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

[Mulligan]

I bought a few TNP-B the other day, for a few cents below par. It's another one of those shipping companies that issue preferred to build tankers. Looks like they are covering the dividend well.



It's should be called in 2018, or else the interest rate will go way up. I wish I'd bought a few more, because now it's up to $25.49

If one is looking for higher yielders, the shipping industry provides it. Probably ok and the failure to redeem benefits provided the company has access to funds. My only recommendation would be to stayed "measured" in buying these. Their debt structure above the preferreds is massive (all shipping is since they are all so capital intensive). They always have to roll over big sums of debt too. If they get caught in a bad shipping rate cycle or overbuild competition (happens frequently and a glut is projected in the coming few years) this can cause them to crater bad.
Just mentioning this to stay aware. You may already know this, though. I played a shipper Seaspan SSW-C and made some good quick bucks. Only owned it a month or so earlier this year as I knew it was getting called with the same provision you mentioned with this issue. I lack the proper courage and conviction it takes to hold shippers in general though so I stay away.


Sent from my iPad using Tapatalk

 

[Hamster]

Its getting tough out there, Slow. I found me a partial called pretty safe little issue yielding 7.2% last night...was going to buy 400 shares this morning and POOF! Right out of the gate it jumped $1.50 about 6% before I had a chance...WTH!!! Its like they knew I wanted it and front ran me...I may just put it in short term or an adjustable. May buy some more CBB-B if it drops a bit though.Even it has risen in past few days...Its either get in now or get left behind. Or this is it already and the lambs are being lead to the slaughterhouse. I dont know which way is the outcome, but I wont chase yield on risky crap like MReits or buy too much low perpetuals. Preservation of capital is more important to me than yield is.

I really only got into preferreds recently in part based on the discussions here. Many of mine, however, are the crappy mReits you refer to above. I agree that these are marginal investments, but they have done very well so far, all bought under par and up from about 6% to nearly 30% in half a year plus some very nice dividends.

That said, I think that ship may have sailed and I should probably move on to something else. I just got rid of one of my sketchier holdings, RSO-B, at a nice profit and will probably get rid of quite a few of the rest in the next few weeks. The only ones I still feel at least temporarily attached to are VER-F and PBB.

That should leave me with a fair amount of cash which I unfortunately have no idea what to do with. I would most likely have put it into some REIT common, but those have all had a good run up as well so I expect I will just sit on the side lines for a while waiting for something good to pop up.

 

[Mulligan]

Well, I need to walk that back a bit, Hermit. Poor terminology on my part. I need to have referred Mreits and Shippers as "higher risk, higher reward" and not as "crap". Many people can trade in and out of them very successfully. They are just too complicated for me. Its basically a measure of trust. Nobody can understand the processes of hedges, swaps, and derivatives that are apart of that Mreit business. Just me, but I need an "allusion of understanding" before I can invest in something. Mostly so I don't panic and think its heading for bankruptcy on any brief sell off. If I was a more aggressive investor and understood them better, my viewpoint and attitude towards them would not be so negative.


Sent from my iPad using Tapatalk

 

[Coolius]

All of us are aware that the past 2 years of low interest rates have been good for the income sector - and Preferred Stocks of every stripe ( with the notable exception of energy ) have participated in this "rising tide raises all boats".

However, there will come a time in the future when rates will rise again - and no one honestly can know when this will happen, despite what the financial media so breathlessly screams daily.

I try to buy stocks for income stability, which drives me toward quality issues. A Call is the bogeyman that might appear at any time, and I have to gauge that risk appropriately. A fine balancing act between yield, safety, and call risk that I am not always successful in maintaining.

I tend to believe in the "lower for longer" rationale, so have bought issues which were lower than my original self imposed yield floor; and if I should be wrong, so be it.

Yes, difficult times for income investors - actually difficult times for ALL investor types - TR, income, et al.

 

[Mulligan]

You think its tough now, Coolius? Wait until you see the likes of UEPEN, DQUEN, and literally dozens other of these high quality investment grade preferreds of low yields from 3 generations ago still trading finally return back to par for the first time in over a half century....Then you know for sure difficult times are here for finding yield, ha! They are not there yet...But they are creeping ever so closer......I can here is now from a 100 year old man cheering..."Finally after all these decades of waiting I can sell my UEPEN for the price I paid for it".


Sent from my iPad using Tapatalk

 

[Coolius]

Struggling with deciding what to do, should I put cash to work, or hang on and hope for lower prices?

Sure, could buy low yielders like the new PSA issue, getting the safety of income but a woefully low yield. Which could become a perpetual just like UEPEN.

Or wait for a pullback ?

Decisions, decisions.....

 

[Mulligan]

Well the last "low rate cycle" that initiated in the early 1940s was a 2 decade cycle. A person could wait a long time. We are not even to the 10 year mark on this one, so there could be plenty of legs left in this one. And at 350 bp's above 10 year a 5% preferred is truly above historical rate in terms of spread. Im really trying to think long term and short term at same time. As this PVTBP and BGLEN are not going to be around forever.


Sent from my iPad using Tapatalk

 

[Texas Proud]

I was looking to buy some PVTBP... but did not have any money to do so...


But, was on vacation for 3 weeks and my KCC was sold for 30.31 while I was gone... got back and today my BGLEN was sold at 105...

But PVTBP has been bid up... so there is a lot of yield hunting IMO... will have to sit around for a bit and get back in when things cool down...

Might put in a low bid and hope it hits... you never know...

 

[Mulligan]

Well you cant go wrong booking profits on call risk issues...I flipped 400 of my BGLEN at $104 to 104.50, to ensure a profit....But the other 400 will just have to ride the wave...I simply have no place to go... Texas, keep n mind the PVTBP has to be assumed to have short legs on it, so entry point is of maximum importance... My 2000 shares are a cumulative $25.64 entry point, so I am poised to ride it out a few divis before looking to hit the eject button.
I admit my issues of interest are very narrow, eclectic , and a tad eccentric....But all safe!!!! But it is so bad now, I quite even pretending to try to flip issues as I have nowhere to go...It is so bad I a few weeks ago added more CVB and put it in my taxable account and I am going to have to pay a minimum of 25% and maybe 28% Fed taxes on it..Ugh!
Yes I know its so bad to complain about making easy money....
I did find 2 issues I really want for my safe put in a vault and throw away the key issues... But it is going to be tough...And you will drop your jaw if I get them when I tell you how old these preferreds are...


Sent from my iPad using Tapatalk

 

[Texas Proud]

Well you cant go wrong booking profits on call risk issues...I flipped 400 of my BGLEN at $104 to 104.50, to ensure a profit....But the other 400 will just have to ride the wave...I simply have no place to go... Texas, keep n mind the PVTBP has to be assumed to have short legs on it, so entry point is of maximum importance... My 2000 shares are a cumulative $25.64 entry point, so I am poised to ride it out a few divis before looking to hit the eject button.
I admit my issues of interest are very narrow, eclectic , and a tad eccentric....But all safe!!!! But it is so bad now, I quite even pretending to try to flip issues as I have nowhere to go...It is so bad I a few weeks ago added more CVB and put it in my taxable account and I am going to have to pay a minimum of 25% and maybe 28% Fed taxes on it..Ugh!
Yes I know its so bad to complain about making easy money....
I did find 2 issues I really want for my safe put in a vault and throw away the key issues... But it is going to be tough...And you will drop your jaw if I get them when I tell you how old these preferreds are...


Sent from my iPad using Tapatalk

Yes, I am wary of the PVTBP issue... I wanted to get in at the price you did but did not have any funds... that is why I put in bids on my other issues hoping to book the profit and flip into it... but it is priced higher than I want with the risk of call... I might have to get some more CVB, but it is also up from the 10.51 I paid for it...

My overall pref portfolio is up over 3% from my purchase price!!! And I have not been in them that long... all bought this year...

Let me know what your new holdings are when you get them... maybe something I can think about if the yield is right...


I will have to start looking for some that are under call price just to take out the call risk... it is just not as easy to find and I want to buy some from a company that does not have a bunch of debt such as the shipping stocks mentioned by someone earlier... the utes are a safe bet, even some of the banks are pretty safe...

 

[Mulligan]

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

Yes, I am wary of the PVTBP issue... I wanted to get in at the price you did but did not have any funds... that is why I put in bids on my other issues hoping to book the profit and flip into it... but it is priced higher than I want with the risk of call... I might have to get some more CVB, but it is also up from the 10.51 I paid for it...

My overall pref portfolio is up over 3% from my purchase price!!! And I have not been in them that long... all bought this year...

Let me know what your new holdings are when you get them... maybe something I can think about if the yield is right...


I will have to start looking for some that are under call price just to take out the call risk... it is just not as easy to find and I want to buy some from a company that does not have a bunch of debt such as the shipping stocks mentioned by someone earlier... the utes are a safe bet, even some of the banks are pretty safe...

That is the problem...These things had been drifting higher for a few years, but literally have been in a frenzy right after you got your stuff bought... I dont know of ANY fixed rate perpetual preferred that is trading under par that is a quality company. If its under par it is either poorly capitalized, over leveraged, or financially stressed. The only quality under par issues are adjustable rate issue ones...And that may not be a bad long term counter intuitive trade if one was patient.
I did recently get CTWSO under par and $6 under call price at $14.50...But it was issued in 1956 as a 4% par yielder so that is why it was below par. There are no shares to buy in that one... Literally....
And I did get lucky last month buying 200 shares of EGYKP at $102.50 or so with an almost 6% yield investment grade... But technically it was bought over $100 par, but bought under call price which is $102.83 I believe. It has dried up again with no trades since the day I snagged mind... A bid of $103.25 has set for weeks with no one willing to sell at that price. Just getting tough...
You can research what Coolius and I bantered on for several days a bit this week but we decided not yet is Power Reit preferred..PW-A or PW-PA.. A bit over par but call protected for a few years and will yield you around 7.5% though its taxable not QDI. Very interesting little issue and a lot of drama... But things seem to be dying down. I would recommend you read about it first though..Its still on my list...


Sent from my iPad using Tapatalk

 

[Sunset]

I just bought 200 shares of CBB-B and I paid $50.16 , I was surprised it went through so fast, as yesterday it was not taken.

It got me worried, but didn't see anything bad.
Then I look at the parent stock, and nearly flip out as it is at about $5 , I research further and felt more relieved as the parent company has increased earnings per share and has been around at this price for 13 years, and at higher prices for a decade before 2003 (part of the dot.com boom).

Any reason why this one is so close to it's call price ?

 

[Mulligan]

I just bought 200 shares of CBB-B and I paid $50.16 , I was surprised it went through so fast, as yesterday it was not taken.

It got me worried, but didn't see anything bad.
Then I look at the parent stock, and nearly flip out as it is at about $5 , I research further and felt more relieved as the parent company has increased earnings per share and has been around at this price for 13 years, and at higher prices for a decade before 2003 (part of the dot.com boom).

Any reason why this one is so close to it's call price ?

I wanted you to feel better, so I just bought 100 more at $50.16.... Ask price bluffing a lot higher.... This is an "Old Ma Bell" company from back in the day...Has had to make the transformation in their local service area to fiber optic and better service for digital internet tv age.
They also made a nice investment in a reit they owned and will be shedding the rest of the shares soon. They are increasing investment in their core and reducing debt at same time. Music to our ears as a preferred. This preferred has been around for almost 20 years and never has not paid even when they were at a low point.
The company is in process of beginning a "reverse split" to boost stock price. Since company is doing better now, they want to take advantage of this and bring stock price up to $15-$17 so institutional buying can occur and this will bring the stock price up more..
This is essentially a "busted convertible". In order to get 6.7% in todays environment without a call fear, you almost need a company like this...Doing better, debt under control...But not doing so great that they have cash laying around to call it... Despite the downs the company has experienced from the landline extinction, the preferred has held up very well all things considered through the years.


Sent from my iPad using Tapatalk

 

[Mulligan]

I have brought up PVTBP before so I need to mention this....When I bought almost all of my shares between $25.55-60 it was with the theory that this 10% TRUP Tier 1 capital was equivalent to a 6.3% non cum preferred... So it was acceptable risk they wouldnt call considering their 37% tax bracket...BUT.... Capital One just sent to market a 5.2% non cum preferred...My Lord that is low!!! So that blows my theory... Rates are just crashing... PrivateBank can save considerable money by calling and issuing a non cum preferred to replace TRUP. Hey, they may not and it may make it to merger and past....But the risk/reward ratio is gone for me. I would rather be wrong and make a little bit of money than be wrong and lose to a call... It sure looks like it will make it to the 62.5 divi this time, but I just dont take these risks as my theory is now gone. I have sold most of mine and only kept a smaller amount to let play out... 2000 shares was too much for me on this issue at this call risk issue... Just my thoughts only of course...


Sent from my iPad using Tapatalk

 

[Mulligan]

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

Since I parted with a chunk of my PVTBP the money was backing up in the vault...So today I made these purchases...Bought 100 shares of CBB-B to help calm Sunset's nerves on the issue... 600 shares of KTH... And 1000 shares of PFK. That was a 3rd down punt...Its my favorite parking place and safest short term play on the board. Took advantage of the 15 cent drop and will capture the 7 cent monthly dividend as it goes ExD tomm.
I still got 10k but I am trying to see if I can snag an illiquid that is older than dirt.

Sent from my iPad using Tapatalk

 

[DrRoy]

OK, preferred gurus, what do you make of this article?
Preferred Stock Isn't The Way To Go - iShares U.S. Preferred Stock ETF (NYSEARCAFF) | Seeking Alpha

 

[Mulligan]

OK, preferred gurus, what do you make of this article?
Preferred Stock Isn't The Way To Go - iShares U.S. Preferred Stock ETF (NYSEARCAFF) | Seeking Alpha

That article got someones panties in a wad as they wrote an article in direct response to the one you cited..
http://seekingalpha.com/article/3993264-preferred-stock-fine-way-go
Personally, I had no reaction to the article as it wasnt really relevant to my portfolio of preferreds. Here was his 4 points of contention..
1. They are insignificant part of capital structure..... That really has nothing to do with anything....My local bank is an insignificant part of the US Banking system. So what, its still important to me. Personally in my issues I l own I like the fact they are insignificant in the capital structure of the companies I invest in. Take CTWSO, I own. $600 million market cap water company... It has 2 preferreds with a total value of $500,000... I prefer that as that means they dont need preferreds to survive like shipping companies do because they cant get the ADDITIONAL money through debt market or banks
2. Preferreds are mostly concentrated in financial firms. .....This isnt exactly a profound statement. 80% of preferreds in monetary value are in financial stocks. If some one doesnt like financial preferreds dont buy them. My preference is not to, but that is just me...I would say no more than 10% of mine are financials.
3. Returns and volatility are inferior to junk bonds....A lot of that statement can be misleading as it depends on what year you artificially choose as your starting point. But again, the statement does not bother me as I dont buy junk bonds and I dont buy risky preferreds. Almost any article about preferreds doesnt really pertain to me as they do not reflect what utility preferreds do...I basically own investment grade issues...You do not cross compare investment grade to junk... Different yield/risk classes.
4. Great recession preferred stocks suffered worse than any class. I would suggest outside of the safe govt debt and investment grade bond market, nothing did BETTER in that period than utility preferreds. They certainly out performed the classes he cited. But his point 4 missed the boat. This is where he should have explained why they did so poorly and teach them about "capital structure of debt" and "debt market freeze ups". This is exactly why I do invest in utility preferreds as they do not have this issue. But, I want safety over yield.
There are many dummies plowing into preferreds and they do not necessarily know what they are doing. He missed the boat on discussing this. There are a lot of reasons why one shouldnt own them but his points were irrelevant and didnt get into why one must be prudent here.
Having said all that this one of the reasons I do not like preferred mutual funds... They buy what is available and liquid, not what is quality. Plus they are in sectors I prefer not to.
A person can rarely consistently beat a common stock index, but anyone with a brain and willingness to learn can easily beat a preferred index fund. Totally different animals.


Sent from my iPad using Tapatalk

 

[Winemaker]

DrRoy, the article is pretty spot on for today's uninformed investor; and the recent jump in prices has most credit worthy preferreds way over par. Tread lightly if a newbie.

Some of us on this thread, myself included, got interested in preferreds during the great recession. Preferreds, a quasi- bond/stock instrument, were slammed because of debt repayment issues. That's when I lucked out and discovered them and made them my fixed income part of the portfolio. I bought many issues in the high teens and low twenties, and all but 3 of the 20 issues I have are below $25, some are pushing $27. And all the while since 2008 collecting +5.5% divvies. I am NOT buying anymore in today's environment, but MIGHT consider a new issue at par.

Others on this thread have been divvy arbitragers, buying shares that over par, hope they don't get called at par, and hope they can collect some 6% divvies in a 0.09% world. It takes some due diligence, and in today's world, some nerves of steel.

Plenty of money to be made though, preferreds are no longer the shares of widows and orphans.

 

[Mulligan]

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

Guilty as charged Winemaker, Ha! But I understand all the pros and cons of both ways. The days of having your cake and eat it too, of under par, quality issues, and high yield are long gone. So you have to make your choice.. Or stay out of preferreds...Unfortunately many new investors are probably not even making a choice as they do not even understand the game let alone the rules.
Now this is just my perception based on what I want to do, but par is just a starting point and a potential ending point that needs to be factored in and monitored in relation to the goal you are pursuing. Someone buying a few bucks under par in the 1940's of issue UEPEN may have thought they got a helluva deal...Uhm, not so much as 70 years later it is $11 under par and only a 3.5% par yield. Yes its high quality and investment grade, but still they got hung out to dry buying low yield issues at par.
Take the opposite....My recent 700 share purchase of KTH (been in and out for a year flipping though) around $32... I know it is noncallable until mandatory call date in 2028 at $27.10. So I know I am buying $5 above par and am completely fine with it. Because the par yield is 8%, and YTC allowing for redemption price loss still makes this a compelling 12 year bond like investment to me. Plus you are not hung out to dry on a perpetual par or not such as UEPEN or dozens of others that were issued then at par and got stranded outstanding while under par for over a half century and counting.
A separate example one can use are term dated issues. My personal piggy bank issue is PFK. I wish more were like this. I would gladly buy issues from high quality companies that are 2.5% monthly base, plus whatever the CPI index is that month.
So Im a bit more diversified on preferred types than meets the eye...I own 6% plus above par perpetual call risk issues, term dated non callable issues, CPI adjusted issue, Tbill adjusted variable with floor (under par), 5% plus perpetuals under par, busted convertibles, and "quick flippers".


Sent from my iPad using Tapatalk

 

[Winemaker]

In no ways am I knocking your method. You and I know the risks, we have been doing it successfully for years.

Investing is not a child's game. Caveat emptor to everyone these days in just about every asset form. Great returns are realized by those who recognize a opportunity, take the risk and wait it out. Every market turn invites more questions as to proper valuation.

Am I worried? No. Hesitant? Yes. The run up in prices over the last 8 months in some of these issues is crazy, but I'm not complaining. Some of my stuff laid $21-22 for years and now it is $26+? The easy money has been made; my job now is how to KEEP it.

I may want to buy some of that caviar, oysters and cognac when I turn 60.

 

[Winemaker]

In no ways am I knocking your method. You and I know the risks, we have been doing it successfully for years.

Investing is not a child's game. Caveat emptor to everyone these days in just about every asset form. Great returns are realized by those who recognize a opportunity, take the risk and wait it out. Every market turn invites more questions as to proper valuation.

Am I worried? No. Hesitant? Yes. The run up in prices over the last 8 months in some of these issues is crazy, but I'm not complaining. Some of my stuff laid $21-22 for years and now it is $26+? The easy money has been made; my job now is how to KEEP it.

I may want to buy some of that caviar, oysters and cognac when I turn 60.

 

[Mulligan]

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

The post readers would not know, but I certainly know you were not knocking and would never perceive it that way. As we have PM'd and such over time. And I would never mean to imply my way is the best way. I just try to flesh out my style more when writing so some can get a perspective of why I do such things.
Personally, though I am fully invested in preferreds, an argument can be made it is the worst class of investment to be in. 1) Asymmetric risk 2) Get the lack of total return of a bond, but will not share in gains benefitted from common stock 3) Illiquidity 4) Would fair very poorly in a bankruptcy 5) Security could be put at risk as covenant protections do not exist that wouldnt allow company to put more debt a head of you. 6) Interest rate risks......The list could go on and on from the negative side.
Some investors I fear who have just found them may think it may be some type of great newly created income issue. They have been around a long time, so there is a reason why everyone just doesn't own them lock stock and barrel.
In all honesty if we got a scenario where stock market hit a bear market and preferreds held up, I would move a considerable amount of that money into index funds.


Sent from my iPad using Tapatalk

 

[aja8888]

The question I have is what to do with an issue like CHSCM when bought at $25 and now is $29.25? This yield 5.77% currently and I am pondering whether or not it makes sense to sell it in my IRA, keep the capital gain of 17% and re-buy it later when prices fall (or not).

The guys like me that are "over 70" and are having to take RMDs annually are not looking to keep the preferreds into the next several decades. So the question becomes "when to sell"?

 

[Mulligan]

Ah...Now that is a great discussion, Aja....Kind of like who was a better baseball player...Hank Aaron or Willie Mays, ha! The age and RMD factor create another whole level of debate that I am frankly not equipped to answer.
Here are the 2 sides of the coin....Last cycle of KTH purchases earlier in the year, I loaded up at $31 and sold at $34 two months later... Then recently repurchased back at $32... Easy money and well played since I want to own the issue...
Now the other side... Sold out CHSCL locking in profits at $27.50 figuring to rebuy later when lower...Hmm, not so great huh? Well that money was used to flip others and make money so its no big deal, but clearly selling thinking it would drop has been proven incorrect.
If one wants to add in "Yield to Call" with CHSCM, the yield is less impressive...But using that line of thinking most of mine are "Negative Yield to Call". That looks even worse on paper.
Do you have a better investing option? That can factor in also. It isnt like Exxon is issuing a 7.5% par preferred soon...BTW, many do not know this but many of these big companies used to issue preferreds including Exxon. A few from a long time ago are still out there from Dupont and International Paper, but not many and yields are uninspiring...
Many buy preferreds for income stream. If that is not important the option to sell,book a profit, and walk away becomes a bit more easier.


Sent from my iPad using Tapatalk

 

[Sunset]

The question I have is what to do with an issue like CHSCM when bought at $25 and now is $29.25? This yield 5.77% currently and I am pondering whether or not it makes sense to sell it in my IRA, keep the capital gain of 17% and re-buy it later when prices fall (or not).

The guys like me that are "over 70" and are having to take RMDs annually are not looking to keep the preferreds into the next several decades. So the question becomes "when to sell"?

Good question:
You could sell it and the capital gain is worth 2.4 years of the dividends (rounded off).
You could then buy some broad etf like vti paying 2% and collect 58 cents per year for the $29.25 you got selling CHSCM.
So after 2.4 years you would have collected from VTI $1.40.
Now in the 2.4 years, it is possible VTI will end up higher than today, but we will ignore this for now.

Or you could hold the CHSCM for 3.3 years and end up with the same amount of money.

Personally, I would sell and grab the 2.4 years worth of dividends immediately, and use it for either RMD, letting something else ride.

The issue of whether to buy VTI, is really saying you have other investments in the IRA that are lousy, and so regardless of what you do above, you would want to change them.