If investing were easy, everyone would be doing it. Don't feel bad or give up before you start because investing is a daunting task. World famous investor Warren Buffett has extolled the virtues of temperament, saying its more important for investors than high intellect.
Here are three stocks that can help you learn about investing as you go, providing you with "training wheels" as you get your head around your investing temperament.
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Merck is ready for the cliff
Merck (MRK 0.87%) is a pharmaceutical company. The drug industry is highly technical and competitive and it has some very specific risks to consider before you jump in.
One of the big ones is the fact that new drugs are given a period of exclusivity on the market. But when those patents expire, revenues from a drug can fall off sharply in what is known as a patent cliff. Merck is no different in this regard from many of its peers, some of which have sharply higher dividend yields.
NYSE: MRK
Key Data Points
This is where another important metric comes in. Merck's dividend payout ratio is a very reasonable 50% or so. That compares to a roughly 90% payout ratio for peer Pfizer. Both companies are dealing with upcoming patent cliffs, but Merck is simply in a better position to sustain its dividend while dealing with that headwind.
If you are looking to dip your toes into the drug space, Merck is probably a good choice. The stock's 3.7% yield isn't the highest in the sector (Pfizer's yield is 7%, for example), but it is well above the 1.1% industry average.
2. Enbridge is a boring energy stock
The energy sector is generally known for being highly volatile, but it doesn't have to be if you buy the right stocks. Enbridge (ENB 0.74%) largely operates a toll-taker business, charging fees for moving oil and natural gas from where they are produced to where they are used. It doesn't actually care all that much about commodity prices, demand is the bigger factor in its financial results.
In addition to the energy infrastructure assets it owns, the company operates regulated natural gas utilities and a small portfolio of contract-based renewable power assets. Basically, everything the Enbridge does is boring, by design.
NYSE: ENB
Key Data Points
What isn't boring about Enbridge is its dividend. With a hefty 5.9% dividend yield, you are not only vastly outstripping the 1.2% you'd get from an S&P 500 index ETF but also getting well more than the 3.2% average for the energy sector. Notably, Enbridge has increased its dividend annually, in Canadian dollars, for three decades and counting. If you want to start learning about the volatile energy sector, Enbridge is a low-risk way to get in the door.
3. Bank of Nova Scotia is in turnaround mode
There are a lot of fairly low-risk finance companies you could buy to help you learn the ropes of the industry. But Bank of Nova Scotia (BNS 0.72%) is a special situation that deserves extra attention. Not only is the yield quite high at 4.8%, but the company is actually working on turning around its business right now. If you want to find out about investing in turnaround stocks, Scotiabank, as it is more commonly known, is a great opportunity to examine.
There are a few good reasons to take a risk on Scotiabank. First, it is a Canadian bank, which means it has to live under the strict banking regulations in its home country. These rules have given it an entrenched position in its home market and imbued management with a generally conservative ethos throughout all of its operations. Second, Scotiabank has paid a dividend every year since 1833. This is no fly-by-night business and returning value to shareholders via dividends is clearly important.
NYSE: BNS
Key Data Points
As for the turnaround, the big story is the company refocusing its efforts around North America as it exits less desirable operations in Central and South America. It will take some time to make the needed changes, but so far Scotiabank has been working quickly. Keep an eye on its efforts and you'll see what a strong company does when it needs to reset its business for the future.
Don't rush in, take is slow
No one just knows how to invest. You need to learn and that takes time. Start by reading about some of the masters of the craft, like Warren Buffett. And then start slowly, buying one or two stocks so you can learn. Starting with attractive low-risk stocks like Merck, Enbridge, and Bank of Nova Scotia will help keep you from getting in over your head.
