Common Sense on Oil and the Price of Gasoline

If you have filled your car with gas lately you know gas is on the rise. I certainly do as my new car bought last year requires premium gas...ouch! However whenever I fill up I am actually pleased gas is on the rise as I own oil stocks. In fact the gains and dividends I gain from my holdings more than offset increases in the cost of fueling my automobile.

In this posting I am going to discuss some things I know about oil from many years of investing in oil stocks and research about the oil industry. The comments below may not fit your political sensibilities, but facts or facts and frankly I am more interested in making money from foolishness and laughing all the way to the bank as they say. At the end of this posting I will list some stocks you can buy to make some money too.

We need to accept the fact gasoline will never be "cheap" again. As the world develops and the demand for oil increases any spare oil capacity in easy to get oil is over. However if you compare the price of oil to the inflation adjusted price of oil it is actually still rather cheap.

We are told that we are at "peak oil" or that we are now at the point we can not find enough anymore to fill the needs of a world needing energy. This is frankly untrue. We might be at what could be called peak oil at the current cost to produce it, but here is a fact we got more than enough oil to fill the world's needs for generations to come. Do not let anyone tell you otherwise. There are billions of barrels left in Saudi Arabia, billions of barrels left in Russia, and believe it or not billions left in the USA. Most people do not know that we get more imported oil in the USA from Canada that anywhere else. Canada has maybe the largest supply of oil anywhere in the world. Also if there is demand enough for oil and the money to buy it we can increase supply as needed.

Now much of the easy oil has been found and lots of it has been extracted. However as the price per barrel has gone up the higher cost to get oil has become economical to go get. For instance, the most recent big find was right here in the USA in Montana and the Dakotas. We are already getting that oil out and as we look we are finding there is more there than we expected. At least 4 billion barrels there and likely more. Canada is another example where as the price went up the oil sands areas in Alberta became profitable to get out as well.

With oil trading around $100 per barrel you will see many other places begin to "find" oil as well. Brazil only recently found a huge reservoir in the Atlantic off their coast and they have been signing up deep water drillers to go get the oil. Note that lots of this oil to be discovered needs the serious professionals to find and extract. The major oil companies have the skill and know how and where they are not used, Russia for instance, oil production is declining. Not because of lack of oil in the ground, but from the lack of using the skilled people.

The USA has lots of oil offshore in the Gulf of Mexico, off the coast of California, much in Alaska, likely some off the east coast of the United States, and believe it or not in the shale rocks of the mountain west. Several years ago some smart people figured out that high pressure water and chemicals forced deep in the ground cracked open oil and gas bearing rocks and allowed the oil and gas to escape to be extracted. We have discovered since then we are literally floating on an ocean of natural gas here in the USA. Just a decade or so ago no one knew that. We actually EXPORT more gas than we import, due to this fact. If not for political considerations we would be extracting even more of this gas and oil and lessen our dependence of energy needs on outside the USA. Here is where the foolishness comes in. Since the current administration has placed much of the Gulf and coastal waters off limits to exploration as well as much of the mountain west off limits , we will become more dependent on outside sources for years to come. The silliness over the recent BP spill has subsided and like it or not the fishing there this year has been about the best ever. US drillers are the best and spillage is few and far between, so why we allow people in other parts of the world who are less environmentally aware drill and not our skilled people is plainly dumb.

Frankly instead of condemning the people who do the hard work of finding and producing our oil we should be praising them for these efforts that makes our life so much better. Like it or not renewable energy is not going to replace our current energy needs. This is just a fantasy and the costs are too high. Besides we have plenty of oil and gas, which is the most effective energy we have, so why not use it.

Most people do not know that natural leakage worldwide from oil seeping out of the ocean floor is many times the recent BP oil spill putting some common sense to the lie that no oil is spilled unless we drill it out. Oil, like it or not, is a natural part of the earth. Contrary to popular belief, no one really knows if it originates from decay of dead animals (fossil fuel), or occurs from forces deep in the earth where pressures from the super heated core force it to seep to the surface. Either way it is not something evil or bad, it is something we use, just like diamonds, silver, gold, copper, and many other things mankind has discovered that make life easier here on earth. Imagine a world without oil, which not only powers vehicles, but keeps us warm. make medicines, plastics, over 6000 items from this amazing naturally occurring substance. In fact less than half of every barrel used is for gasoline.

We produce about 85 million barrels worldwide daily and consume a little less than that. So when there is just a little of interruption in supply, the laws of supply and demand kick in and you get instant increases in price. Hence the increases with the recent problems in Libya, where only about one million barrels is taken offline. But make no mistake if there is long term increased demand for oil there will be supply if we allow the producers to go get it.

How can your prosper from oil and the silliness regarding supply.

ERF, Enerplus Corporation...just under 7% monthly dividend. This is my personal largest holding in oil stocks. They have oil and gas wells in many places on the North American continent, but mainly in Canada. Not only do I like their diverse holdings, I like the management and the fact the company is in Canada away from any of the current silliness in the current US administration. The stock price is not overly high, and a dividend paid monthly is just plain nice in your account. Note that any Canadian stock has a 15% withholding from your paid dividend, but you can recoup it when you claim taxes in the USA.

DO..Diamond Offshore Drilling...My personal second largest holding. DO pays about a 5% dividend and does business worldwide in deep water oil drilling. I like the fact that few companies do this and DO has lots of experience. Note that the dividend is paid 12.5 cents regular divy and .75 cents special divy.for a quarterly total of .875 cents.

PGH..Pengrowth pays a monthly dividend of just under 7% and is one of the former oil trusts in Canada. Owning this stock is almost like owning an oil well. PGH does have some gas holdings, but is 70% plus an oil producer. I own shares of this stock as well.

COSWF...When it comes to a pure oil play this is as close as it gets. Canadian Oil Sands pays just under a 3% dividend and is the major player in the Canadian oil sands area. They have at least a 40 years supply in their current holdings at current extraction. If you are looking a long term almost guaranteed payout this is it.

CVE..Cevonus Energy...I mentioned this one in another posting and will not reproduce that only to say the price is up nicely since I suggested it and I still like it for a long term holding.

There are other good companies out there which are solid buys and good stock holdings, but you will notice I like Canadian oil stocks where politics does not interfere in my investing and stocks that pay dividends. Now go invest and get back some of that money it is costing you to fill up your tank.

Assorted Stock Ideas

There are some other stocks which I hold long or hold options and I wanted to take this post to get these out there so as to make known all my holdings for purposes of full disclosure.

ARCC...Ares Capital is a Business Development Company, or better described as a company that takes investors money and invest in up and coming businesses. They do this either buy direct money loans or taking a stock position. Ares is the biggest player in this field and is well managed and knows how to help companies prosper. Hence a nice 8.2% dividend and solid stock price. There are several dozen business development companies, but frankly I like to buy the best of breed and Ares is just that.

JNK...This is a ETF that invests in high yield corporate debt, hence the symbol JNK, or junk bonds. However JNK has prospered even during the late economic downturn. If you had bought JNK back in mid 2008, you could have bought it at around 27, and it is now trading just over 40. Add in double digit monthly dividends and you got a real nice return. JNK has been under pressure lately due to the worry about inflation, but I frankly still believe it is a good buy here it you are someone to buy and hold and just collect the nice payout and not worry about stock price. Still has a high single digit percentage monthly dividend.

PFF..Preferred Stock ETF is a solid selection for income. It features preferred stocks from selected corporations and acts similarly like a bond, but with the advantages of dividend taxation rates and the chance for some capital appreciation. PFF pays out about a 6% to 7% monthly dividend and the divy is about as safe as it comes when considering income.

RRD..RR Donnelley company is the world's largest commercial printer. Yes, this is not a sexy investment and printers of late how not done well financially. But we will always need some printed material and RRD is my pick to survive. They regularly buy up smaller competitors and in my opinion have a well run company that also pays a 5.6% dividend.

I presently own all the securities mentioned above either as a long or option.

Two Healthcare Stocks and a Bank for Consideration

Healthcare is one of the growth areas in this country. And yes despite Obamacare there are investments here where pay outs are good and safety solid. Healthcare real estate.

In this post I am going to give you two stock selections that I believe provide you with the opportunity to invest in real estate. HCN, Health Care Reit is maybe the best currently. I pays about 5.6% dividend and offers exposure to just about every segment of the healthcare real estate market. HCN is a big company, stock in the S&P 500, and have paid a dividend for many years. These people know what they are doing and do it well. Again, you will not get rich on this one stock, but it is a great way to hit singles and make money regularly.

Another stock I like is SNH, Senior Housing Properties. SNH also exposes you to many areas of health care real estate. It also pays a nice 6.5% dividend. I believe SNH is value priced at $22 or $23 per share and could pay you some capital gains down the line as well.

Presently I am not an investor in most banks. Most of the large banks are just getting back on their feet after a hard two years of the economic crisis. However there is one bank I currently have in my portfolio. NYB, New York Community Bank, serves a niche market in New York state and has recently merged with some smaller banks and now operates in several other states. The niche that NYB serves is financing multi-family housing in the New York City area. It has done well in the business and frankly avoided most of the problems that many larger banks had during the recent economic crisis. NYB also pays a 5.5% dividend. In all this bank will pay you some nice income and I expect as investors begin to see the value in this company the stock price will rise as well.

What is happening in Housing?

If you ask 10 people what is going on in the residential housing industry you will likely get 10 opinions. Here is mine.

Since the mid-1990's when the country came out of the savings and loan crisis there seemed to be nothing but up in residential real estate prices. Many of you do not remember the savings and loan crisis of the late 1980's and early 1990's. That crisis was caused by the change in tax depreciation rules. In a tax act passed by Congress in the late 1986 depreciation allowance was changed from 15 years to 27.5 years. The result was a lowering of prices for rental real estate that at the time mostly financed by savings and loans. Construction rates at the time dropped almost by 50%, since the use of tax incentives to build real estate had been almost halved as well. IN the end the federal government had to step in and rescue many of these savings and loans through FDIC. The cost was significant, but nothing like the current crisis costs.

Sometime in the mid-1990's the US government decided to push banks to extend loans to more people for the stated social purpose of having more people be homeowners. The idea sounded good, but the results have been awful. What commenced was a overreach by the federal housing agencies to insure almost every loan extended and private financial agencies inventing the sub prime loan business and mortgage backed securities wraps. In the end society discovered not everyone needed to be homeowners. This has resulted in a massive overbuilding of housing and the near collapse of the housing industry. Housing prices dropped off a cliff and the Federal Reserve has had to reduce interest rates to 60 year lows in order to keep a complete collapse of housing.

We now reach 2011 and there seems to be no bottom to housing prices. The bad news is there is likely another 10% to 15% tp go on the downside for housing prices. We still have a oversupply and we also have a large number of what is called shadow inventory where banks are holding off foreclosure from the fear more actual supply would depress housing prices further. Add in the fact that the federal government is looking to be exiting support of the housing industry by ending the federal mortgage agencies that insure home loans.

In the end all this will be good as building of houses dictated by the private market would keep supply and demand in focus and result in more stable housing prices, which would be a positive for buyers, sellers, and local governments who depend on property taxes.

My opinion is we are very close to a bottom in housing prices. Evidence the last couple of months private cash buyers have been moving into markets buying up the most price depressed housing. These buyers see bargains and are taking advantage of the opportunity. I expect these people know they may not be buying at the bottom, but since no one can call the absolute bottom now is the time to move. They also see mortgage rates have begun to move up. Rates for 30 years loans that had reached 4.2% are now closing in on 5.0%. The next act here will be that banks will begin moving more shadow inventory on the market and that should result in another leg down in prices and maybe some movement down in rates. But understand banks now are getting on their feet and will be able to control this situation, so do not expect any serious movement in prices or rates.

The good news (if you are not a builder) is that housing starts are way below what is needed to replace inventory being sold. That will take a good number of years to work off, but it is happening. So do not expect a significant increase in housing prices right away. The other good news is that the large number of children born in the 1980's and 1990's in this country's latest baby boom will soon be in the household forming ages As these people enter the market existing inventory will be further reduced and housing starts will pick up. My best guess is that we are about 8 to 10 years from seeing this occur in earnest, but as we move forward prices will begin to move up again.

How does one take advantage of this situation? If you have cash or credit consider buying some housing carefully selecting for price, location of course, and interest rates. You will likely never find a better time in your lifetime to buy a home of your own and if you are an investor it's look pretty good too. You can also take a look at mutual funds that invest in real estate and ETF's that do the same. There are few residential real estate REITS and frankly I do not see any that I would recommend.

People who have the resources and buy real estate now could very well look back in 10 years or so and realize some significant capital gains. Opportunities like this come only once in a lifetime and now is your chance.

Duke-Progress Merger

This posting discusses two local favorites, Duke Energy, DUK, and Progress Energy, PGN. Unless you live under a rock you know these two regulated utility companies, pending approval, have agreed to merge. I expect the merger will be approved and occur later this year.

Presently I believe both these companies are soundly run and provide good dividend income for investors. When they do merge the company that emerges will be the largest utility in the USA and a payout of about 5.5%. A few years ago Duke got into trouble by doing business in energy trading outside it's expertise of running a regulated utility. Duke got smart and rid itself of those assets and got back to running it's utility. Progress, on the other hand never bought into the energy trading business, due to frankly what I believe is better management and continued to prosper. A few years ago they had a good merger with Florida Progress energy that I believe has helped both companies. Progress took several years to sell off not core assets from the Florida Progress merger and get down to it's knitting to being a regulated utility. Progress has run into some cash flow problems of late, due to some government mandates, and after many years of an increasing dividend has not raised the divy for a couple of years.

In case you are not aware of what I mean by "regulated utility", I mean one where the states the company operates in allows a monopoly service area in exchange for earning a pre-approved percentage return on assets. The usual return is generally in the area of 11% to 12%, which is about right for paying a dividend and paying the expenses with little or no growth. Utilities are a capital intensive business, due to the high costs of building power plants and energy delivery infrastructure, so it is essential they pay a nice dividend to attract the investor capital necessary to run their business. Growth comes from expansion of business by other companies who buy electricity in their service area and population growth.

Progress and Duke need this merger to consolidate some costs and allow the company to cover increasing expensive federal and state renewable energy mandates. However I would expect one or two new nuclear plants to commence once they get together to cover increasing power needs in their service areas, so called renewable energy just frankly can not cover.

I like the new company and believe it will be a good place to get income and some growth. I am some concerned about the regulatory atmosphere as mandates for renewal energy have hurt Progress and Duke the last few years and if added to could hurt profits by increasing expenses and thereby raising rates on consumers. One big positive however is the new company will be headed by Bill Johnson of Progress Energy, who in my opinion is frankly a much better leader than Jim Rogers of Duke.

I want to mention two other regulated utilities here. One SCG, South Carolina Power, a excellent run utility. They operate mainly in South Carolina and have possibly the best regulatory environment in the country. The share price has risen over the last year and pushed the divy percentage down due to investors starting to notice this quality operation. Still a nice 4.5% payout however. Another utility I have warmed up to of late is AEP, American Electric Power. AEP serves 10 states and has a huge customer base. Payout of around 5.1%, which I believe is secure. AEP recently raised their dividend as well.

I am currently either long or own options on AEP and DUK, I have in the past year owned options on PGN

Should I buy gold?

It is almost impossible to turn on the television, listen to the radio, even surf the web, without some advertisement from a company offering to sell you gold. Usually the pitch centers around the fact that gold has doubled or tripled in value over a certain period of time and you should get in on the next big gain. Most people, not just investors, ask themselves should I buy some gold since it seems everyone else is doing it. The answer frankly depends on what value you personally place on gold.

First off, let me say, the following comments are my personal opinion and not necessary what might be right for you. Gold has been around for centuries as either use as monetary exchange or as a storehouse of value. Many years ago most countries on earth stopped using gold as a currency of exchange and more as as storehouse of value. The US government has the world's largest gold holdings, most held at Fort Knox in Kentucky. If you look at your money you will find it is says "federal reserve note". Those of old enough to remember when there were bills that said "silver certificate", that was a time when silver backed the money and you could exchange paper money for actual silver. People personally buy gold for jewelry and for protection against inflation since gold price will generally go up with the rate of inflation as it is a commodity with finite resource. Gold also has other uses, such as in the air bags in your car where the fact gold does not tarnish makes the circuit that activates your airbag almost guaranteed to work regardless of age.

I personally own no gold and likely do not expect to do so in the future. Frankly I believe there are many other better ways to protect yourself against inflation. Here I will list three investments I consider better than gold, but will provide you with similar inflation protection.

The reason I like them better than gold is they pay dividends and provide something gold does not and that is we NEED these products to make the world work daily. Gold is a concept, a price, has not PE and no dividend to quote James Grant.

Oil is something no country on earth can do without. You need it for transportation, we need for many things you likely would be surprised come from oil. Google it and take a look. Anyway if you not liking the increase in gas prices, buy some oil stocks and participate in the money making. Oil itself is supposedly a finite resource and therefore it's price should behave as gold when inflation is high. Oil also being priced in dollars will also increase when the US government prints money, as it is doing right now. So again there is built in protection for you as an owner of oil. How do you buy gold, oil companies, drilling companies, and oil well trusts. I tend to like Canadian oil companies, mentioned in a post earlier here, but there are other ways to participate. Some are well known, like the Prudhoe Bay oil trust in Alaska, BPT. Other companies by symbol are, CRT, SJT, and SBR. There are numerous other trusts that literally own the oil or gas well and payout a monthly percentage to the owners depending on price and success of extraction. Most pay around 6% or so and note they all will complicate your tax return with K-1's

Another way to protect yourself against inflation is with another metal, copper. Copper is essential to today's computers, the building wiring in housing, and most electrical divices. Copper has become so valuable due to a lack of supply. Hence the reason you hear daily of air conditioning units getting stolen. There are many ways to play copper, but hands down my favorite is SCCO, Southern Copper. the copper mines they own are in Mexico, Peru, and Chile. China, due to it's rapid growth, is the world's largest buyer of copper and SCCO sells a lot to China. SCCO pays a 5% dividend and the stock price and dividend go up and down with the price of copper. No where else can you be exposed so directly to copper and the chance to protect yourself against inflation with this scare resource.

If you have been to the grocery store lately, you know the price of meat and bread are up and going up. Interesting the US government says there is no inflation, the people who do the figures need to go to the supermarket once in awhile you think? The reason for this increase is the cost of fertilizer. Fertilizer is increasing, due to several factors. One is the people in particularly Asia are eating better food and more meat, so they are needing more corn to feed stock animals. Also again, the US government has mandated use of ethanol and ethanol is made of corn, which farmers are raising more of, but the demand for food and ethanol is outpacing supply. The key here is being the so called arms dealer to people growing corn and food crops. POT, Potash corporation, based in Canada, is in my mind the best play here. There are other companies participating in this business, but nowhere else do you get direct exposure to the key ingredients of fertilizer production than POT. If you want to look at a pretty stock chart check out POT 2 year. Two year is basically a ride from $80 to $190. Their most recent report was a doubling of earnings, 3 for 1 stock split, and a doubling of the dividend, what's not to like.

Presently I am not long any security mentioned, but have in the past owned SCCO and will not do so within

Is Tobacco Investing for You?

If you have concerns about socially inappropriate investing quit reading now, as this version is about tobacco investing. There are several stocks that do business here I will concentrate of some I believe to be excellent long term investments that pay above average divys.

 

Tobacco is a highly addictive product. The people worldwide who use this product seems to never be bothered by economic concerns and that provides solid fundamentals for companies who produce and sell tobacco to users. As an investor there are few places where you can gain dividends this high and stock prices that rarely go down.

 

MO, Altria, is simply the best of breed. Price currently is about $23-$24 and it pays a 6.5% dividend. MO raises their dividend every year and last year raised it twice. There are few companies who are so investor friendly and so well run at MO. Frankly this company is a annuity. A government guaranteed monopoly.  The government is hooked on the Master Settlement pay outs agreed to back several years ago that brought tobacco companies under the FDA.  Your dividend is basically guaranteed by the fact no one can advertise tobacco and therefore no one can take market share away. As an investor it is just hard not to like Altria, whose main product is Marlboro cigarettes. 

 

Another tobacco company is RAI, Reynolds American, which produces Winstons and Salems. Reynolds, based in NC, is the remnants of the old RJ Reynolds company and is a well managed company that also pays a nice dividend at 6.2%. Reynolds just raised it's dividend nicely and I would expect to see similar increases regularly. Reynolds has more exposure to smokeless tobacco than most other tobacco producers and that is the growing side of this business.

 

LO, Lorrilard is the king of menthol cigarettes. The main products are menthol flavored cigs. LO is facing some threats to this segment of the business as the FDA is considering banning menthol from cigs. The price of the stock has been hurt recently by this threat hanging over the company with the price being down about $10 per share to around $75. LO pays a nice divy as well at 6.0%. Frankly I do not see the FDA outright banning menthol as it would for all intents and purposes kill the company. Obviously investors think the same or the stock price would be down even more.  LO is highly profitable and has aggressively raised it's payout of late, so if you have some willingness for risk buy some shares now and when the FDA makes their decision sometime in March you could get a nice bump in capital gain.

 

PM, Phillip Morris, is the spun-off international wing of Altria. PM also pays a good dividend at 4.5%. PM, now based in Europe is now outside the threat of American trial lawyers and is the growth company for tobacco. They have significant assets in Japen and China. Yes, China, where over one billion potential customers lie and the chance to gain serious additional profits.

 

I am currently either long or own options on all securities named above except PM.

Where do I start?

A question I got this week is where does one start investing after funding a 401-k and Roth IRA? 

 

First off I want to say today's workers are blessed with the opportunity to use pre-tax vehicles like 401-k's and such to accumulate assets. I was into my 40's before I ever had a 401-k to use and could only put about $2000 in a IRA for many years. So I was forced to find other ways to invest assets. One other thing to note here is that a married couple can put away $43000 their dual retirement plans  and IRA's before they have money to invest elsewhere. $56000 if the couple is both over 50 years old.  (both of these assume your company allows you the max and not a certain percentage ) Frankly for most people that pretty well soaks up all their investable assets annually. If you are doing the max over a 30 plus year working life you will accumulate a ton of money. Doing a quick figure for 30 years of max investing would net about $4.5 million in assets. Nice!  One might ask why do all your retirement investing in a pre-tax vehicle. Fairly simple answer is that no where else you can put the money where you will get about a 22% immediate return ( in NC ) on your money.  That coming from the 15% federal tax and 7% state tax you get to keep up front. That is about three years of 7% return on your investment.  You get to use money that you would normally pay the feds and state for 30 years or more. Do not be concerned with anyone arguing that the tax rate might be higher later on, having use of the money for 3 decades more than offsets any tax later on.

 

One of the biggest mistakes most people make is confusing "savings" and "investing". Saving is putting away money in a CD or some form of savings account that pays a certain percentage of interest. There is no risk to your money, no chance it will go backwards in value. This is safe, but you risk the chance inflation will eat away at the value of  your principal. Everyone needs a safety net of cash, but having too much is foolish in my opinion.  For me three months of expenses is satisfactory assuming you have marketable skills that can gain you employment rather quickly if you lose your current employment. Once you have some serious assets, several years of savings and investments, use your credit card for such. Yeah, that sounds crazy, but if you PAY OFF your card every month and just use it for convenience, the credit line makes for emergency cash just fine. Control your credit card, do not let it control you. Additional Tip: Get you a couple of cash back credit cards and use the built up cash back to pay for Christmas each year. You will be surprised just how much cash you can accumulate.

 

Also accept up front few people if any accumulate assets quickly. Rather than trying to hit home runs, attempt to hit lots of singles. Place your money in good stock funds if you are below 50, then as you move past 50 begin a systematic slow movement of some funds into bonds. Good corporate bonds are better than government bonds here. About the best you will do with US treasuries is stay even with inflation. If you can not sleep at night from your investments, or worry about safety, you are better left to CD's and short term treasuries.

 

When I began saving money I too was putting it in a safe CD at a local savings and loan. About 10 years into saving money it dawned on me that there was no way to accumulate enough real assets to be financially independent just saving money. It was about then that I began looking for how other people actually made real money with their savings.  As I searched for help, two people came into my life that changed my approach. One, a bond trader with over 30 years experience, taught me the value of tax free investing. Two, a stock trader, taught me that the only way to get ahead, was to take calculated carefully thought out risks. Back in the 1970's, yeah that seems like ancient times to most people, believe it or not there was nothing like the Internet and the information available today to retirement investors. So as I say on my bio on the front page, I indeed had to make lots of mistakes before actually knowing the best approach to take to investing money. I envy the opportunity young people have today for retirement assets. Especially in today's bad economy, the chance to make serious money from a this lower level in 30 years is just awesome.

 

One last thought here on investing. If you are serious about having assets some decades later, (unless you are making lots and lots of money ) you must decide to be willing to sacrifice some buying of things now. That means you give up that fancy widescreen, eating out everyday, expensive vacations, etc. Again, this is a choice you make, that being financially secure is more important than owning things. Tough for most people.

 

If you reach the point where you have excess investable funds after the retirement investing I mentioned above, there are numerous stock brokerages out there from which to choose. I would personally suggest you select a good online discount broker, Scotttrade, Schwab, Fidelity, and even Vanguard can provide you access to the market.  Most of these require $10000 or so to get started and frankly it would take that to buy 100 shares of your first stock. If you get this far, again do not look to hit home runs, find a good stock value and buy it. Then move on from there adding selections with the knowledge any sales makes taxable events.

Opportunities in Canada

As you might have noticed most of the stocks I follow are higher dividend stocks, frankly because as a retired person I look for safe solid companies to pay out money regularly. This post will include one stock that is not a high payer, but should be on your radar if you are a younger investor. I will also use this post to concentrate on Canadian stocks, which I believe offer some excellent opportunities for long term safety and income.  If you own a portfolio of stocks, having Canadian securities in that portfolio provides you with a safer currency than the US and frankly sounder overall banking practices.

 

Again, please hit the button on the blog that makes you a follower so you can get these posts as soon as they occur. Thanks for reading.

 

 I would like to pass on what I believe to be the best stock long term investment opportunity you will find in the next ten years. The company is a spin off of EnCana, a large Canadian energy producer. The company is Cenovus, symbol CVE, and it sits on top of what some say is the largest oil pool in the entire world. Yes you read that right, bigger than Saudi Arabia. CVE also pays almost about a 2.3% dividend so needless to say this company is not a start up operation. Why do I like this stock, because I believe that in 10 years the $30 stock price could likely be $150.  Not including dividends, which will likely increase with the stock appreciation, that is a 500% increase in ten years!  CVE is mainly a oil producer that has assets in the bitumen, that is deep oil in the oil sands of Canada. ( if you have concerns with investing what some consider to be environmentally unacceptable areas stop reading now ). The reasons this stock has such a strong upside potential follow. First off the oil in this area is just now starting to be drilled, Second the company is headed by a CEO that knows his stuff and has a history of finding value and pushing his company's stock price up. Third, you can still buy this company at a decent price, current trading around $34-$35 level. I would prefer to buy it under $30, but unless the world economy stops expanding the oil basin CVE is drilling will not get less valuable.  Now it may take a while for other investors to find this security and for CVE to begin getting the resource to market, but I believe eventually they will and push the price up. If you buy you must be very patient.  Lastly, this company is drilling for oil on land in a very stable country Canada.  Canada, unlike the United States, is open to oil discovery and is getting the oil out to market making money for both the government via royalties and investors who own shares. The US gets most of it's oil from Canada, and not the Middle East, in case you did not know.  Risks to this stock, include if the world economy does collapse and the price of oil plummets this high cost oil producer will not be able to profitability market oil. Buy CVE, put it away, and forget it for ten years.  Great gift for your grandchildren.  

 

Canada offers many opportunities for Canadian oil stock investing. A couple more names are Enerplus, pays about a 6.6% dividend.  Enerplus is a solid company that will not appreciate much, but will pay you a MONTHLY dividend year after year. Another one is BTE, Baytex Energy, paying right at 5.0% monthly dividend as well. Again a solid company which just drills for oil and pays it's shareholders. These last two companies just converted from Royalty Trusts since a change in Canadian law back several years ago, when they were paying even higher dividends. They now have converted to corporations that look for some growth with good dividends as well.

 

BCE, Bell Canada, is the Ma Bell stock for Canada. This company serves the largest telecom customer base in Canada with wireline, wireless, and increasingly television reception.  BCE is the steady eddie of stocks up north, solid share price, 5% plus dividend that just got a big bump earlier this year and will not keep you awake at night. Frankly few people know about BCE, because it is just so normal a operation that most analysts skip over it. Now you know.

 

Lastly, I want to mention another long term holding. TRP, Trans Canada pipelines. This company owns about the largest pipeline network in North America. They transport lots and lot or natural gas from west Canada to the eastern US and eastern Canada. Their payout is solid and growing. Presently they are in process of getting permits to extend a pipeline from mid continent US to the Texas Gulf area to transport the growing oil resources of west Canada to markets in the US and beyond. This is not a given as the current US administration is getting lots of pressure from people who do not want this pipeline built, so it no guarantee it will happen. If it does get built it will create lots of US jobs and profits for people here and obviously grow TRP profits as well.  You can buy this one with the confidence the share price is solid and the dividend safe. Then if the pipeline does get built the capital gains could be very nice.  One other note , if the US pipeline does not get approved, there is discussion the Chinese are going to step up and build a pipeline for the company to the Canadian west coast and ship the oil to China. So maybe this could be a no lose situation as a shareholder.

 

Do note all four of the securities mentioned above are at the high end of their stock prices due to the run up in oil prices, so it might be best to wait and see if the price of oil comes back some to buy. Also note most Canadian dividends are taxed in Canada at 15% before you get your payment, but that can be got back when you file your return here in the states.

 

The Kennedy family relies on oil trusts for a large portion of their income, so why not you?

 

I either hold all of the securities, except TRP and CVE, above long or in options.  

Retirement Savings and a Few Stock Picks.

Thanks for your response to my idea of starting a blog. I named it "Small Town Investor", as I believe small town investors when they do their research can beat the big city guys anytime.

 

If you are not a follower of this blog yet, please go select the follower button on this blog at the top right. If you have questions on any of my subjects or just general comments please e-mail me and let me know.  By becoming a follower you get notice of new posts and I get to know if people actually want to read this stuff:)

  

I am frequently asked when is a good time to invest or buy a stock. Truthfully right now is the best time to get started. There are always opportunities in stocks and nothing beats regular investments in retirement accounts. As this blog will focus on people who are doing their own investing and people who are likely still working for a company I will limit my blog posts to subjects for those investors.  

 

As I mentioned earlier if you have not maxed out your company 401-k and Roth IRA now is the time. The limits for a 401-k is $16500 this year and an additional $5500 for those over 50 years old.  The Roth IRA limit is $5000 and $6000 for those over 50.  A 401-k is an excellent vehicle for investing, most especially if your company provides a good selection of funds and keeps the fees and charges to a minimum. But understand it IS your retirement plan so keep your investments to age appropriate selections. This is your safety net for those without the blessings of a pension, which fewer and fewer have access to today.  Your 401-k generally provides a match, but also is pre-tax so take advantage of the free money from your company and the government. I know the max amounts might be more than most are able to contribute at this time, but max this out before you proceed to any other investing.

 

The next investment vehicle is a Roth IRA and no one does that better than Vanguard Funds. Since most people will be doing their Roth IRA outside their workplace use the best. Vanguard is investor owned, runs funds cheap, and passes on the savings to fund holders with low low fees. If you are just starting, pick some good stock funds that invest in total worldwide stocks. Later on you can move to more balanced funds, but never give up owning some stock in your funds.  Let me know if you have questions on 401-k's and Roth IRA's. Note I did not mention regular IRA's as I believe with the Roth available it is foolish to put money in regular IRA accounts.

 

Many people confuse being "rich" with having a "high income". Even our politicians get in on the action, talking about "taxing the rich". Note that most politicians mean taxing "high income", not taxing wealth.  You actually can be "rich" and pay very little tax no matter how high the politicians raise rates. Part of the idea of 401-k's and IRA's is to defer income to a later date, thereby building wealth. Use these opportunities to defer income to build wealth and avoid paying taxes now and allow your money to compound grow over the years. Do not say it can not be done as if I can do it anyone can.

 

Now on to those stock and bond selections I promised in the last post. One note here, I concentrate on a portfolio of about 30 stocks that have dividends of 5% plus and will highlight them as we move forward.  But I will discuss some other opportunities as well as we move forward.

 

If you are in the highest tax brackets and need ways to avoid taxes, NC based municipal bonds offer good value.    5% interest fully federal and state tax free bonds are out there and are sold daily. Most of these are county hospital bonds, power agency bonds, and senior living bonds. Yes, these are not AAA,rated but they are A rated and above, in the 30 plus years I have been investing in BBB rated and above bonds I have never lost a dime and interest has been paid on schedule regularly. You can buy these from NC bond funds or as individual bonds. If you want to build a portfolio of individual bonds now is a good time to start,as rising tax rates make tax free investing profitable. With the sell-off in bonds which commenced late last year, even NC Muni bond funds are now an excellent value.  In late 2008 and early 2009 I bought many bonds for 55 cents to 80 cents on the dollar when many investors were fearful and heading to the door. I am comfortable with the safety as I have a large number in my portfolio and know that when they become due I will get my full 100 back for each netting a nice capital gain. Note the minimum individual bond are sold in $5000 par value.  A bond fund is a smaller alternative, but be careful with the sales charge and ongoing management fees. Of course there will be some sales charge from the broker for individual bonds, but if you buy at par or below you simply will not lose money if you hold to due date, assuming they do not default. Default again, is not likely in a state like NC where the economy is still reasonably sound and taxes not high compared to somewhere like California. If you would like contact for a bond broker I will pass on the one I use if you e-mail me with the caveat that I am not recommending anyone. Full disclosure I am long a good number of NC Municipal bonds.

 

Dividend stocks also offer a great alternative to today's low rates. Not only do you get nice dividends, but you get the chance for growth and unlike bonds some inflation protection. A smart portfolio has some bonds and stocks for a well balanced approach, even for young people.

 

 The safest, best run, most dependable stock in my opinion now is Southern Company, symbol SO. SO provides a 4.8% dividend and they have paid basically forever and raise their payout most years annually. SO  is managed by experienced people who know how to take care of their customers and investors. Most importantly as a regulated utility, they operate in states that are not hostile to the company. Those states, Georgia, Alabama, and Mississippi, allow SO to make a fair profit and allow rate increases as needed. These states also have not put the hammer down on utilities, in my opinion, beyond the common sense environmentally regulations. The price of the stock even during the downturn last year was only down 10% or so and has bounced back nicely since then. Over 10 years you are up 45% or so plus dividends. Nice huh? I would put my grandmothers money here and sleep well at night. SO is trading around $38 presently, but traded as low as $31 earlier this year. Try to get it below $36 or so on a pullback. I have owned it for many years as a long or as a put option.

 

Another stock that is solid is Centurylink. Many of you have home phones and chances are Century Link provides the service. Last year Centurylink bought Embarg and now are the largest rural telephone company in the business by far, a fortune 500 company. Centurylink has recently announced a soon to be completed merger with Quest, another land line company. This merger should be a nice plus to the company as Quest has more urban customers and offer excellent opportunities  Do not be alarmed about the rural telephone part, there are several of these companies out there that are spin offs of the now wireless companies like AT&T and Verizon. The wireless part was the growth area and the big boys spun these slow or no growth rural companies off several years ago with lots of old land lines and frankly a good bit of debt. But these companies provide phone service, cable, and Internet to areas of this country that the big operators do not wish to provide such service and that mean opportunity for rural telecom and investors. Centurylink pays out a nice 6.6% divy and for about 30 years has raised the payout every year, yes I said every year. They have more than adequate cash flow to cover debt, buy back some stock, and pay out the divys, what's better to like. CTL is trading at around $43 now and would be a good buy below $40.  I have owned this stock for many years now and plan on holding for many more years either as a long or as a option. Another of these rural telecoms is Windstream, symbol WIN, which pays a 7.7% divy.  Frontier. symbol FTR, is another one, pays about 8.1% annually. Note all three of these rural telecoms are S&P 500 members. This segment is consolidating as the three stocks mentioned here are buying up the smaller telecoms. Larger bases means better profit here. Take a look and consider an investment here. I own all of these securites as an option or long now. 

 

Lastly today, I offer a real estate company. Realty Income, symbol O. This might be the most investor friendly company on the market. They are most open about what they do and where they invest your money the annual report is a pleasure to read. No hiding investments, no hiding mistakes the few they make. How about this a 5.0% divy that they pay out MONTHLY, and Realty Income raises the payout quarterly. Again I have owned this stock long or option for several years. Realty Income holds little or no debt, meaning they own most of their properties straight out, no mortgages. Of late as a real estate investment trust, they are getting close on paying out their full cash flow, but as a class A holder of commercial property I expect as the commercial market consolidates Realty Income will be a net acquirer of the most coveted real estate and strong growth will return. O is trading around $34 now and is a good buy here, but as I am always looking a bargain I keep a option out to buy it anytime it dips below $30. This stock is a core holding for anyone. National Retail Properties, symbol NNN, is similar to Realty Income as both are triple net lease companies. NNN pays a 6.1% divy.  Again NNN is a core holding.

 

Let us begin this journey...

As some of you know I do extensive research in my stock and bond investing activities. That research I expect is a good bit more than most of you have the time to do, (I do at least 30 hours weekly), nor do I expect most of know where to go to find such information. Most of my investing centers around selling stock options, investing in municipal bonds and finding stocks that pay good safe dividends, generally from moderately safe to lead pipe solid safe dividends. Yes, there are stocks out there that are in my opinion have "lead pipe solid" dividends. In fact the one I consider the safest stock on the planet currently pays 4.8% annually. Much better than a CD and it generally raises it's payout annually. How about one paying 6.6% annually right now and is solid as well.

 

For several years now my CPA has encouraged me to start a investing newsletter or blog.  Frankly the time involved doing so kept me from considering it. However I have decided to give it a go and see if others have interest in my research. So if you have interest place this blog and send me an e-mail and let me know. Feel free to pass this along info to your friends as well. I will pass on that "lead pipe solid" stock name in my next posting.  Understand this investment research is best for investing after one has put away maximum contributions in your 401-k and Roth IRA.  Those two options are your best way to build wealth, after those are funded you then have money to invest in individual stocks and bonds.

 

 I have been investing in stocks and bonds for now over 30 years and I believe I have made about 90% of all investing mistakes that can be made, so you gain from my experience in avoiding these mistakes as well as highlights of my extensive investing research. No, I do not put myself up as a guru on the subject, but I have been most successful the last 10 years or so with 15% plus gains annually in my trading account and little or no loss in my investing account. Yes, I got hurt in the 2008 stock market "crash". but my trading account is now back above where I was in August 2008. I get the joy of passing on to anyone so inclined the joy of investing that now is my passion.  In addition if you want to chat about investing e-mail me and let's discuss. I am always looking for someone who can pass on info to help me as well.

 

 Also if you are passing this onto friends ask them to send me an e-mail so I know who is reading this and if is worth my time to continue the blog. So let's get started, have some fun, and make some money.  If I get no response I will know this is not worth pursuing and I will move on the no less for wear.