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

[eta2020]

Quote:

Originally Posted by Winemaker Mulligan and I have had several conversations on the side about preferreds and he warned me about forum members having great fear of these investments. I believe Buffett has said (paraphrasing)" Buy when others are fearful and sell when others are greedy".

It looks to me like a pretty viable option for somebody seeking high immediate income.

I would consider 5-10% of my money in preferreds.....

But on long run high growth of dividend is much more attractive to me. So this is where I would put 50% plus of my money. I like delayed gratification

[Mulligan]

Quote:

Originally Posted by aja8888 Great article. Thanks. If you are going to buy these stocks, one must pick carefully. I picked up a small position in offerings by U.S. based CHS (CHSCM), a well-run global agricultural cooperative: Why You Should Prefer Preferreds - Forbes

I believe negative articles like DFW's link (which I have read before) are good for new investors to read just to make one pause and reflect on why you would own them. But it really isnt a fair article as it wants to project the bad points of them in relation to stocks/bonds in the opposite way. And they always want to bring up bankruptcy. I ain't buying the type that are in danger of bankruptcy. Im sure the writer is the type who would recommend a utility stock such as Eversource and then write this article. Uhm, hello they offer preferreds too, so they are dangerous? And the tax issue only helps corporates? Crazy...It slashes my tax bill 40% investing in them instead of bonds. Besides if they truly were pitiful investments why would a corporation invest in them. So they can save 30% on interest income to lose 100% of invested capital? Ya, Im thinking thats why they do it.
The scare tactics of not paying dividends are a little overblown with the higher quality companies. They do not emphasize that a company cannot pay one penny in dividends until preferreds are paid first. They make it sound like they can say "screw the preferred holders and lets not pay them this time". Even when BoA almost went under and cut the dividend to one cent, they never missed a preferred payment. I wont even invest in that train wreck of a company and they still paid their preferreds.
If a person is an income orientated investor and wont panic on a price drop these are good values. I don't see 6.25% CDs or treasuries on the horizon.
A total return investor doesn't have a real incentive for these issues though I believe.
Though I have some CHSCL, it and CHSCM are dropping a bit and it they can slide a bit more, I am going back in!


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[Winemaker]

Quote:

Originally Posted by eta2020 It looks to me like a pretty viable option for somebody seeking high immediate income. I would consider 5-10% of my money in preferreds..... But on long run high growth of dividend is much more attractive to me. So this is where I would put 50% plus of my money. I like delayed gratification

I also have 50%+ of my money in dividend stocks, 20-30% individual corporate bonds and preferreds, and ~20% in cash and other. I own NO bond funds of any kind.

[Mulligan]

Since we reached halfway point of the year, I thought I would update preferred stock performances. Since prices are sensitive to market interest rates I will note the 10 year and 30 year are both up 47 and 42 basis points since Jan. 1. Out of my 6 biggest issues 3 are up and 3 are down (Though one that is up CSHCL shouldn't count since I got in on pre-trading mid January and CHS left too much meat on that bone).
Just to give an idea on how they are moving for those that were interested I will post them with Jan. 2 date and todays price second.
CNLPL (Conn. Light & Power) $52.75 (6.14%) 52.25 (6.2%)
AILLL (Ameren) $25.85 (6.4%) $25.66 (6.45%)
BGE-B (Balt. Gas & Elec) $25.44 (6.09%) $25.40 (6.1%)
CHSCL $25.15 (7.46%) $27.04 (6.93%)
OSBCP (Old Second Bank) $9.97 (7.82%) $10.04 (7.77%)
ARCPP (American Reality Corp) $22.84 (7.33%) $24.01 (6.97%)
Been some recent downside bias but since 2 high yield dividends have already been captured they are all solidly in the black for the year. But investing in these is about the income. But as noted before people worried about stock movement or total return will not find these appealing at all.


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[Golden sunsets]

Thanks for posting Mulligan. Those yields look mighty attractive. I tried your method of placing a limit order on an issue from my local public utility. I waited until just after the x dividend date and placed an order for par minus the divvy, but unfortunately, the issue is extremely thinly traded. The yield is 6%, but the call date has expired and the company (Iberdola) will have to pay up by 10% if they want to call it, an attractive feature that I think makes the desire to sell unlikely by all but those who "need to sell". I would bet that the entire issue is held all by some institution. I couldn't find any recent activity. Oh well. I thought that would be a good first start as I know the utility and can keep track of their health through local reports in the news.

[Mulligan]

Quote:

Originally Posted by Golden sunsets Thanks for posting Mulligan. Those yields look mighty attractive. I tried your method of placing a limit order on an issue from my local public utility. I waited until just after the x dividend date and placed an order for par minus the divvy, but unfortunately, the issue is extremely thinly traded. The yield is 6%, but the call date has expired and the company (Iberdola) will have to pay up by 10% if they want to call it, an attractive feature that I think makes the desire to sell unlikely by all but those who "need to sell". I would bet that the entire issue is held all by some institution. I couldn't find any recent activity. Oh well. I thought that would be a good first start as I know the utility and can keep track of their health through local reports in the news.

You wouldn't happen to be trying to buy CTPPO out of Maine are you Golden? It actually was called several years ago but a volunteer call. Looks like about 2,000 shares left. If that is the issue it probably will not trade. Why do I know? Because I tried also to get it too before and gave up.
I would suggest looking at dabbling into CNLPL, CNTHP, AILLL, or BGE-B. Though BGE-B is taxed interest like a CD if that matters. I stick with the transmission and distribution only Utes that don't have to sell power and receive a guaranteed ROE.


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[Golden sunsets]

Quote:

Originally Posted by Mulligan You wouldn't happen to be trying to buy CTPPO out of Maine are you Golden? It actually was called several years ago but a volunteer call. Looks like about 2,000 shares left. If that is the issue it probably will not trade. Why do I know? Because I tried also to get it too before and gave up. I would suggest looking at dabbling into CNLPL, CNTHP, AILLL, or BGE-B. Though BGE-B is taxed interest like a CD if that matters. I stick with the transmission and distribution only Utes that don't have to sell power and receive a guaranteed ROE. Sent from my iPad using Tapatalk

Yep. That's the one. Your info makes sense. I didn't understand why there were only 2,000 outstanding shares. It didn't seem worth it to have put out such a small issue. I mean Maine is a small state, but 200,000 - didn't make sense. Now I understand.

[Golden sunsets]

Quote:

Originally Posted by Mulligan You wouldn't happen to be trying to buy CTPPO out of Maine are you Golden? It actually was called several years ago but a volunteer call. Looks like about 2,000 shares left. If that is the issue it probably will not trade. Why do I know? Because I tried also to get it too before and gave up. I would suggest looking at dabbling into CNLPL, CNTHP, AILLL, or BGE-B. Though BGE-B is taxed interest like a CD if that matters. I stick with the transmission and distribution only Utes that don't have to sell power and receive a guaranteed ROE. Sent from my iPad using Tapatalk

I'll admit to a great deal of ignorance on utilities. Is CMP (Iberdola) a utility that transmits and distributes only?

[Mulligan]

Quote:

Originally Posted by Golden sunsets Yep. That's the one. Your info makes sense. I didn't understand why there were only 2,000 outstanding shares. It didn't seem worth it to have put out such a small issue. I mean Maine is a small state, but 200,000 - didn't make sense. Now I understand.

There originally were 4,000 shares issued but it was a long ago offering of $400,000 back when you could actually build something with that kind of money. They had a voluntary call offering of $110 a share several years ago, but had a deadline with it. The ask price is $175 so that really means none are for sale. The only reason why I know all this is because I was trying to figure out why I couldn't get any and why it wasn't trading. You are definitely correct, the rest are buried and forgotten but the automatic dividend payments live on.


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[Mulligan]

Quote:

Originally Posted by Golden sunsets I'll admit to a great deal of ignorance on utilities. Is CMP (Iberdola) a utility that transmits and distributes only?

Yes CMP is only T&D since 2000. Its parent company is a tangled web of all things power throughout the world though. Many Utes are running toward that model again to escape dangers of the unregulated power generation market. T&D Utes get rates based on costs to repair and distribute the power and are guaranteed a return on equity. The Feds have initiated a new program that allows them a 2-3% above state rates if they are plowing money back into upgrading systems. Many are taking advantage of that thus increasing the safety of dividends even more. Though that is being done for the benefit of the common stock as they can then increase dividend. Preferreds do not need that though as dividend is fixed and they get paid before the common holders get theirs. But anything that increases safety of my payment, I like!


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[Coolius]

CNLPL seems to be the best issue to buy at this time. Trading range is small - between $51.85 - $52.25.

Current bid $51.90, ask $52.25. I have GTC bids in at $51.80.

Note that if the issue is called, it pays $51.84 + accrued dividends. It is callable now.

Yield is just about 6.1%, which is very good for a stable Preferred that has been around for close to 50 years now.

Thanks to Mulligan for suggesting it to me a while back. My cost basis is $51.96, but I have 2 dividends under the belt already.

[Mulligan]

Quote:

Originally Posted by Coolius CNLPL seems to be the best issue to buy at this time. Trading range is small - between $51.85 - $52.25. Current bid $51.90, ask $52.25. I have GTC bids in at $51.80. Note that if the issue is called, it pays $51.84 + accrued dividends. It is callable now. Yield is just about 6.1%, which is very good for a stable Preferred that has been around for close to 50 years now. Thanks to Mulligan for suggesting it to me a while back. My cost basis is $51.96, but I have 2 dividends under the belt already.

Thanks for rubbing it in Coolius. You have a calmer trigger finger than I do, so my basis is higher! But you know me...I will comment on 3-5 different issues I am going to buy and then turn around and tell you I just bought more CNLPL or AILLL.


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[Coolius]

Mulligan,

Buying CNLPL and AILLL at present price levels is not a risky move, IMO. I would do so if I didn't already have a full position.

One is assured a 6% yield, from a stable and long existing parent very unlikely to go out of business.

It's almost like an annuity...... ( in an annuity, the risk is of the insurance company going under ).

The biggest risk at this time is a call - which would bring our income stream to a screeching halt, and force us to search for viable alternatives in which to invest the proceeds.

[Golden sunsets]

Quote:

Originally Posted by Mulligan Yes CMP is only T&D since 2000. Its parent company is a tangled web of all things power throughout the world though. Many Utes are running toward that model again to escape dangers of the unregulated power generation market. T&D Utes get rates based on costs to repair and distribute the power and are guaranteed a return on equity. The Feds have initiated a new program that allows them a 2-3% above state rates if they are plowing money back into upgrading systems. Many are taking advantage of that thus increasing the safety of dividends even more. Though that is being done for the benefit of the common stock as they can then increase dividend. Preferreds do not need that though as dividend is fixed and they get paid before the common holders get theirs. But anything that increases safety of my payment, I like! Sent from my iPad using Tapatalk

Oh I get it. Does it take a lot of digging to determine a ute's business model? Would I have to read an entire prospectus to figure this kind of thing out or is there a quick and dirty way of determining if a ute is T&D only?

[Mulligan]

Quote:

Originally Posted by Golden sunsets Oh I get it. Does it take a lot of digging to determine a ute's business model? Would I have to read an entire prospectus to figure this kind of thing out or is there a quick and dirty way of determining if a ute is T&D only?

No the prospectus for most is dated. For example CNLPL's prospectus was from 1968. It may be only written on a stone tablet. I have quit reading the prospectus's except for the first few paragraphs. They are worded in such a way for legal purposes you would be convinced the company will become bankrupt in a week and accidentally blow up the entire planet.
I go to the company's website and look under investor relations section, articles and SEC filings under the stock in Marketwatch website.
Occasionally you will find some articles on them if you dig deep into the bowels of the web. There just isn't much coverage because they are delisted and really for small players, especially the smaller issued ones. Many are just 10-15 million dollar issues despite coming from a multi billion common equity company.
I set my criteria as over 6%, cumulative dividend, T&D only. There just are not that many in the universe of electrical preferreds that meet that criteria. SO (Southern Co) has a few but they are in the 5% plus range. SCE has some but they are down there also and some are not cummulative. I do have a small amount of EMQ and it yields about 5.8% and the issue is backed by all the plant assets plus is insured from 3rd party for payment so its darn near as safe as a CD.
For me really only BGE-B, CNLPL, CNTHP, and AILLL fit that criteria. If you go under the parent company's ticker in Quantum you will see other issues with different yields. Although they are all sister issues and have the same protections the ones like CNLPL will pay more because they were issued at higher rates thus more risk of a call since all are past call.
In CNLPL's case the ask price was $52.25 this morning. Call price is $51.84. But September dividend of .81 cents has already been declared. So even if they did call it on payment date you still would be 40 cents to the good so not any risk.
We have been in extra low rate environment for years. If they were gonna call it, one would think it would have happened by now. The issues are so small its not worth the cost to call them and reissue. Plus they get to bake the cost of dividends into their rates so in effect they get much of it back anyways.


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[Golden sunsets]

Quote:

Originally Posted by Mulligan No the prospectus for most is dated. For example CNLPL's prospectus was from 1968. It may be only written on a stone tablet. I have quit reading the prospectus's except for the first few paragraphs. They are worded in such a way for legal purposes you would be convinced the company will become bankrupt in a week and accidentally blow up the entire planet. I go to the company's website and look under investor relations section, articles and SEC filings under the stock in Marketwatch website. Occasionally you will find some articles on them if you dig deep into the bowels of the web. There just isn't much coverage because they are delisted and really for small players, especially the smaller issued ones. Many are just 10-15 million dollar issues despite coming from a multi billion common equity company. I set my criteria as over 6%, cumulative dividend, T&D only. There just are not that many in the universe of electrical preferreds that meet that criteria. SO (Southern Co) has a few but they are in the 5% plus range. SCE has some but they are down there also and some are not cummulative. I do have a small amount of EMQ and it yields about 5.8% and the issue is backed by all the plant assets plus is insured from 3rd party for payment so its darn near as safe as a CD. For me really only BGE-B, CNLPL, CNTHP, and AILLL fit that criteria. If you go under the parent company's ticker in Quantum you will see other issues with different yields. Although they are all sister issues and have the same protections the ones like CNLPL will pay more because they were issued at higher rates thus more risk of a call since all are past call. In CNLPL's case the ask price was $52.25 this morning. Call price is $51.84. But September dividend of .81 cents has already been declared. So even if they did call it on payment date you still would be 40 cents to the good so not any risk. We have been in extra low rate environment for years. If they were gonna call it, one would think it would have happened by now. The issues are so small its not worth the cost to call them and reissue. Plus they get to bake the cost of dividends into their rates so in effect they get much of it back anyways. Sent from my iPad using Tapatalk

Once again - great info Mulligan.

[Mulligan]

Quote:

Originally Posted by Golden sunsets Once again - great info Mulligan.

Golden, it is a very safe area for yield seeking investors, but a dying one. The last cumulative preferred electrical utility that issued one was 2013 with Interstate Power and Light (IPL-D). A very nice company and is not callable until 2018, and is under par (barely). But it yields a pitiful 5.1%. Though I would have no issue owning the company, I would rather take my chances on a call with higher yield. IPL-D will always be around and I doubt if its ever called, but it would drop hard if rates shoot up.
CNLPL gives a bit more cushion if rates rise. Just for comparison... June 30, 2006 when rates were "normalized" (whatever that means) the 10 year was trading at 5.15% and the 30 yr. 5.19%. CNLPL was trading at $52.15 that day. Right about where its at today.


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[Golden sunsets]

I presume that those of you who hold preferreds consider them as part of your fixed income portfolio??

[Coolius]

Golden Sunsets,

Yes, my Preferred holdings are considered as fixed income producing, along with individual corporate bonds, and ETD ( Exchange Traded Debt ). About 20% of portfolio is in Blue Chips, REIT, and MLPs ( GE, KO, PG, JNJ, LMT, O, VTR, EPD, MWE )


In addition, have a much smaller account at another brokerage which I use for speculative trades. It's not included in income expectations or planning.

[Mulligan]

Quote:

Originally Posted by Golden sunsets I presume that those of you who hold preferreds consider them as part of your fixed income portfolio??

Seems like most respected financial pundits I read recommend 10% and up to no more than 20% for aggressive investors. I own no bonds or bond mutual funds. Just about 10 preferreds, Total Stock, and Total International. Along with an orphaned lot of Intel that I don't want to pay cap gains on.
Many people usually older people on other forums appear to have their entire stash in preferreds, ETD, REITs, and MLPs investing solely for income.
I would say Im about 75% -80% preferreds and growing, but I still contribute monthly to my index funds.
My caveat though is I don't have a portfolio, I just buy what I want as I live off my pension and do not withdraw anything and really don't plan on it ever I hope. Though down the road if health insurance keeps climbing out of control it may be a race to get the dividends deposited to pay off the monthly HI premium before they cancel me.


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