November 4, 2009

Stocks & ETFs on my Watch List

Warning: I'm not a financial professional. The below article should not be taken as investment advice. I'm simply discussing my own personal investment methodology.

Here are a number of individual stocks and funds that I'm looking at potentially buying for my Roth IRA:

Individual stocks:

EI DuPont de Nemours & Co. (DD)
Pfizer Inc. (PFE)
BP plc (BP)
Verizon Communications Inc. (VZ)

ETFs / trusts:
BP Prudhoe Bay Royalty Trust (BPT)
iShares iBoxx $ High Yield Corporate Bd (HYG)
Vanguard REIT Index ETF (VNQ)

Generally these fall into two main groups: Large cap stocks with relatively high dividends and diversified non-stock investments with relatively high yields.

Why are these stocks/ ETFs on my watch list?

Once in a while I'll do some research on potential investments and then throw them into my watch list. I found each of these by running a stock screen and looking for stocks with relatively high dividend yields. I also then screened for stocks with healthy financial stats like a relatively low P/E and positive earnings. The ETFs might be a little more unique and I looked for those kinds of investments specifically. So I looked for REIT ETFs and high yield bond ETFs and found the two on my list.

Lets look a little more at each of the items I'm watching...

Dupont (DD)

Dupont is a Dow component. They have a very solid dividend history, though we know thats not guarantee as we've seen with GE. Duponts earnings and profit are pretty solid. They are trading for about $32 a share right now but before the recession they were in the high $40's for several years. Currently their dividend of $0.41 / quarter is yielding about 5.0%.

Pfizer (PFE)

Pfizer is also a Dow component. Their stock traded in the $20's for years until the recession hit. Currently they are at about $17. Their dividend was cut in half in 2009 down to $0.64 a year giving them a current yield of about 3.7%. Their PE is around 14. They have a giant pile of money with about $49B in cash.

BP plc (BP)

BP aka British Petroleum is one of the major producers of oil. They have truly massive revenues of over $367B in 2008 and significant profits of over $20B. They are currently trading over $57 and their P/E is about 20. Their dividends are paying $3.36 a year or 5.8% annual yield.

Verizon (VZ)
Verizon is a major telecommunications provider in the USA. Their stock is at about $29 and they pay $1.90 a year dividends which is about 6.5% yield. Verizon had sales of $97B and profits over $6B in 2008.

BP Prudhoe Bay Royalty Trust (BPT)

This is a trust that directly owns a royalty stake in oil reserves in the Prudhoe bay oil field in Alaska's North slope. The trust basically owns oil in the ground and gets revenue when the oil is pumped and sold. At the end of 2008 they had about 55M barrels of oil in the ground. Oil is currently about $80 a barrel so thats around $4.4B in oil they own. As the oil is sold the royalties the trust gets are then paid out in dividends. So the dividend fluctuates with the price of oil. Recent quarterly dividend was $1.73 which equates to an annual yield of about 8.8%.

iShares iBoxx $ High Yield Corporate Bd (HYG)

This is an ETF that invests in bonds that have lower credit ratings (C to BBB range) and pay a higher yield. A common term for such bonds is "junk bonds". Bonds with lower credit ratings are deemed more risky due to the financial state of the company issuing the bonds. So there is more risk of default for such bonds. In order to get people to lend them money, companies with poor credit ratings have to pay higher interest. The yield bounces up and down a bit based on the bonds they hold at any given time. Latest dividends have been about $0.70 a month giving a roughly 9% annual yield rate. The expense ratio is 0.5%.

Vanguard REIT Index ETF (VNQ)

This is an ETF made up of REITs. Vanguard manages a fund of REITs. The REITs themselves are invested in real estate and pay out high dividends rates. Having a fund of REITs diversifies the investments and averages out the gains as well as reduces risk of individual REIT failure. The Vanguard fund is trading at about $40 and the yield is currently around 4-5%.

I may or may not buy some of these

When it comes time to pick some more investments for my Roth IRA I'll do some more research. At that time some of these stocks or funds may look less appealing. I'll do more stock screens and compare these choices to other similar investments. But right now these are some of the items I'm watching and they are potential purchases, nothing more.


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