Friday, July 18, 2008

Oil Prices and A Few More Stocks I Like

I've written about oil prices before, saying it was all about price and demand. Well now everyone seems to be in agreement. When the price reached the point where most Americans had to start cutting back, the price is beginning to falter. Seems everybody is backing away from their predictions of $200 dollars a barrel for oil and $5 dollar a gallon gasoline. I truthfully never expected it to get to that price. Most of the people I know and work with simply could not afford it. They are struggling now at $4 per gallon, so add another $1 and they simply would be out of commission. When the public can no longer afford something, no matter what it is, the drive behind increasing prices is gone. The new catch phrase, "demand destruction" is occurring on a huge scale, just as I predicted it would. Will China and India continue to drive demand? Only if they can sell their products and how is that going to happen if everybody is spending their money on gasoline? Demand destruction is occurring, not only from consumers switching to smaller cars and driving less, but also from the shift to alternate energy sources, such as bio-diesel, solar and wind energy, all lessening demand for petroleum products. I wouldn't predict oil at $40 per barrel like the guy they interviewed on CNBC earlier this week, but I do see the prices dropping dramatically.

So how is this affecting my investments? Fortunately, since I'm mostly buying, the price drop in equities has been good for me. I'm searching for stocks that I feel have room for growth, solid earnings and pay current high dividends. While the share prices of my portfolio holdings have dropped, along with everyone else, my earnings from dividends have been increasing month after month. I am currently re-investing all dividend income in bargain priced dividend stocks. When the market starts to recover, I will re-evaluate my investment plan and possibly shift dividend income to fixed income opportunities or real estate investments. But while the prices are down, I'm being greedy and adding to my holdings as much as possible. Whether we're at the bottom or not, STOCKS ARE CHEAP! Buy when they're on sale.

My latest additions to my portfolio include Biovail Corporation (BVF), a pharmaceutical company with a whopping 15.10% dividend yield and Windstream Corporation (WIN), a small rural telecom with solid earnings and an 8.4% dividend yield. Both should fit nicely with my overall plan of building a portfolio of high dividend stocks and increasing monthly income from dividends. Any price appreciation on top of that is just icing on the cake. Since I have no intention of selling any stocks within the next several years, I can wait on price appreciation.

I currently don't need any of the income from my stock portfolio, but the ever increasing flow of dividends into my money market account make it a lot easier to afford new investment opportunities as they present themselves. Robert Kyosaki, one of my favorite writers, says to "look at a deal a day." I've made that my goal. I can't always afford the deals, but it keeps my mind active and on the lookout for my next investment.

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