Preferred Stock Investing-The Good , The Bad and The In Between 2015 - 2020

[bobandsherry]

WOW! CHMI-B down 64% today, trading at $5.44. CHMI-A down 45% today, $8.10. My read then is market anticipates that people won't be paying their mortgage payments. And we thought 2008 was bad.....

 

[Running_Man]

WOW! CHMI-B down 64% today, trading at $5.44. CHMI-A down 45% today, $8.10. My read then is market anticipates that people won't be paying their mortgage payments. And we thought 2008 was bad.....

Just announced the mortgages cannot be foreclosed for the next 90 days and late payments are acceptable.

 

[Freedom56]

Everything is being sold today even treasuries.

 

[pb4uski]

Yup... all financial assets seem to be taking a beating.

 

[bobandsherry]

Just announced the mortgages cannot be foreclosed for the next 90 days and late payments are acceptable.

Must have been announced later. In update today I would swear Trump only set bar to no foreclosures until end of April. Kind of crazy how much volatility has been in the market, guess this wasn't as strong as people thought it was when even blue chips get hammered. I saw someone predict 20% unemployment rate ---- WOW!

 

[Freedom56]

I still say they should shut everything except essential services for at least 30 days. The strong measures should stabilize the infection rates and kill of the virus. Bailouts and interest free loans will not kill off the virus. This is not a financial crisis but letting the virus persist will cause it to be.

 

[aja8888]

I'm going back in and try to get another 100 of CHSCM at $16. Wish me luck.....

 

[Running_Man]

SR-A is the higher quality of the two. But neither is on my purchase radar.

EP-C is dependent on KMI. KMI has been unfair to shareholders in past and no reason to not suspect they would do same in future, although the finances of this deal are very good for El Paso Energy so I know Mully like them.

I am looking at Bunge preferred in the food industry, WFCL in the banking space once the financing laws are clearer. Public Storage with a 6% yield. CNPCL if that drops near 50 in a panic.

But in general until S&P500 hits 1300 I am in no hurry to buy anything.

 

[Mulligan]

SR-A and EP-C down pretty good. Should I trim these positions or just hang on? I'm in no hurry so long as they don't go to zero value.

Edit to add: I started buying div stocks around 6 years ago - D, T, PG, SO, DUK, MO, BTI and just recently added a few preferred stocks. I was surprised that the preferreds fell more than some of my common stock holdings.

Still holding on.

Born there is a lot of weird stuff going on and we dont know why. But consider the obvious...SR-A is down 20% the past five days...Well heaven help the poor sap who owns the common stock of Spire...Oh wait..Say what?The common stock is actually UP the past 5 days. That tells you what you need to know..Markets in turmoil.
I too that beat down on SR-A and aint losing no sleep of being paid. but damn wish I had waited a few days to by ha! And you want to know the worse thing? They actually sent my gas bill to me today. Talk about kicking a guy when he is down.

 

[Mulligan]

Preferred Stock Investing-The Good , The Bad and The In Between

SR-A is the higher quality of the two. But neither is on my purchase radar.

EP-C is dependent on KMI. KMI has been unfair to shareholders in past and no reason to not suspect they would do same in future, although the finances of this deal are very good for El Paso Energy so I know Mully like them.

I am looking at Bunge preferred in the food industry, WFCL in the banking space once the financing laws are clearer. Public Storage with a 6% yield. CNPCL if that drops near 50 in a panic.

But in general until S&P500 hits 1300 I am in no hurry to buy anything.

RM, they really cant mess with the debt like they did going to C Corp. But still the MLP sector is a mess and trading like everything is going under. Not a very pretty sector to play in.
Thanks for mentioning the Bunge preferred. I hadnt owned it in several years and it was off my radar. I put it back on my monitor list.

 

[Mulligan]

Preferred Stock Investing-The Good , The Bad and The In Between

^^^^ Do you have a source or citation for that assertion? Rationale?

You seem to be suggesting that the government will intervene in a financial contract between a company and investor and tell the company not to pay the investor. Is that what you are suggesting? If so, what precedence are you relying on?

PB, In general I agree with RM. In times of stress the “protection” of the preferred is razor thin to common.
Generically speaking for now hotel, hospitality, and other reits are most in danger.
And its possible with credit lock ups if company wants to preserve cash “math wise” it may make sense to suspend preferred and let it accrue than to try to issue debt or seek financing.
Im basically mostly if it aint a ute, I aint owning right now. BTW, when we say preferreds that is too generic...Here is a different example that I bought today...EAB...Got at $19.25 about 6.3% yield. But this a different animal.
It trades as a baby bond but it really is A2 mortgage backed debt. It sits up at top of the cap stack. If Entergy Arkansas (Arkansas’s biggest utility) goes belly up, you are at the seat of the table picking out your favorite piece of the plant.
Being subsidiary senior secured it is higher in cap stack than the actual company that owns them, Entergy. Of course you pay for this safety in the now higher 6.3% yield. It always traded with too low of a yield to interest me, but now I like it as this one will pay.

 

[Number 6]

I'm going back in and try to get another 100 of CHSCM at $16. Wish me luck.....

I bought some today too.

We’ll see how it goes. Their quarter ended in February before most of this nonsense, so probably won’t see much of a hit there. Going forward...

 

[pb4uski]

PB, In general I agree with RM. In times of stress the “protection” of the preferred is razor thin to common.
Generically speaking for now hotel, hospitality, and other reits are most in danger.
And its possible with credit lock ups if company wants to preserve cash “math wise” it may make sense to suspend preferred and let it accrue than to try to issue debt or seek financing.
Im basically mostly if it aint a ute, I aint owning right now. BTW, when we say preferreds that is too generic...Here is a different example that I bought today...EAB...Got at $19.25 about 6.3% yield. But this a different animal.
It trades as a baby bond but it really is A2 mortgage backed debt. It sits up at top of the cap stack. If Entergy Arkansas (Arkansas’s biggest utility) goes belly up, you are at the seat of the table picking out your favorite piece of the plant.
Being subsidiary senior secured it is higher in cap stack than the actual company that owns them, Entergy. Of course you pay for this safety in the now higher 6.3% yield. It always traded with too low of a yield to interest me, but now I like it as this one will pay.

Mully, RM said

Generically speaking preferreds are going to get killed. These payments are going to be stopped for the good of the country.

I don't disagree the first part that with the financial stress that some preferreds may not pay when due and some non-cumulative issues may even skip one of more payments... that is sensible.

My response was with respect to the second sentence. Any missed payments will be because the issuer doesn't have the financial strength to make the payments... noting to do with the good for the country or any government intervention or such rubbish. Get it now?

 

[Mulligan]

Mully, RM said

I don't disagree the first part that with the financial stress that some preferreds may not pay when due and some non-cumulative issues may even skip one of more payments... that is sensible.

My response was with respect to the second sentence. Any missed payments will be because the issuer doesn't have the financial strength to make the payments... noting to do with the good for the country or any government intervention or such rubbish. Get it now?

Ok, PB, I glossed over that. My opinion is every business will do what is in the best interest of the survival of their business not the country.
Take banks...Will any suspend preferreds? I dunno, I cant read a balance sheet of 10x leveraged outfits that banks are and check all the safety of their loans.
But I do know this. Preferreds are the capital life line of their business. They would never suspend without necessary company financial reasons. They would never get access to this important lifeline again if they abused shareholders.

 

[bobandsherry]

I continue to dabble in the bottom feeding with some GTC orders and snagged WFC-L today at $1015. From 2008/9 I know this still has room to drop (remember when it was sub $400?), but hope that WFC is better positioned today. Ssharf (WFC CEO) just dropped $5 million in WFC common, so he must feel they can weather the storm. He's one of Dimon's protege's and learned a thing or two when Jamie took the reins of JPM and was significantly rewarded for his personal investment. I know, Scharf probably got a loan from the bank that would be forgiven if the sheit really hits the fan, but for now he's put his money where is job is.

 

[bobandsherry]

Regarding suspended payments on preferrreds, found this article from 2016. Interesting reading, especially looking at those who suspended and what happened pre and post. And look at FBP that's highlighted in the article, their preferred's got hammered, recovered but is getting hammered today. FBPPRL was $25 just 5 days ago, down to $11.50 today with drop of $8.50 (42.5%). It's non-cumulative, so suspending payments really is a kick in the.....

https://seekingalpha.com/article/38...reflect-fear-of-operating-failure-5-companies

 

[copyright1997reloaded]

I too am looking at some preferred issues...but a warning to all: I purchased Ford 7.5% notes in 2008 for 5.25 ($25 call value). This means it was about 20 cents on a dollar, and had a current yield of 35.7%.

It turned out to be a great investment (and I only wish I had backed up the truck on it). But at the time it was a real flyer. Ford ended up calling them (eventually) at $25 so I had a nice capital gain along with some really great interest payments (for awhile).

I bought this because I felt Ford would be the 'survivor' (or at least had the best chance of doing so).

I post this not to gloat - but to warn. That preferred fell all the way from $25 to under $5 (If I remember correctly) and the story could have turned out differently if Ford didn't make it.

 

[bobandsherry]

I too am looking at some preferred issues...but a warning to all: I purchased Ford 7.5% notes in 2008 for 5.25 ($25 call value). This means it was about 20 cents on a dollar, and had a current yield of 35.7%.

It turned out to be a great investment (and I only wish I had backed up the truck on it). But at the time it was a real flyer. Ford ended up calling them (eventually) at $25 so I had a nice capital gain along with some really great interest payments (for awhile).

I bought this because I felt Ford would be the 'survivor' (or at least had the best chance of doing so).

I post this not to gloat - but to warn. That preferred fell all the way from $25 to under $5 (If I remember correctly) and the story could have turned out differently if Ford didn't make it.

Got to give Ford credit for not taking the easy way. But seems people forget, still poo-poo Ford, yet OK with GM even though they stuck it to their shareholders and workers. In hindsight, Ford would probably be stronger today it they just shafted their shareholders too. But then the Ford family would have felt that pain. Anyway, that was a nice opportunity for you and glad it paid off.

 

[BeachOrCity]

I don't know too much about preferreds and only have a few, but it seems to me in a time like this, any "rulebook" needs to be taken with a grain of salt.

Anyone know of any Cumulative preferreds for any "too big to fail" institutions they like?

Still don't know if I would pull the trigger on these, as I could see the "rules" being changed to say "all equity" gets wiped out! You just don't know. But to pull the tigger now, I would want to see some incredible reward for (my perception of) the risk.

(None of this is too impugn those who trade on the volatility and can spot value to buy and exit quickly)

Thoughts?

 

[brokrken]

Wish I would have bought more of some of my holdings yesterday on the sell-off, just as a trade. The former SSW-G is up 85% today. NSS is up 50%, RILYZ is up 30%

 

[bobandsherry]

I continue to dabble in the bottom feeding with some GTC orders and snagged WFC-L today at $1015.

Interesting, the date range for WFC-L shows as $1,030 - $1,130, yet my traded executed at $1,015. I could have sworn I saw it hit $1,012.50. I must have snagged some ghost shares Or probably because it wasn't a full lot size that it doesn't register. It was enough for me on a bottom feed.

 

[brokrken]

Interesting, the date range for WFC-L shows as $1,030 - $1,130, yet my traded executed at $1,015. I could have sworn I saw it hit $1,012.50. I must have snagged some ghost shares Or probably because it wasn't a full lot size that it doesn't register. It was enough for me on a bottom feed.

Bob, I've actually seen this happen on a highly liquid blue chip common stock that I had set a limit on. My sell order got executed during the day at a higher price than a date range including my trade date shows. Not sure what the reason

 

[Mulligan]

I don't know too much about preferreds and only have a few, but it seems to me in a time like this, any "rulebook" needs to be taken with a grain of salt.

Anyone know of any Cumulative preferreds for any "too big to fail" institutions they like?

Still don't know if I would pull the trigger on these, as I could see the "rules" being changed to say "all equity" gets wiped out! You just don't know. But to pull the tigger now, I would want to see some incredible reward for (my perception of) the risk.

(None of this is too impugn those who trade on the volatility and can spot value to buy and exit quickly)

Thoughts?

Beach it depends on what you want from them. If your goal is cap gain kills you have to wait and strike and strike quick. Hell today Im freaking out opening bid on SR-A was $17...Geez more losses...So I decided I might as well buy a bunch and the went off at $16.30 somehow...Then an hour later I am selling an assload at $24.
But all preferreds are not inherently dangerous in terms of getting paid. Could list 25 perpetuals that paid through WW2, Vietnam, the 70s and 80s drama and still paying today...Hell DMRRP hasnt missed a dividend since it was issued when Abe Lincoln was president.

 

[BeachOrCity]

Beach it depends on what you want from them. If your goal is cap gain kills you have to wait and strike and strike quick. Hell today Im freaking out opening bid on SR-A was $17...Geez more losses...So I decided I might as well buy a bunch and the went off at $16.30 somehow...Then an hour later I am selling an assload at $24.
But all preferreds are not inherently dangerous in terms of getting paid. Could list 25 perpetuals that paid through WW2, Vietnam, the 70s and 80s drama and still paying today...Hell DMRRP hasnt missed a dividend since it was issued when Abe Lincoln was president.

Thanks. I don’t know enough to actively trade preferreds so really focus on companies I have confidence in that provide what I view as a nice risk adjusted yield.

Years ago I bought BAC and WFC preferreds. Both above par but good yield. They probably went up Close to 20% but are now worth less than I paid.

No real interest in selling because I still like the yield.

At some point maybe I will find that cumulative perpetual with a highly rated company at a nice yield during all this market turmoil. ... but for the most part I feel very outgunned by all the really smart people who know this space far better than I ever will.

 

[Mulligan]

Thanks. I don’t know enough to actively trade preferreds so really focus on companies I have confidence in that provide what I view as a nice risk adjusted yield.

Years ago I bought BAC and WFC preferreds. Both above par but good yield. They probably went up Close to 20% but are now worth less than I paid.

No real interest in selling because I still like the yield.

At some point maybe I will find that cumulative perpetual with a highly rated company at a nice yield during all this market turmoil. ... but for the most part I feel very outgunned by all the really smart people who know this space far better than I ever will.

It really just comes down to analyzing what you want, the safety level you want and making sure you arent overpaying in terms of current and historical pricing.
Then you just hold for income if that is its purpose. And ultimately that is it for me too. The trading is around the edges and added spice...Some can be quit simple...KTH... Buy at 29.50 your looking at over 6.3% maturity in 2028... non callable, 27.10 redemption price split A3/BBB- rating...PEco Energy subordinated debt issued in 1998 is held inside the trust of KTH. PA biggest utility...Do you like 6.3% IG? Do you like a mandatory maturity? If you like the company and the price and buy and forget about it.