January 19, 2010

Researching More Stocks to Buy for my Roth IRA

I have funded my Roth IRA for 2010 so I now have more money to invest.   Now I have to decide what to invest the funds in.  My main desires for investments are those with a decent yield but still have solid financial and some growth potential.

A while back I talked about stocks & ETFs that I had on my watch list.  I'll start with those.



Vanguard REIT ETF (VNQ) - Yield 5.1%.  Expense ratio 0.11%.   This is a Vanguard ETF that invests in an index of REITs.   I like REITs in general and this is a good way to be in REITs in a diversified way.  However the yield isn't as good as I can find with individual REITs.
ishares high yield bond ETF (HYG) - Yield 7.8%   Expense ratio 0.5%,  This ETF invests in junk bonds.   The yield is very good but theres risk that interest rates will go up and the price of the fund would drop.   Theres no potential for growth in bonds like I could get from company stocks.
SPDR S&P dividend ETF (SDY) - Yield 3.72%, Expense ratio 0.35 This ETF invests in the stocks that comprise the S&P 500 Dividend Aristocrats.   The Dividend Aristocrats are the stocks in the S&P 500 that have raised their dividends every year for 25 years in a row or more.   The appeal for this fund is that its nicely diversified across companies with a proven track record and it pays a decent yield.
B P PRUDHOE BAY UTS (BPT) - Yield 8.0%    This is an oil trust.  So while its not an ETF I threw it in this pile since its not a standard company stock.   I talked about Investing in Oil Royalty Trusts before and BPT seemed to be one of the better bests in this field.


Looking at some individual stocks I was watching:

 
Dupont (DD) - Yield 4.78%, 5 yr avg 3.9%, payout 216%, PE 46, Market cap $31B
Pfizer (PFE) - Yield 3.7%, 5 yr avg 4.4%, payout 79%,PE 15.9, Mkt Cap 155B
BP (BP) - Yield 5.4%, 5 yr avg 4.1%, payout 118%, PE 21, Mkt Cap 193B
Verizon (VZ) - Yield 5.9%, 5 yr avg 4.6%, payout 94%, PE 16, Mkt Cap 90B

Dupont seems to be faltering on their earnings.   Pfizer has already had a pretty good run up in its price and its yield is only 3.7%.  BP's payout and PE are relatively high.    Verizon's numbers look OK with a 5.9% yield and PE of 16.  Plus Verizon's stock is down about 33% from its high from a couple years ago.   Overall Pfizer and Verizon look best among these.

Looking at Utilities

I ran a filter in Yahoo and looked for companies with market cap >= $5B, PE of 15 or less and yields of 4% or more.   A number of the results were energy utilities so I figured I'd take a look at some of those.

FirstEnergy Corp. (FE)  - Yield 4.68%, 5yr avg 3.5%, payout 61%, PE 13.07, Market cap $14.31B

Progress Energy (PGN) - Yield 6.3%, 5yr avg 5.3%, payout 97%, PE 15, Mkt Cap $10B
Ameren (AEE)  - Yield 5.6%, 5-yr avg 5.5%, payout 65%, PE 9.9, Mkt Cap 9.9B
2008 Annual Report Cut their dividend in early 2009 by 39%.  Has Baa3, BBB- and BBB+ rating with Moodys, S&P and Fitch respectively which is barely investment grade.
Xcel Energy (XEL) - Yield 4.5%, 5yr avg 4.5%, payout 66%, PE 14.6, Mkt Cap 9.8B

The yields on these energy companies seem pretty healthy and the risks don't seem very high for a utility.  Ameren seemed like a decent buy in this group.   But I don't see much room for growth in these companies in general.  

What about more REITS?

I also previously wrote about a couple REITs that I was buying for UpDown.  Those are :  GTY & MPW
But right now I've already got over 1/3 of my existing Roth IRA assets in REITs so I'm not really wanting more exposure to that sector.  I've decided against buying more REITs for now.

No decisions Yet

Right now I'm still doing research so I'm not going to buy anything immediately.   I want to continue to dig into the details and see what other stocks or funds I might want to buy.   From my research so far I'm leaning towards:  BPT, VZ, PFE, SDY, and HYG.   I may or may not buy some or all of those.

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