Tuesday, May 13, 2014
Why Investing in Puerto Rico is a Good Idea and the Best Way to Invest
Back on February 5, I wrote about how Standard & Poor's reduced the rating on Puerto Rico to junk status, giving it a BB+ rating. I also mentioned that Puerto Rico might be a good contrarian play.
In the article, I discussed two stocks, OFG Bancorp Inc. (OFG), a bank holding company, and Popular Inc. (BPOP), a financial holding company which owns Banco Popular de Puerto Rico.
At that time, OFG Bancorp was at 14.77. It is now trading at 17.77, an increase of over 20%. Plus a dividend was paid during that time frame. The other stock, Popular, closed at 26.50 on February 5, and has risen to 30.33 today, a boost of greater than 14%. Not too shabby for a three month time frame.
But is the party over in Puerto Rico? Not quite. The governor of Puerto Rico has proposed a balanced budget, with $1.5 billion in spending cuts, plus reducing debt by $775 million, along with increasing revenues.
One way of participating in the Puerto Rico recovery is through stocks. But another way is through municipal bonds. You can buy the bonds directly, or you can invest in Puerto Rico municipal bond ETFs.
Of course, the biggest advantage of investing in Puerto Rico bonds is their exemption from state and Federal income taxes. Plus that tax benefit flows through to ETFs.
An example of an ETF you might consider is the PowerShares Insured New York Mini Bond ETF (PZT), currently yielding 3.93%. Don't be fooled by its name. Although you get the advantage of diversification with New York bonds in the portfolio, the ETF has several Puerto Rico bonds which make up a significant percentage. Over 5% of the fund's assets are in the Puerto Rico Commonwealth Aqueduct bonds with a coupon yield of 5.125%. The ETF also has over 4.2% of its funds in the Puerto Rico Commonwealth Highway & Transit 5.25% bonds.
So if you want income or growth or both, there are several ways to achieve these goals with the benefit of the Commonwealth of Puerto Rico. For a list of Puerto Rico stocks, which can be downloaded, sorted, and added to, check out WallStreetNewsNetwork.com.
Author does not own any of the above.