The Motley Fool: Dig deep to find value of old stocks

So you say you found some old stock certificates, and you’re wondering whether they’re worth anything? They may well be valuable, but that can be hard to determine, because many companies merge with and split from other companies, changing their names along the way. Some end up out of business, with their stock worthless, while the stock of other obscure companies may now represent ownership in the stock of thriving businesses. Old bonds can present similar puzzles.

A good first step is to see if you can find the company listed in your newspaper’s stock listings, or at one of many sites such as Fool.com where you can look up companies and their stock quotes. Failing that, give your brokerage a jingle and see if it can tell you anything.

Next, contact either the secretary of state for the state in which the shares were issued or the “transfer agent” listed on the stock certificate. The transfer agent may not be in business anymore, but if it is, it should be able to help you value the security and determine how many shares you own (due to splits, mergers, etc.).

Here are some additional resources suggested (but not endorsed) by the Securities and Exchange Commission:

“ At www.scripophily.com, for a fee, you can have your stock or bond certificate researched. (Even if your company has gone belly-up, the certificate may be worth something as a collectible. Scripophily may buy it from you, or you could try hawking it on eBay.)

“ Financial Stock Guide Service is an annually updated directory of actively traded stocks and obsolete securities. You can have Financial Information Inc. research your certificate by calling (800) 367-3441.

“ R.M. Smythe & Co. publishes the Robert D. Fisher Manual of Valuable & Worthless Securities and will research old certificates for a fee. Visit www.smytheonline.com.

“ You can also get your certificates researched (for a fee) by the Pink Sheets LLC. Click over to them at www.pinksheets.com/pink/ products/research_service.jsp.

Ask the Fool

Q: What kinds of mutual funds pay out the most money to shareholders? — P.W., Montgomery, Ala.

A: You’re looking for “income” funds. These aim to spit out cash for shareholders by investing mainly in securities that pay interest or dividends. They’re favored by retirees, among others. Other kinds of funds (such as “growth” or “value” ones) typically aim to reward shareholders mainly via stock price appreciation.

For recommendations of top-notch, low-fee mutual funds, try our Motley Fool Champion Funds newsletter for free for a month ( www.championfunds.fool.com).

Q: Are reverse stock splits good or bad? — G.S., Martinsville, Ind.

A: It’s hard to imagine when a reverse split would be a good thing. It’s mainly companies in trouble that execute reverse splits, in order to prop up their stock prices so they look less embarrassing. For example, imagine a stock trading at $1 per share. If you own 150 shares and the company announces a 1-for-10 reverse split, then you’ll suddenly have one share for each 10 that you owned. You’ll now hold 15 shares, priced around $10 each. Note that before and after the split, the value of your shares is the same: $150. All that happened is that the company increased its stock price by decreasing its number of shares.

Some companies execute reverse splits in order to avoid being de-listed from stock exchanges that have required minimum price levels.

It’s often smaller, less well-known firms that do reverse splits, but you may have heard of these companies that have executed them: AT&T, 7-Eleven, Palm, Priceline.com. If a company you’re interested in plans a reverse split, consider that a red flag and steer clear. Odds are, it’s in trouble.

My dumbest investment

As a recent retiree, I decided to try the stock market. I was looking for income, as bank interest rates were abysmal. I purchased shares of two companies with high dividend yields — which have subsequently evaporated. Fortunately, I also bought into a Canadian stock that’s still paying me more than 12 percent. All I can say is that that was pure, dumb luck. I hope you can impart some knowledge before my meager pension and savings are wiped out. If not, it’s bagging time at the local supermarket. — C.H.S., Stuart, Fla.

The Fool Responds: First off, while massive dividend yields are tantalizing, be sure to do some research before signing up for them. Some are high only temporarily, because the stock has plunged in value, driving up the yield. Many companies in trouble will eventually reduce or eliminate their dividends, while their stock price languishes or drops. Other high yields are tied to real estate investment trusts (REITs), which can fluctuate in value.