BUYING SHARES OF MERCK & CO. INC.

It's been a slow investment week for me, although I did put in an order to purchase shares of Merck & Co. Inc. (MRK) for my IRA account.  Their price is down from the 52 week high of $37.68, their current price being $34.55.  With the economy and the stock market slowing I thought now would be a good time to pick up shares.  They have a current dividend payout of $1.52 which represents a 4.40% payout on their current price per share.  While they stand to lose some in sales due to expiring patents I believe the earnings per share will still be good going forward, with their strong Research and Development Department and share repurchases.  

I've owned shares of Merck before in my taxable account and made a tidy profit, both from dividends and capital gains.  This time around I'm taking a buy and hold approach, so I'll be investing for the long term.   

SELLING ENCORE ENERGY PARTNERS LP

Sold my stake in Encore Energy Partners LP and using the money to increase my stake in Merck. Didn't like the negative earnings report from ENP, although I enjoyed a nice capital gain and some great dividend payouts while held in my portfolio. Merck has been very good to me as one of my long term holdings, so I'm increasing my stake and plan to hold the shares for years to come.

Not very happy with the government playing politics with BP disaster. It was an unfortunate accident that affects a lot of people. What the administration seems to ignore in their zeal to protect the gulf coast residents who've lost their jobs is that many shareholders of BP stand to lose as well. I fully realize it's not quite the same thing and I do believe BP should be responsible for cleaning up the mess, I don't agree with sucking the company dry and hanging shareholders out to dry. Many of these people are retirees and dependent on the dividend income they received from BP. Is it right to take all the money away from these people and give it to oil spill victims? I personally don't think so. Many of these people are unable to return to work and can't afford to lose the money they've invested with BP or the income from dividends. Yes, make BP pay for cleanup and restitution, but don't drive them out of business. It will only make things much worse than they already are.

SPEAKING OF PROCESSES

Yesterday I wrote about wealth building being a simple process. The process I've chosen for building wealth involves investing in dividend paying stocks. In previous posts I wrote about my investment plan for 2010 and how I'd changed my strategy to increase cash and reduce investment costs. It seems to be working out well so far. I directed my online broker to reinvest dividends on some of my core stocks like Clorox, British Petroleum, Merck and a few others. This has helped reduce my costs, since there are no commissions on reinvested dividends, while allowing me to increase my holdings. I've also continued to invest monthly in my IRA account to help reduce taxable income and continued increasing my investments in limited partnerships, which are also tax advantaged, in my regular investment accounts.

My cash levels continue to increase from dividend income building up in my money market accounts. I also received a nice raise at work and will be adding extra cash to my savings and checking accounts as well.

So overall my investment plan for 2010 is working out quite well so far. I'll make adjustments along the way, but the basic plan is in place and it looks as though I'll be able to reach most of my goals for the year, even if there are some setbacks along the way.

ANOTHER GREAT STOCK FIND!

While reviewing AstraZeneca's stats, I also decided to take a look at Glaxo Smith Kline (GSK:NYSE). GSK pays a $2.29 annual dividend per share, which represents a yield of 6.00% on their recent share price of $38.26. Their price to earnings is 10.90 with earnings of $3.49 per share. They also have $3.65 per share in cash, so their dividend should be quite sustainable. Their ROE is 60.40% with a gross margin of 81.70% and a profit margin of 19.50%.

With my purchase of a stake in AstraZeneca, I found myself short on cash to buy a stake in GSK. So I decided to take profits I'd made on Merck to purchase a position in GSK. I think GSK's numbers are better right now and I am retaining the same dollar position I originally held in Merck shares, so it's kind of like playing with the house's money. But I think that I'll actually come out much better with my position in GSK than if I left the entire amount invested with Merck. I'll also be adding an additional source of dividend income.

Glaxo Smith Kline is facing criticism and possible litigation over diabetes drug Avandia, due to implication of increased heart attack risks for persons taking the drug. However, loss of sales of Avandia in the U.S. would cut 2010 and 2011 earnings estimates by less than 1%. While litigation still could have detrimental effects on earnings going forward, I think that overall the company will come out O.K.. It's not unlike a similar situation faced by Merck a few years back. The threat of litigation and the resulting depressed stock price, could spell opportunity for anyone wanting to invest in GSK for the long term.

Merck and Schering Plough Merger

Got a nice bonus this week from the merger of Merck and Schering Plough. I held stocks in both companies and consider Merck as one of my core stocks. As part of the merger, I received $10.50 per share in cash, plus additional shares in the new Merck, for each share of Schering Plough. I've always considered both to be good investments and think the combination of the two will be good going forward.

I always enjoy merger deals of this type, where I get most of my invested cash back. It's like playing with the house's money, since I have practically nothing invested in the stock I received as part of the merger.

The icing on the top of the cake is the great dividend I've gotten from Merck all along. Even if they reduced the dividend 50% due to costs related to the merger, I'd still be happy with the return on investment. But I doubt that's likely to happen.

It's All About Earnings

About half the Dow 30 and a quarter of the S&P 500 report in the week ahead. Analysts expect the majority of these companies to continue to beat expectations. Of the 61 S&P companies that reported so far, 79 percent have reported better than expected earnings. The Dow gained 1.3 percent for the week, ending at 9,995, just shy of the 10,000 mile marker it reached on Wednesday. The S&P 500 scored a 1.5 percent gain, ending the week at 1,087. The dollar lost about 1 percent against the euro and the same against a basket of currencies.

Stocks declined Friday as disappointing results from Bank of America and General Electric eclipsed strong results from big techs. After two straight finishes above 10,000, the Dow Jones Industrial Average shed 67.03, or 0.7 percent, finishing at 9,995.91. Still, for the week, the blue-chip index gained more than 100 points, or 1.3 percent. This is the second straight week the Dow is up — it's gained more than 5 percent in that time. Shares of both GE and Bank of America lost more than 4 percent.

Pfizer, which reports Tuesday, expects higher earnings on slightly lower revenue, while Merck (MRK: 33.22, -0.09, -0.27%), which reports Thursday, is likely to post profit and revenue increases. Eli Lilly & Co. (LLY: 34.42, -0.09, -0.26%), reporting Wednesday, is expected to return to the black after last year's results were hurt by legal settlements. Economists predict small increases in September building permits and housing starts from the previous month, continuing the general trend since spring. That report is due Tuesday, a day after the National Association of Home Builders releases its October housing market index, which reflects builders' confidence in the market. Next Friday, the National Association of Realtors reports on September existing-home sales, which are forecast to grow 5.5% from a month earlier. Sales dropped in August after rising since April.

The government will issue the September Producer Price Index, which measures wholesale inflation, on Tuesday. Predictions are for a 0.1% rise, after a bigger-than-expected 1.7% increase in August. On Wednesday, the Federal Reserve will release its Beige Book, which provides information about economic activity in various regions. The nonprofit Conference Board's September index of leading indicators is out Thursday.

(I currently own shares of Merck and Pfizer so I'm hoping for good news from both.)

Merck and Schering Plough Merger

It has been an uneventful week in the stock market. Although I'm pretty pleased with the merger agreement going forward with Merck and Schering Plough. I own shares in both companies and stand to get some cash, $10.50 per share plus .5767 shares of the New Merck for each share of Schering Plough I own. I like the mergers where I get cash, cash is almost always good. Since I bought both stocks when prices were low, I should come out ahead on the deal. Plus the new company anticipates continuing Merck's current dividend payout. So that's the bright spot for the week.

Made some changes to the appearance of my blog, trying to encourage more visitors, I think it's a big improvement. Be the first to sign up as a follower of my blog!!!

News affecting the economy was not particularly good this week. Obama's approval rating is slipping over bailout programs and lack of results. Warren Buffett thinks we need another stimulus package, although I'm a huge fan, I disagree with him on that one. And the jobless rate continues to rise. While it all seems a little overwhelming at times, we just have to keep in mind it won't last forever. Things will eventually gravitate back towards the norm.