Q–I’m a new investor. Could you give me the pros and cons of the stock of Dominion Resources Inc.?
A–Pro: This utility holding company headquartered in Richmond, Va., boasts a hefty dividend yield of nearly 7 percent–attractive if you’re seeking income.
Con: Don’t expect to see strong price appreciation anytime soon in a company operating in such a competitive, beleagured industry.
The consensus recommendation on shares of Dominion Resources by the Wall Street analysts who cover it is currently a weak “buy,” according to the I/B/E/S International research firm. That consists of eight “buys” and nine “holds.”
“If you’re looking for a utility that pays an above-average yield, Dominion Resources looks like a good investment,” said Peter Crays, manager of U.S. research for I/B/E/S. “The question is whether you have confidence that the company can continue to grow its earnings in a competitive industry that’s not expected to have many positive surprises.”
Earnings growth this fiscal year is expected to be 2.7 percent, versus a decline of 2.5 percent for the electric utility industry as a whole. Next year’s projected 3.8 percent gain for Dominion compares to a more robust 6.1 percent industrywide.
There’s a lot to this holding company, including $18 billion in assets and 15,000 employees. Its Virginia Power subsidiary in Virginia and North Carolina is one of the nation’s largest investor-owned electric utilities.
Q–I’m 79 years old and have nearly 3,000 shares of Stein Roe Balanced Fund. At my age, should I keep them, or sell and put my money in something else?
A–It’s a solid balanced fund (holding stocks, bonds, convertible securities and cash), but not the pick of the litter.
The $287 million Stein Roe Balanced Fund was up 23.6 percent over the past 12 months to rank at the midpoint of all balanced funds. Its three-year annualized return of 17.57 percent placed it behind 60 percent of its peers.
“This steady, conservative balanced fund is a decent core holding, though many advisers would suggest that someone 79 years of age begin cutting his or her equity exposure a bit,” pointed out Scott Cooley, analyst with the Morningstar Mutual Funds investment advisory.
Before Harvey Hirschorn took over as the fund’s portfolio manager in 1996, it had as much as 40 percent of its holdings in convertible securities and its performance was mediocre at best. He recently had 52.9 percent in stocks, 35.7 percent in bonds, 7.2 percent in convertibles and the rest in cash.
“It’s had decent performance, but doesn’t have enough of a track record with the current style to say it is a great fund,” noted Cooley. “There are better alternatives with longer records.”
Two-thirds of its bond portfolio is rated AAA. This “no-load” (no initial sales charge) fund based in Chicago requires a $2,500 minimum initial investment.
Q–I read your recent column about individual retirement accounts and would like you to now explain the Education IRA.
A–It does need some explaining.
Contributions to the so-called Education IRA may not exceed $500 each year per student and can’t be made for a beneficiary who has reached age 18. While contributions are non-deductible, the distribution of the earnings is tax-free if they’re withdrawn and used specifically for college.
The provision permitting contributions to an Education IRA is phased out to taxpayers whose adjusted gross income is between $95,000 and $110,000 for single filers, or between $150,000 to $160,000 for joint filers.
If the money isn’t distributed before the beneficiary reaches age 30, earnings in the account are taxed and subject to a 10 percent penalty because they haven’t been used for qualified education expenses.
“That result can be avoided if, before the beneficiary reaches age 30, the account balance is rolled over into another Education IRA benefiting a different beneficiary who is a member of the prior beneficiary’s family,” said Laurence Foster, partner in the personal financial planning practice of KPMG Peat Marwick.
In that manner, if one youngster decides not to go to college, you can roll it over for use by a younger child, he explained. But while the new law kicks in next year, there are still some technical corrections that must be made in Washington, experts warn.
“We recommend that families not put any funds into Education IRAs until the end of 1998 at the earliest, when some necessary clarifications have been made,” counseled Kalman Chany, lead author of the book “Paying for College Without Going Broke” and president of the Campus Consultants consulting firm in New York. “It’s not yet certain whether the assets, for student aid purposes, would be attributed to the parent or the student.”
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Andrew Leckey, an anchor on the CNBC financial cable television network, answers questions only through the column. Address inquiries to Andrew Leckey, “Successful Investing,” Suite 367, 76 N. Maple Ave., Ridgewood, N.J. 07450 or by e-mail at successinv@aol.com.
