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

[aja8888]

Born, you had me scared I was senile like Aja, thinking I was crazy it wasnt under par already, ha.

 

[Born2Fish]

Born, you had me scared I was senile like Aja, thinking I was crazy it wasnt under par already, ha.

I need to read what I write before I press send.

 

[Mulligan]

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

Ha, just making sure you were actually reading my posts!

 

[aja8888]

Ha, just making sure you were actually reading my posts!

LOL!!

 

[tutan]

Hi, thank you all for the discussions, tips, and pointers. It has been a learning experience. For those who mainly want to buy and hold, have you considered the preferred ETFs especially in light of the recent drop and near recovery, it seems that the ETFs behaved as well as the individual preferreds...in the selloff and near recovery. There's that ~0.5% expense but can save time and effort in watching over a collection of say 15, 20+ individual stocks.
What say you? Thanks.

 

[RE2Boys]

I observation has been that most preferred ETFs or mutual funds take on much more risk than I am willing to live with. Primarily to boost the yield they can advertise. Such as banks, financial companies, some shipping, many riskier REIT, etc. Thus , I like to pick my own preferred investment and level of risk. Now concentrate on utilities, especially thinly traded utilities, selective REITs, some quasi-corporate.

Such as MNR-C, CNLPL, Spire-A, AT&T, IPLDP, CHSCM

 

[pb4uski]

+1

 

[Mulligan]

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

Hi, thank you all for the discussions, tips, and pointers. It has been a learning experience. For those who mainly want to buy and hold, have you considered the preferred ETFs especially in light of the recent drop and near recovery, it seems that the ETFs behaved as well as the individual preferreds...in the selloff and near recovery. There's that ~0.5% expense but can save time and effort in watching over a collection of say 15, 20+ individual stocks.
What say you? Thanks.

Tutan, Obviously I agree with RE2, but for someone just wanting a toe in or simply just want general exposure I see some allure. Some are better than others though.
As some just track made up preferred indexs which are plain bogus with no relevance. So when the index changes they gotta dump what they have and buy whats in it now. So they sell low and buy high with their dumps. Then throw in the expense ratios which are a drag...And also many will hold preferreds that are over par and get smacked with call loss notices. They dont prune these and just ignore the risk which also drags them down. Some are heavily financially weighted that allow for little sector diversity also.

 

[pb4uski]

Mulligan, I'm looking at ALLY.PRA and have a couple questions.

First, Marketwatch shows the dividend at 40c/qtr... so that would be $1.60/yr.... but they show the yield at 8.22% at $22.76.

I get $1.60/$22.76 = 7.02%. Any idea where they are getting 8.22%?

Second, if the 3-month LIBOR goes negative would the negative LIBOR be used to set the dividend or would the negative LIBOR be floored at zero? I could paw through the offering documents but thought that you might know.

 

[Sunset]

Hi, thank you all for the discussions, tips, and pointers. It has been a learning experience. For those who mainly want to buy and hold, have you considered the preferred ETFs especially in light of the recent drop and near recovery, it seems that the ETFs behaved as well as the individual preferreds...in the selloff and near recovery. There's that ~0.5% expense but can save time and effort in watching over a collection of say 15, 20+ individual stocks.
What say you? Thanks.

For all their warts, the index (like PFF) does provide some diversification.
Unlike holding an individual stock like SPLP-A which is down 27% right now.

PFF is down about 10%

 

[tutan]

Thank you all. Yes, so I created a table tracking some individual preferreds and bought these: ni-b, pcg-a, pcg-d, sce-g, ms-e, kth, ppx, ipldp, chscm, chsco, sjij, gjh, ally-a, htlfp. Hard to get the really thinly traded however. Then I thought that's only 12 companies which is not that diversified. So should I look into buying another 10 or 20? That seems a lot of work. Maybe I'm just starting and this will become second nature.

 

[Mulligan]

Thank you all. Yes, so I created a table tracking some individual preferreds and bought these: ni-b, pcg-a, pcg-d, sce-g, ms-e, kth, ppx, ipldp, chscm, chsco, sjij, gjh, ally-a, htlfp. Hard to get the really thinly traded however. Then I thought that's only 12 companies which is not that diversified. So should I look into buying another 10 or 20? That seems a lot of work. Maybe I'm just starting and this will become second nature.

Tutan, it really depends how much you are allocating to each security and what percentage of your portfolio you are dedicating to it. For example just me, but percentage wise I would have a lot more dedicated to say KTH than I would the PCG preferreds due to their poor credit quality. This doesnt mean not to own PCG preferreds just be mindful of the risk.
Just as an example...I have 30 preferreds give or take one, but 8 represent over half the stash and the other 24 consume the rest. If memory serves I believe SR-A, AILNP, EP-C, FORFF, SCE-L and J (I consider them one position, combined) KTH, PPX, and SJIJ are presently about 60%.
My riskier ones are a lot smaller portions and some I just dont own a lot because they were hard to get at a good price, or just too low of a yield to get concentrated in like my INPAP and CTA-B for example.

 

[Mulligan]

Mulligan, I'm looking at ALLY.PRA and have a couple questions.

First, Marketwatch shows the dividend at 40c/qtr... so that would be $1.60/yr.... but they show the yield at 8.22% at $22.76.

I get $1.60/$22.76 = 7.02%. Any idea where they are getting 8.22%?

Second, if the 3-month LIBOR goes negative would the negative LIBOR be used to set the dividend or would the negative LIBOR be floored at zero? I could paw through the offering documents but thought that you might know.

PB, their math is just wrong. I checked a couple other sites and they mirrored your math. Unfortunately, if Libor goes negative they would subtract that from the adjustment part of the yield. This is why a few preferreds (especially many Canadian ones) have instituted “yield floors” or capping Libor or TBill at zero. But most of these old ones dont.

 

[bobandsherry]

PB, their math is just wrong. I checked a couple other sites and they mirrored your math. Unfortunately, if Libor goes negative they would subtract that from the adjustment part of the yield. This is why a few preferreds (especially many Canadian ones) have instituted “yield floors” or capping Libor or TBill at zero. But most of these old ones dont.

No one probably thought about that originally. Not sure US issues have any floor. But MBINO and MBINP have a zero floor. They are 6% and 7% coupon currently, then 3 mo Libor plus 4.569 and 4.065 respectively with 3mo Libor 0% floor, reset in 2024.

 

[bobandsherry]

Argo Group International Holdings, Ltd. Resettable Fixed Rate Preference Shares
Ticker Symbol: ARGHF CUSIP: 040128209 Exchange: OTOTC

Started trading today. Snagged a few shares at $24.65. Has 7% coupon rate, resets every 5 years @ 6.712% plus Five-Year Treasury Rate. This is QDI, but is a foreign stock so subject to withholding if in taxable account. S&P rated as BB. This will trade as ARGO-A as permanent ticker.

https://www.sec.gov/Archives/edgar/data/1091748/000119312520188905/d945358dfwp.htm

 

[BrianB]

Wells Fargo Preferred "L" - is it safe from a dividend cut?

We've had a few shares of Wells Fargo "L" for several years now. Originally bought it just over par. Totally reliable on payments.

It is looking very likely that WF will have to cut the dividend on their common stock due to the stress test results and their reserves.

Anybody have an idea or opinion what will happen to the Preferred? It's a non-cumulative (I think) so a dividend cut or suspension would be painful, and it would likely wreak havoc on the share price.

Brian B

 

[pb4uski]

I browsed through their press releases and stress test report and there is no mention of preferred stock dividends, so unless things get really bad I think that preferred dividends will likely continue to be paid.

https://www08.wellsfargomedia.com/a...ress-test-results/2020-annual-stress-test.pdf

 

[BrianB]

Thanks PB. I did do a web search before I posted but I didn't come across the actual stress test report. Skimming through it I found the following:

The prescribed Dodd-Frank Act capital actions include estimated Q1 2020 capital actions taken by the Company, and for quarters two through nine of
the test horizon, no issuance of regulatory capital other than assumed issuance of common stock for employee compensation or in connection with a
planned merger or acquisition; payments of common stock dividends equal to the quarterly average dollar amount paid by the Company from Q2 2019
through Q1 2020; payments on all other regulatory capital instruments equal to the stated dividend, interest, or principal due during the quarter; and no
capital redemptions or repurchases.

So it looks like they won't be required to cut the Preferred dividend. That's my good news of the day!

 

[bobandsherry]

Thanks PB. I did do a web search before I posted but I didn't come across the actual stress test report. Skimming through it I found the following:

So it looks like they won't be required to cut the Preferred dividend. That's my good news of the day!

To the best of my knowledge, as long as a company pays a dividend on their common, even if 1 cent, they have to make the dividend payments on their preferred issues.

 

[Winemaker]

I have owned/still own several Wells Fargo Preferred since '09, all have paid on time.

 

[pb4uski]

To the best of my knowledge, as long as a company pays a dividend on their common, even if 1 cent, they have to make the dividend payments on their preferred issues.

Yes, that is correct... and they are paying on common so they would have to fully pay preferred first.

 

[bobandsherry]

Surprised a bit by no one posting this. AHT making an offer on all their preferred shares. $9.75 or 2.64 common shares. The preferreds were trading around $6.25 yesterday, had a pop this morning, then drop and now picking back up. The common shares took a beating, down 20% today $4.80.

ASHFORD HOSPITALITY TRUST, INC. OFFER TO EXCHANGE


There are also maximums as to how many shares can elect the "cash option".


Seems everything is dependent on AHT raising _only_ $30MM in new cash and needs 66 2/3% of preferred shareholders to approve. Another one of those high risk and possible high gain moves. Not for the weak but for those who had been holding and possibly buying in low, now being rewarded. I had a handful of "G" that I bought about $4 on a gamble back in May.

 

[tizod]

AHT: Too risky

You used the right words...gamble especially. Usually, you do prefs for divvy. THose are suspended. Now, buying back at $9 is a dangerous move and AHT could be headed to BK. I'd take what they give and bail. And they limit what they give. Take what you can get and try HMLP-A for a gamble...not "really" a gamble as all is contracted. But, contracts are fungible (didnt think they are SUPPOSED to be, I should let my lawyers know that! HaHa!).

 

[bobandsherry]

You used the right words...gamble especially. Usually, you do prefs for divvy. THose are suspended. Now, buying back at $9 is a dangerous move and AHT could be headed to BK. I'd take what they give and bail. And they limit what they give. Take what you can get and try HMLP-A for a gamble...not "really" a gamble as all is contracted. But, contracts are fungible (didnt think they are SUPPOSED to be, I should let my lawyers know that! HaHa!).

HMLP-A is at least QDI People thought the PCG preferred's that Muli posted months ago was risky. I did pretty well on those. Sometimes an educated gamble is worth the risk. Sometimes it's not.

 

[Henry Lili]

Seems like too much of an "unknown" to opt for the $9.75 in cash when an unknown amount may be paid in common stock. One needs to be "comfortable" with getting the common and take the position that they survive and the common will be worth more in the future then selling at market price today. If not comfortable with the possibility of getting the common then consider selling preferreds at market price.

"Holders of each series of Preferred Stock (the “Preferred Holders”) who elect the Cash Option will be subject to allocation and proration procedures intended to ensure that, within each series of Preferred Stock, no more than the Maximum Aggregate Cash Per Series will be issued to the Preferred Holders of that series of Preferred Stock. Proration will occur if the holders of Preferred Stock for each series tender more than the Maximum Cash Shares for that series and elect the Cash Option, in which case the amount of cash received by each Preferred Holder will be prorated among the number of shares validly tendered and not withdrawn according to a formula that takes into account the relative value of the Cash Option offered in each Exchange Offer. The Preferred Holder will instead receive share of Common Stock for the portion of the cash consideration that they did not receive"