In these uncertain times, it’s important to balance your portfolio with a good mix of high yielding stocks. I will avoid touching upon REITs and Financial stocks for the time being because I’m unsure as to whether the worst is over. I’m the kind of guy who’s not interested in pharmaceutical plays, such as Pfizer (PFE), since I highly doubt its 6.4% yield. Looks unsustainable to me, especially when you consider the fact that it has a payout ratio over 100%.

Then, I turned to the utility sector and found TransCanada (TRP). And let me tell you — it’s an attractive one. TRP provides energy infrastructure throughout all of North America. If you were to study just about every metric out there (P/E, Debt/Equity, P/B, P/FC and Net profit margin, etc), you’d discover that the figures for TRP are all above its industry average (Gas Utilities: http://biz.yahoo.com/p/912conameu.html).

Advertise here.

Best of all: it offers a stellar 3.9% yield… higher than 10-year treasury.

The last thing I like to look at is shares short. In my opinion, this is the most important data that overrides all the others. As expected, not too many brave traders are shorting TRP right now, which means it’s not overpriced.

The downside is that it has negative revenue growth. In addition, it recently announced buying a 2,480-megawatt gas-fired power station in New York for $2.9 billion from National Grid PLC of Britain. In most cases, merger and acquisitions rarely add value to operations in the short-run.

With limited downside risk potential, I loaded with 3% of my portfolio. If price slips, I will load more – to a max of 5%. These days, more and more people seem to realize the importance of diversity. But don’t forget… never risk more than 5% of your portfolio in any single stock.

Note: all data are from Yahoo as of 5/2/08.

Hao Jin, CFA
Guest Contributor