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Old 04-01-2016, 10:07 PM   #561
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Not sure, but it looks like they set it up to not pay taxes....

IOW, if the main company has a huge debt, it gets to deduct that interest as a business expense... meaning there is no income to tax... and the common shareholders do not get any dividends... (remember, if a C corp there is double taxation)...

So, you create a trust that holds the debt and then dividends it out, so it does not pay taxes... I do not know why they have the extra step of having a trust as they could just as easily just have the debt outstanding... but I bet there is something that they are doing that has a tax advantage here...

It seems like it is making enough cash to pay... but, since you would have it in a taxable account it does not make sense to you to own this...
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Preferred Stock Investing-The Good , The Bad and The In Between
Old 04-01-2016, 10:12 PM   #562
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Preferred Stock Investing-The Good , The Bad and The In Between

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Not sure, but it looks like they set it up to not pay taxes....

IOW, if the main company has a huge debt, it gets to deduct that interest as a business expense... meaning there is no income to tax... and the common shareholders do not get any dividends... (remember, if a C corp there is double taxation)...

So, you create a trust that holds the debt and then dividends it out, so it does not pay taxes... I do not know why they have the extra step of having a trust as they could just as easily just have the debt outstanding... but I bet there is something that they are doing that has a tax advantage here...

It seems like it is making enough cash to pay... but, since you would have it in a taxable account it does not make sense to you to own this...


I got these shares in a tax free...but if i had more I would have to sell something or wait for my big $3300 annual hsa deduction. I got my interest bearing preferreds in my non taxable. KCC, CVB, KTH, BGEPF, MNR-A, and GJP, besides this crazy water issue...
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Old 04-01-2016, 10:24 PM   #563
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I got these shares in a tax free...but if i had more I would have to sell something or wait for my big $3300 annual hsa deduction. I got my interest bearing preferreds in my taxable. KCC, CVB, KTH, BGEPF, MNR-A, and GJP, besides this crazy water issue...

I was just looking at the prospectus of the trust... the company was making bookos of money prior to the debt issue.... they only has IS to 1996, so do not know what happened after that....

I might go for a few 100 shares... but there are all the other issues that I want to look at... just trying to get a decent portfolio to replace my HY fund with a higher rating, so I would like diversification...
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Old 04-01-2016, 10:46 PM   #564
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I am going from memory and I do not have specifics but there were a lot of trust preferreds issued in early 2000's. I remember an article stating they were taking advantage of a now closed loophole, but it never mentioned details.
When first getting into these, if I were you, I would consider what yield in relation to safety that you want. For most of my issues 6% plus is high yield, QDI, for me. Most of my money is in the Ameren and Connecticut Light and Power, and Peco Energy preferreds. I like the fact that net income ratio covers the bottom feeding preferreds dozens of times over.
Some high yield searchers buy either comfortably (or unknowingly) with ratios as low as 1 or under... Ugh!!!! If I were creeping towards 8% in search of yield it would be on the debt side or "baby bond" preferreds where you are at least considered debt, albeit non secured.
That Quest baby bond Alaska mentioned may be worth looking at as its near 7%. I have a modest amount of CVB which is a KinderMorgan trust preferred. It is noncallable for decades and yields about 7.4% and is BAA3 lower investment grade..


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Old 04-02-2016, 08:59 AM   #565
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What is your collective guidance on the maximum to "risk" on preferred issues?

Realize each person has different reasons for being in these income producing issues. Mine is to generate income for retirement (LBE is 1.5 years to retire) and these are in my taxable account as my tax deferred is all 401k without these preferred options.
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Preferred Stock Investing-The Good , The Bad and The In Between
Old 04-02-2016, 09:32 AM   #566
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Preferred Stock Investing-The Good , The Bad and The In Between

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What is your collective guidance on the maximum to "risk" on preferred issues?



Realize each person has different reasons for being in these income producing issues. Mine is to generate income for retirement (LBE is 1.5 years to retire) and these are in my taxable account as my tax deferred is all 401k without these preferred options.


Seasoned professionals advocate no more 10% of portfolio for an investor wishing to invest in these securities, and 20% max for the "aggressive" investor. But keep in mind this is a recommendation based on what their perception of what a "preferred stock" is. This middle of the road perception is one of sector concentrated non cumulative bank preferreds needed for regulatory capital requirements and debt laden companies needing capital that it cant acquire through traditional means, usually because they are "tapped out" there also. To be honest with you, I have almost zero interest in owning any of those types even though they are probably over 85-90% of the total "preferred universe". The Glacier Water issue we have been describing in my mind fits the above, so I just have "fun money" on it. Yes, it may pay, but it is a junk company with a negative book value. Though technically it is not a "true preferred". The term preferred stock has become a lazy catch all term to also cover "baby bonds" "trust and 3rd party trusts" "convertible preferreds" and "mandatory convertible preferreds" (meaning they convert to common stock after a period of time or strike price on common is hit to force the mandatory conversion.
I have over 80% of my entire money in preferreds though almost none of it in areas the financial experts think of. Heck they arent even aware of these utility preferreds. These were issued WAY back in the day when they established their capital funding regimen, not because they have to because they cannot access debt markets as they have pristine balance sheets, retained capital, guaranteed rate of return, and monopoly status, and an unblemished history of paying through generations of recessions and other financial calamities. All of my main company's preferreds issued could pay their entire series in 6 months with their earned income alone. Most preferreds issued from companies couldn't be paid off unless they were rolling over the amount into more debt or a newly reissued series of preferreds.
Coolius has a way more balanced approach between stocks, true bonds, and "preferreds". Maybe he will sharpen the pencil and opine on what percent of his money is allocated to preferreds.
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Old 04-03-2016, 03:49 PM   #567
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What is your collective guidance on the maximum to "risk" on preferred issues?

Realize each person has different reasons for being in these income producing issues. Mine is to generate income for retirement (LBE is 1.5 years to retire) and these are in my taxable account as my tax deferred is all 401k without these preferred options.
The percentage one holds would depend on the level of financial knowledge you maintain as an investor. For the average investor who does not like to read company financial statements and review potential issues I do not think any more than 5 percent in individual preferred issues. Place a little more work to determine financial risk and maybe then up to 10 percent

For someone who like Mulligan finds an area they are very comfortable with and willing to assume more concentrated I can see investing up to fifty percent, but beyond that I am of the opinion you are becoming too concentrated in one type of investment to be good for a 30 year retirement.

In a truly horrific economic environment, one beyond the control of corporate CEO’s and CFO’s a very good company with an excellent history may be forced to stop Preferred payments and there you would be in the worst of economic times and no income. This is where US government bonds, back when they actually paid an interest rate, served a very good purpose in a portfolio for providing income and why a percentage in short term bonds or CD’s also is necessary.

For myself as I look at this in the present economic environment a blend of 10% of my portfolio in individual preferred shares @ 6 percent with 15% of portfolio in a ladder of 5-10 yr US treasuries @ 2.2 percent income provides a nice blended yield of nearly four percent for the long term “bond” portion of my portfolio. But this additional “yield” is not lost on me as there is considerably more risk for obtaining this increase in yield. I am not nearly there yet with individual preferreds but yearly as a portion of my 10 year treasury ladder matures I will look at this with an eye of judging if this still makes sense in the interest rate environment at the time.
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Old 04-03-2016, 04:11 PM   #568
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RM, from everything I have read you are right in line with a prudent plan for preferreds. And "loading up" in one specific issue is not smart for someone who is dependent on their portfolio to live off of. I have mentioned before, but not in previous post something important in terms what I do. I live off of a pension, not my investments. In fact I never will live off my investments. 6 years into retirement I only spend 60% of my monthly take home pension check. And it will be even less in a few years when I pay off my mortgage. So I can "violate conventional rules" and not worry about portfolio diversification. I actually just looked at it and eyeballing it closely, I am around 65% in just Ameren and CLP. Nothing I would recommend anyone to do, but for my money and goals they are the best of the bunch so that is what I do.


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Old 04-03-2016, 04:31 PM   #569
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While I have not determined exact numbers, the rough allocation across all my accounts ( Taxable, ROTH, and TIRA ) would look like this:


Individual Corporate Bonds: 25%
Common Equities: 15%
Preferred, ETD, Notes: 45%
CEFs: 3%
Cash ( MM, CDs ) 12%


I have a withdrawal rate of around 3.6% to supplement Social Security, and provides a comfortable quality of life.

I am looking to reduce cash to about 5%, but finding good stuff to buy is difficult. The market does seem to be either fully valued, or getting to become overvalued.
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Old 04-03-2016, 08:54 PM   #570
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RM, from everything I have read you are right in line with a prudent plan for preferreds. And "loading up" in one specific issue is not smart for someone who is dependent on their portfolio to live off of. I have mentioned before, but not in previous post something important in terms what I do. I live off of a pension, not my investments. In fact I never will live off my investments. 6 years into retirement I only spend 60% of my monthly take home pension check. And it will be even less in a few years when I pay off my mortgage. So I can "violate conventional rules" and not worry about portfolio diversification. I actually just looked at it and eyeballing it closely, I am around 65% in just Ameren and CLP. Nothing I would recommend anyone to do, but for my money and goals they are the best of the bunch so that is what I do.


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>That certainly feels good doesnít it! Certainly you have shown genius in exploiting a hole in the efficient market hypothesis, it is a zen philosophy that certainly impresses me anyway. And you have been very helpful to many here understand preferreds I have an image now of you at home typing on ERF with uncashed pension checks littering your desk like Ty Webb in Caddyshack, and picking up preferred issues as easily as putting a golf ball

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Old 04-03-2016, 09:11 PM   #571
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>That certainly feels good doesn’t it! Certainly you have shown genius in exploiting a hole in the efficient market hypothesis, it is a zen philosophy that certainly impresses me anyway. And you have been very helpful to many here understand preferreds I have an image now of you at home typing on ERF with uncashed pension checks littering your desk like Ty Webb in Caddyshack, and picking up preferred issues as easily as putting a golf ball



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I wish I had uncashed pension checks... I physically had to touch every paycheck I earned, never signing up for direct deposit. My first direct deposit I ever had was my pension check. That caused me some angst for a few months as I always have touched my checks.
Besides, diversification and call issues aside, the issues I own are a heck of a lot safer than anything my pension system owns I am sure.
Of course if I had not spent the first 35 years or so of my life squandering all my free cash on frivolous things maybe I wouldn't need a pension. But they are great things for idiots like me who were not programmed to "save for tomorrow".
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Old 04-03-2016, 09:32 PM   #572
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Coolius, the odd thing about it, is the small transaction. You and I have both seen 10k-50k block transactions occur in these illiquid types bypassing retail. But a 300 share block sold on purpose at an intentional loss? The good thing is for people owning it,who worry about net worth, next transaction will occur in its normal range that is certain. In fact it will be higher than the previous transaction.


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I just started going back through the whole thread as I was pretty sporadic reading it....


This could simple be someone moving shares from one of their entities to another... IOW, if I had it in one trust but wanted in another I would just do the trade at par and be done with it.... since I had both sides of the trade I know where it was coming from and going.... since they are two legal entities the shares cannot just 'move'
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Old 04-03-2016, 09:52 PM   #573
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I just started going back through the whole thread as I was pretty sporadic reading it....


This could simple be someone moving shares from one of their entities to another... IOW, if I had it in one trust but wanted in another I would just do the trade at par and be done with it.... since I had both sides of the trade I know where it was coming from and going.... since they are two legal entities the shares cannot just 'move'


I admit I have little understanding of the internal market processes. I have seen some odd things in the illiquids though. Just last week, CTPPO (a small leftover amount from a voluntary call of a Central Maine issue) had 3 trades last week. One share at $177 sold, then another at $177, and then a few days later one share at $109. Who would buy or sell one share of a 6% $100 par stock at $177 twice?
Then one day I got bored and decided to see if I could flush any more shares out of AILNP. It had a 1 share ask offer of $1000 for a $100 par stock. I put a 100 share ask of my shares at $500 and gradually lowered it. When I dropped it to $300, 25 shares joined mine and would instantly match my lower adjustments. But at my final ask of $200 the 25 shares disappeared. I pulled my ask at that point as I didnt want to sell mine, but I Was determined to see if I could flush anymore out if there were any. So there were 25, but they were hidden off the official level 2 trading price and really weren't seriously being peddled though.
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Old 04-03-2016, 10:43 PM   #574
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I have long ago given up any hope of understanding the gyrations of trading in illiquid preferreds. they defy all manner of rationale and logic.

As Mulligan has stated, there are sellers who pop up here & there with 1,3, 44, 68 shares and really mess up one's bid and/or ask.

I am fortunate to have full positions in most of the illiquids I want, and so no longer compete with others for bids/asks as I had to do previously.

However, if I see a bid or ask that is compellingly attractive, I have at times simply bought/sold at the published price.
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Old 04-04-2016, 08:56 AM   #575
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This morning, saw a seller offering 180 shares CNLPL @ $52.71. Bid was $52.70.

So I quickly bought those shares - exactly like the post above, where a good opportunity occurs now & then.
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Old 04-04-2016, 01:12 PM   #576
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Well, decided to sell my JSM today.... it looks like they are headed down again... this does not fit into the steady utes, but it does have a good yield... and when the price gets low I am willing to buy...

Cap gain on this is about $3K, so really made out on this...

Still going through the whole thread.... man, this takes time!!!
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Old 04-04-2016, 01:30 PM   #577
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This morning, saw a seller offering 180 shares CNLPL @ $52.71. Bid was $52.70.

So I quickly bought those shares - exactly like the post above, where a good opportunity occurs now & then.
Interesting. I picked up 100 shares of CNLPL this morning. I had a limit order in at 52.71 and it filled. My open order should have filled immediately when the seller offered his shares and, if that's the case, the 180 you saw and got would have been the residual.

At least that's how I think it works.......... Just learning this stuff.
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Old 04-04-2016, 01:32 PM   #578
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Well, decided to sell my JSM today.... it looks like they are headed down again... this does not fit into the steady utes, but it does have a good yield... and when the price gets low I am willing to buy...

Cap gain on this is about $3K, so really made out on this...

Still going through the whole thread.... man, this takes time!!!

A gain is always good, regardless of the size.
I sold STAG-C today, for a gain of "only" $470. Will buy back if it goes down closer to par.

CNLPL has a bid @ $52.65, ask @ $53.50.

A good strategy would be to enter a AON order ( ex, 100 shares ) at $52.68, and hope some seller decides to dump. Usually AON orders do not show up on Level 2 and will not trigger another buyer from jumping in front.

I have enough CNLPL now, or my position will be so terribly overweight I'll start to feel like Mulligan......
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Old 04-04-2016, 01:51 PM   #579
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I just picked up 100 CNLPL at $52.65 which is great since I had a limit price of $52.73 AON.

I had entered the order at 10:49 am.
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Old 04-04-2016, 02:07 PM   #580
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I just picked up 100 CNLPL at $52.65 which is great since I had a limit price of $52.73 AON.

I had entered the order at 10:49 am.

Hee Hee, I bet Mulligan is out on the golf course now.

He would have liked to participate in this, I'd think.

I'm so darned tempted to put in a AON for $52.66, just for the heck of it.
Since the July 1 dividend has already been declared for $0.81, my cost is $51.85. That is only 1 cent above the redemption price !
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