An Opportunity to Add Some Healthy Yields

10/13/2006 12:00 am EST


Richard Lehmann

Publisher, Forbes/Lehmann Income Securities Investor

Richard Lehmann offers investors a wide-ranging view into the world of income. In his latest issue of Income Securities, he finds two preferred issues in diverse industries whose income possibilities can add healthy dividends to your portfolio…

Altria Group, Inc., 6.50%; Series PMC1; Par $25.00; Price $24.07; Current

Yield 6.75%; Exchange NY; Rated Baa2/BBB; Call 01/08 at $25.00; Yield to Call 10.89%; Pay Cycle 1/7; CUSIP 73941X205; Family Third Party Trust Preferreds; Acronym PPLUS; Symbol PJW . Merrill Lynch is the creator of this hybrid security issued as Preferred-Plus Trust Series PMC1. The underlying bond is the 7.75% Debentures due 01/15/27, issued by Philip Morris Companies, Inc., predecessor to Altria. In addition to being the world’s largest tobacco company, Altria owns 88% of Kraft Foods, the world’s second-largest food company (Nabisco is owned by Kraft). Altria also owns approximately 29% of the brewer SABMiller plc. Second quarter 2006 revenue was $17.87 billion and net profits were $2.71 billion. Third quarter 2005 revenue was $17.33 billion and net income was $2.67 billion. Recently, a federal court certified a class action case against Altria dealing with the sale and marketing of “light” cigarettes. This action will delay the company’s plan to spin off the Kraft Foods unit. In spite of this litigation, I still like this issue for medium-risk portfolios. The growth in its international operations is very impressive. Buy at or below $25.25.

Entertainment Properties Trust, 7.75%; Series B; Par $25.00; Price $24.94;

Current Yield 7.77%; Exchange NY; Rated NR/NR; Call 01/10 at $25.00; Yield to Call 7.78%; Pay Cycle 1m; CUSIP 29380T303; Family REIT; Symbol EPR -B. Entertainment Properties (EPR), a real estate investment trust (REIT), is the largest owner of entertainment properties in North America. Its properties include megaplex movie theaters and entertainment retail centers in both the US (24 States) and Canada. Its tenant list for the 7.1 million square feet of property include AMC Theatres, Loews Cineplex, Wallace Theatres, Crown Theatres, and Regal Entertainment. Total revenues for the second quarter 2006 increased 26% to $51.2 million compared to $40.77 million for the same period 2005. Net income increased 20% to $20.6 million from $17.13 million and FFO (Funds from Operation) increased to $25.5 million. This aggressive REIT continues to expand and would make a good investment for high-risk investors. We like this series B preferred for new buyers because the yield to call is well above the series A preferred, which we recommended in the past. Series A owners should continue to hold until year end and then gauge the tax consequences of an exchange. Buy at or below $25.25.

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