥� Its customer service puts the competition to shame.

Verizon is among the dozen or so foundation stocks that should be in everyone’s growth and income portfolio. Verizon is a rock-solid company with 105 million subscribers. It can remain in your portfolio come rain, sleet, snow or a tanking market. Vanguard, J.P. Morgan, State Street, BlackRock, Wellington, Northern Trust, Capital Group and the Bank of New York own hundreds of millions of Verizon shares. And when I asked a Vanguard fund manager (whom I’ve known for years) about Verizon, he said his company owns the stock because its share price, revenues, earnings and dividends have a high degree of predictability.

There are 33 brokerages following Verizon. Twelve have a 鈥渟trong buy鈥� recommendation; 12 have just a 鈥渂uy鈥� recommendation; and nine rate it as a 鈥渉old.鈥� Wall Street believes that over the next four years, Verizon could grow revenues from $126 billion to $141 billion, earn $4.70 a share 鈥� up from $3.55 this year 鈥� and increase its dividend from $2.20 to $2.60. Value Line believes that Verizon could trade between $70 and $80 by 2018 and grow its net profit margin to 13.5 percent. However, Morningstar, an equally respected research firm, suggests the stock is fairly valued at $49, and highly regarded research firm Market Edge gives Verizon an 鈥渁void鈥� recommendation. But buy the stock!

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]. 漏 2014 Creators.com