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

[Mulligan]

Went out of my comfort zone and gambling a bit here. Bought 300 shares of SSW-C (Seaspan containership company) at $23.75. The 10% yield and 25% penalty next January were too compelling to pass up.
Holdings are AILLL/AILNP (Ameren),CNLPL/CNTHP (Connecticut Light and Power), KTH (PECO energy), KCC (Unum insurance), GJP (Dominion Resources), CVB (Kinder Morgan), BGEPF (Bunge perpetual convertible)


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[Coolius]

AILLL jumped today, but on only 200 shares. Fully expect it to settle back in the $26 area before too long.

As discussed before, this is a Trapped Ute Preferred, trading is usually very thin, so stability of this issue has been calming in a time of high volatility for the market.

AILLL has already declared its next dividend, exdiv April 8, pay date May 2.

[alaska55]

How is AILLL a trapped preferred. Its can be called at anytime,right?

[Mulligan]

Quote:

Originally Posted by alaska55 How is AILLL a trapped preferred. Its can be called at anytime,right?

Its callable, but as long as it is not it is considered "yield trapped" in relation to its initial par yield rate. In other words the few utility companies that continue to issue "new" preferreds are able to issue at
between 5% - 5.5% due to their relative safety. Since above issue was issued in a higher rate environment of early 1990s its issued yield was 6.625%. It cant trade at a 5.5% yield because that would mean it would have to trade north of $30. That wont happen because of call risk. So therefore its yield is trapped over 6%. That is why on some unique opportunities you get an above market yield price that does not reflect the inherent relative safety of issue. For example some other Ameren issues are in 4% plus range but are no more safer in terms of safety of payment because they are all on equal standing. Its just the 4% issue ones were issued in 1940s when preferreds paid even less. They are past call too, but are "yield trapped" the opposite way. They cant drop enough to reach 5.5% yield because they would be so far below par a big cap gain would be in order if they were all called in unison which does happen.


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[jim584672]

WFC-L 6.4% current yield, goes ex-dividend next week, a juicy $18.75 of qualified goodness.

[capjak]

Quote:

Originally Posted by jim584672 WFC-L 6.4% current yield, goes ex-dividend next week, a juicy $18.75 of qualified goodness.

Nice (15 shares for me)

[Coolius]

A look at the 1 year chart for WFC-L shows a consistent pattern of decline in the days after ex-dividend. This is an opportunity to add more shares I am hoping the price will come down to the $1,145 area, at which point I would likely add a few more shares.

[jazz4cash]

Quote:

Originally Posted by Coolius A look at the 1 year chart for WFC-L shows a consistent pattern of decline in the days after ex-dividend. This is an opportunity to add more shares I am hoping the price will come down to the $1,145 area, at which point I would likely add a few more shares.

I'm still lurking on this thread. Here is a piece that goes into some detail on the pattern you mention:

Boosting Returns On A High-Yielding Wells Fargo Preferred - Wells Fargo & Co. (NYSE:WFC) | Seeking Alpha

[Coolius]

Quote:

Originally Posted by jazz4cash I'm still lurking on this thread. Here is a piece that goes into some detail on the pattern you mention: Boosting Returns On A High-Yielding Wells Fargo Preferred - Wells Fargo & Co. (NYSE:WFC) | Seeking Alpha

Thanks for the link, jazz4cash. I was not aware of the article.

However, this pattern has only existed since June 2015, so it has no assurance of continuing or repeating. This last cycle volume has been higher than previous cycles, so it is possible many funds & ETFs have sold and it is finding a bottom.

I will try to take advantage if it happens again this time, but will not be selling any of my current shares - for one thing, I bought them at a much higher price !

[Golden sunsets]

Mulligan, Coolius or anyone else. What do you think of BGLEI, trading at 102.80 to 103.00 today. X d is 3/8 Yield at 103 6.92%

[Mulligan]

Quote:

Originally Posted by Golden sunsets Mulligan, Coolius or anyone else. What do you think of BGLEI, trading at 102.80 to 103.00 today. X d is 3/8 Yield at 103 6.92%

I saw it, but I think the sellers did too. They just declared next dividend today... Ask price this afternoon shot up to $106. This issue should be called but hasnt. There is no investment grade utility preferred yielding close to 7% like this. It should be called but hasnt... If you buy at $106 you would have to get 12 months of dividends just to be above water if it is called. Safety of issue is near guaranteed...Call risk extremely high... Personally I wouldnt buy above $102.50 only because of call risk.. I owned 300 shares earlier a few months back and flipped at almost a years worth of dividends and got out.


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[Mulligan]

Quote:

Originally Posted by Golden sunsets Mulligan, Coolius or anyone else. What do you think of BGLEI, trading at 102.80 to 103.00 today. X d is 3/8 Yield at 103 6.92%

I forgot to add, Golden, it is the size of the preferred issues that screams call. For example BGE, has only 4 preferred issues. They cumulatively yield close to 7% collectively, and are nearly 200 million dollars in total issue. Considerable savings could occur by simply calling and reissuing in low 5% range which is current rate for current utility preferreds of save investment grade ratings not yet callable.


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[Golden sunsets]

Quote:

Originally Posted by Mulligan I forgot to add, Golden, it is the size of the preferred issues that screams call. For example BGE, has only 4 preferred issues. They cumulatively yield close to 7% collectively, and are nearly 200 million dollars in total issue. Considerable savings could occur by simply calling and reissuing in low 5% range which is current rate for current utility preferreds of save investment grade ratings not yet callable. Sent from my iPad using Tapatalk

Thanks Mulligan. You break it down in such clear language. I spent some time yesterday looking for a preferred to purchase in a taxable account for our account as well as my Mom's. The three issues I own now yield 6.3-6.46. I kind of wanted to stay in or above that range. I've been waiting for AILLL to drop but it has been stubborn. I've looked at Peco and UNUM( two of your favs) but they aren't eligible for the 15% taxable rating and that's a sticking point for me. Once RMD's start for us, next year for DH and myself 2 years later we won't be able to avoid the 25% and eventually the 28% categories, so I'm trying to minimize the damage. I did ponder CHSCL( or was it CHSCM) but those issues seem somewhat more volatile. Thoughts?

[Coolius]

Quote:

Originally Posted by Golden sunsets Thanks Mulligan. You break it down in such clear language. I spent some time yesterday looking for a preferred to purchase in a taxable account for our account as well as my Mom's. The three issues I own now yield 6.3-6.46. I kind of wanted to stay in or above that range. I've been waiting for AILLL to drop but it has been stubborn. I've looked at Peco and UNUM( two of your favs) but they aren't eligible for the 15% taxable rating and that's a sticking point for me. Once RMD's start for us, next year for DH and myself 2 years later we won't be able to avoid the 25% and eventually the 28% categories, so I'm trying to minimize the damage. I did ponder CHSCL( or was it CHSCM) but those issues seem somewhat more volatile. Thoughts?

Golden Sunsets,

I have owned CHSCO and CHSCL since their IPO. This is a strong co-operative that will survive the tough times we're currently going through.

CHSCO is volatile now because the co-operative recently converted some of its other debt obligations into CHSCO - so the new owners are selling it. I believe this is why CHSCO has been weak lately, but it will pass.

CHSCL is a large issue and the first one that is held mostly by institutions and the public; weaker hands, who sell quickly and nervously at any hint of trouble. This is likely a permanent feature, so just got to live with it.

The agriculture business is under pressure from the commodities/oil collapse, so at this time outlook is not great for CHS. But I am optimistic for the future. And the income stream will continue - which is what you & I should be focusing on.

CHSCO would be the best of the issues at this time - once the selling is over, the owners are mostly member-farmers who are strong hands. the volatility should go down then.

Hope this helps.

[Mulligan]

In addition to what Coolius said, CHSCL and CHSCM are very liquid preferreds which means they trade in higher volume. The higher the volume a preferred is, the more it tends to "mirror the market". When market sagged a week or two ago, you noticed these issues tanked in
unison. This will also provide you an opportunity for a better entry point if you monitor it.
Yes, I got my Peco and Unum stuffed in my tax free. My HSA is just essentially KTH. I understand your tax bracket situation as that is where I am at now. To be honest there are just very few 15% tax qualified I am interested in. There are many that pay higher, but the risk is greater and they are not what I consider a "safe bond substitute". In fact I see the higher yielding ones are just competition with buying common stocks with possibly poorer long term prospects.
Coolius and I both bought some SSW-C, which is a containership company that yields close to 10% and if they do not call by next January the dividend increases 25%. It is currently under par and historically has always paid. But I dont classify this one was a "safe utility preferred" substitute.
Like you, I will not go below 6.25% range as I do not want a 5% plus preferred due to more price loss risk if rates rise. So in taxable 15% issues I am only really only in CNLPL/CNTHP and AILLL/AILNP.
Over 30% of my portfolio is in AILLL/AILNP. I would probably sleep just as well if it was flipped to CNLPL/CNTHP but my situation is unique. I dont live off my investment money and in fact never will. The dividends just get reinvested. If I was living off a portfolio, I would not act in this manner though.


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[Golden sunsets]

Quote:

Originally Posted by Coolius Golden Sunsets, I have owned CHSCO and CHSCL since their IPO. This is a strong co-operative that will survive the tough times we're currently going through. CHSCO is volatile now because the co-operative recently converted some of its other debt obligations into CHSCO - so the new owners are selling it. I believe this is why CHSCO has been weak lately, but it will pass. CHSCL is a large issue and the first one that is held mostly by institutions and the public; weaker hands, who sell quickly and nervously at any hint of trouble. This is likely a permanent feature, so just got to live with it. The agriculture business is under pressure from the commodities/oil collapse, so at this time outlook is not great for CHS. But I am optimistic for the future. And the income stream will continue - which is what you & I should be focusing on. CHSCO would be the best of the issues at this time - once the selling is over, the owners are mostly member-farmers who are strong hands. the volatility should go down then. Hope this helps.

Thanks Coolius. My thoughts while I was looking at it, were that we are a little too exposed to commodities already, through oil and a commodities fund, as well as an emerging market fund. I also don't know how I feel about ethanol which makes me pause. I should probably stay away from it for now. The idea of it is appealing, but the gut doesn't agree.

[Golden sunsets]

Quote:

Originally Posted by Mulligan In addition to what Coolius said, CHSCL and CHSCM are very liquid preferreds which means they trade in higher volume. The higher the volume a preferred is, the more it tends to "mirror the market". When market sagged a week or two ago, you noticed these issues tanked in unison. This will also provide you an opportunity for a better entry point if you monitor it. Yes, I got my Peco and Unum stuffed in my tax free. My HSA is just essentially KTH. I understand your tax bracket situation as that is where I am at now. To be honest there are just very few 15% tax qualified I am interested in. There are many that pay higher, but the risk is greater and they are not what I consider a "safe bond substitute". In fact I see the higher yielding ones are just competition with buying common stocks with possibly poorer long term prospects. Coolius and I both bought some SSW-C, which is a containership company that yields close to 10% and if they do not call by next January the dividend increases 25%. It is currently under par and historically has always paid. But I dont classify this one was a "safe utility preferred" substitute. Like you, I will not go below 6.25% range as I do not want a 5% plus preferred due to more price loss risk if rates rise. So in taxable 15% issues I am only really only in CNLPL/CNTHP and AILLL/AILNP. Over 30% of my portfolio is in AILLL/AILNP. I would probably sleep just as well if it was flipped to CNLPL/CNTHP but my situation is unique. I dont live off my investment money and in fact never will. The dividends just get reinvested. If I was living off a portfolio, I would not act in this manner though. Sent from my iPad using Tapatalk

I hear ya. The only reason we will ever need to withdraw from our portfolio is for weddings, kid house downpayments, grandkid education funds or when the extra RMD related taxes kick in. On the one hand that means that we can afford to be a little adventurous. On the other hand - why bother. But I enjoy the exercise of portfolio care and maintenance. Kind of like tending a garden.

The containership industry kind of scares me. I'm a scaredy cat.

[Mulligan]

Quote:

Originally Posted by Golden sunsets I hear ya. The only reason we will ever need to withdraw from our portfolio is for weddings, kid house downpayments, grandkid education funds or when the extra RMD related taxes kick in. On the one hand that means that we can afford to be a little adventurous. On the other hand - why bother. But I enjoy the exercise of portfolio care and maintenance. Kind of like tending a garden. The containership industry kind of scares me. I'm a scaredy cat.

As well you should be! Seaspan is considered "safer" (and yes make note the term safe is in quotations) due to its long term contracts and better capital structure. I only bought 300 shares myself, and that is the limit.
If you havent met your personal limit yet, I would just keep trying to be patient and look for AILLL at $26 and under, and CNLPL/ CNTHP at under $53 if next divi is declared. I picked up 200 shares of CNTHP at $52.20 less than 2 months ago. You just have to be patient and ignore the idiot purchases of $54-$55 that you see recently that "locks up" the trading the for a while.


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[Golden sunsets]

Quote:

Originally Posted by Mulligan As well you should be! Seaspan is considered "safer" (and yes make note the term safe is in quotations) due to its long term contracts and better capital structure. I only bought 300 shares myself, and that is the limit. If you havent met your personal limit yet, I would just keep trying to be patient and look for AILLL at $26 and under, and CNLPL/ CNTHP at under $53 if next divi is declared. I picked up 200 shares of CNTHP at $52.20 less than 2 months ago. You just have to be patient and ignore the idiot purchases of $54-$55 that you see recently that "locks up" the trading the for a while. Sent from my iPad using Tapatalk

Yeah. My cost on CNTHP is 52. and on CNLPL - 51.85. Looking at more WFC-l, but not at current price. The recent article in seeking Alpha on WFC was interesting. Should have bought more back in December.

What do you make of the partial call on Unum? When that happens is surrender of shares voluntary? I do have some extra cash lying around in my IRA, but I've been plowing that money into a bond ladder to meet anticipated withdrawals. I'm out to 2023 right now. That's probably enough advanced planning.

[Mulligan]

Quote:

Originally Posted by Golden sunsets Yeah. My cost on CNTHP is 52. and on CNLPL - 51.85. Looking at more WFC-l, but not at current price. The recent article in seeking Alpha on WFC was interesting. Should have bought more back in December. What do you make of the partial call on Unum? When that happens is surrender of shares voluntary? I do have some extra cash lying around in my IRA, but I've been plowing that money into a bond ladder to meet anticipated withdrawals. I'm out to 2023 right now. That's probably enough advanced planning.

That is actually part of the reason I found the Unum issue interesting. After the 2 partial calls, only 3.9 million in value remains outstanding out of almost $90 million, and no action since 2014. I have no clue why they didn't just call it all instead of leaving a tiny amount outstanding. I am betting on them "stranding them" and leaving outstanding. Next dividend is declared for next month, so I am free and clear now no matter what happens. At 7.2% from an investment grade issue that is above preferreds in payment is something I will just stuff in the vault and forget.
I have never experienced a partial call, so I dont particularly know whose "draft card number" gets called on surrender. Coolius may have some experience in this. The call would be at $27.68, plus accrued dividend which next month is. $1.02. Usually a call notice comes in near conjunction with dividend payment. I am under assumption nothing is going to happen.
I see BGLEI ask is back to $103.50. I think if a small loss from call is palatable a $102.50-70 isnt an unreasonable offer. Whether you can get it at that price I dont know. The next dividend is declared so that puts you under a buck... But they could give 30 day notice and call by next month.. Its a risk. I have read prospectus and they have right to call and reissue at lower rates if they desire. I have no clue why they havent as it makes no financial sense not to at the rate they are paying.
That is why I feel so comfortable with CNLPL and AILLL. Their issue amount is around 12 million a piece which is tiny, plus yield a bit lower. No incentive to call. $200 million is a big incentive to call.


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