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Old 08-31-2016, 03:24 PM   #1141
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Just some more info...AES is an unwieldy power producing company with a few regulated utilities it bought. Power producers love buying regulated utilities for their guaranteed income stream to finance their activities. AES produces power all over the world and has currency risk in addition to business risk as income as to be transferred back into US currency.
AES has a bunch of subsidiaries like IPALCO. Some of this debt is recourse debt and some is parent debt. In other words it may own the company that has the debt, but has managed to secure loans that doesnt have them responsible for it themselves.
However, they have a butt load of debt themselves unrelated to the subsidiary companies that have debt themselves. The only way AES can pay their debts is by their subsidiaries making a profit, paying their debts, and ultimately feeding cash to the parent (AES).
Usually we consider preferred stock to be weaker in standing in terms of safety to debt...But that is only in a one company scenario. As in this case, the preferred stock of a subsidiary is actually safer than the debt issue of the parent.


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Old 08-31-2016, 03:35 PM   #1142
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Just finish out scenerio...Yes, its possible for IPL to go bankrupt and not AES... If IPL went bankrupt, IPALCO is toast...As IPL is IPALCO's only source of revenue. The reason why this is considerably less likely is IPL is a regulated monopoly while AES largely operates in unregulated power provider industry. Moody's and S&P acknowledge this as IPWLK preferred is rated safer than AES-C is.


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Old 09-01-2016, 11:10 AM   #1143
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Moorebonds and I both dabbled in ALLY-A today. In this environment of not knowing interest rate momentum direction, it seems like a good trade value. It has a very generous kicker of 5.875% plus 3 month Libor tacked on. Libor is heading close to 1% recently, so near 6.5% now and would receive higher yield if Libor heads up. Been trading under $25.25, is past call, but has already declared next divi in Nov. of 42 cents.
Bank is slowly improving its health and is receiving a lot of new online deposits. This is big because they can use this cheap money to loan out instead of borrowing money to loan out. They recently bought TradeKing to expand into online brokerage services. Ally-A is a very huge and liquid issue... It is a trust issue and is actually debt, not a non cumulative preferred, so it has debt protections. However, it is not QDI since it is debt.


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Old 09-01-2016, 12:43 PM   #1144
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I picked up 1200 of ALLY-A and paid 25.23 as I recently have been bidding too low to save a few cents and not filling orders.

I really appreciate the efforts put forward in suggesting possible targets, as last night I spent a few hours looking up preferred. Some preferred that are listed are not existent anymore, for example a Bank in Georgia, looked a little promising until I saw the FDIC took it over back in 2008.

So there are dead ends in the maze of preferreds.

I also got to see, some nice high yielding ones up in the 10% range, but they are suspended, so obviously pretty dangerous in my opinion as they could be wiped out.
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Old 09-01-2016, 01:05 PM   #1145
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Just keep a modest eye on company, Sunset. I only own 200. If AES-C or PJS hits my target down the road, I will look to maybe get to 500 shares if price stays around here... "Negative convexity" of preferreds is a draw back to them in a general sense...But I actually am using this to my advantage with ALLY-A. If short term rates head up ( exposing higher yield cost for "A") ALLY may call it... But sense it was bought around par with next divi declared, no loss can occur....But if they call because of a rate hike, chances are the perpetual long issues will have dropped. Thus the money than can be used to purchase perpetuals at a better price point. As long as the company stays healthy, this is a good "hideout issue". Collect your 6.5% and have potential upside if Libor goes up.


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Old 09-01-2016, 01:21 PM   #1146
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I actually thought I danced to the beat of my own drum when buying preferreds, but I guess I do not. Tuesday, while reading my latest Forbes copy, I read an article from Richard Lehman on income investing. He is an editor for an income investing newsletter and manages portfolios through Lehman Livian Fridson Advisors....Anyways when he invests for income for his clients portfolios he advocates buying perferreds. He also said he prefers to buy "slightly over par, past call issues". He states those issues pay higher yield do to their need to stay close to par due to call risk. He also says rarely do they get called anyways. This has basically been my style the past 3 years. This is where I got the idea to buy ALLY-A as it was on his list...Others he mentioned at the price the preferred was when he recently wrote this I will post beside it.... ALLY-A $25.26, AGO-F $25.72, GJH $10.10, JMPB $25.39, HPF ( this is a fund) $22.90.
I havent really dug into the other issues he recommended besides the Ally one.


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Old 09-02-2016, 07:15 AM   #1147
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Preferred Stock Investing-The Good , The Bad and The In Between

Wall Street article from August 13-14 (Saturday - Sunday) didn't paint preferred stocks in a very rosy light. "Preferred stocks tend to offer returns similar to those of bonds, at a level of risk that can approximate that of stocks."

"Over the 5 years ending July 31, the S&P returned an average of 7.8 % annually, beating the 3.5% of the overall bond market. But look back and the risks loom larger: Preferred stocks lost 12.2% in 2007 and another 25.8% in 2008 including 32% in the third quarter of 2008 alone..."


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Old 09-02-2016, 07:46 AM   #1148
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Orcas, Thanks for sharing! Anyone new to preferred stock investing, IMHO, should always start with the understanding of preferreds with the sentence inside the quotations of your first paragraph. Not understanding that sentence may cause one to be on a yield chasing rainbow hunt...That may end bad....Preferreds have been around for hundreds of years, they were never a magical investment then or now. But chronically low yield has pushed many into them not knowing the risk.
If you bought CNLPL when issued in late 60s, you will have earned approximately its coupon 6.48% over the last 50 years. One has to determine needs, suitability, and goals if that was appropriate rate of return.
The 2007-09 reference was horribly unsophisticated if it didnt flesh out why this happened. Remember preferreds as a collective group by market value are 85% financials... What happened during 07-09? The financial system in US almost collapsed. That is why preferreds crashed so hard because there was serious worry the banks of issued preferreds may go under. With that fear who would want to own a preferred?
But, the writer was obviously not very sophisticated in his research. If he was he would have found out utility preferreds held up 50% better than the market did, common stocks included. I keep my portion of financial preferreds under 20%.
Still, you point posted is good and should always be reinforced on anyone considering these. I read some other forums on preferreds and people are throwing cash at things they have no understanding of. That usually never ends well in preferreds or commons.


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Old 09-02-2016, 01:36 PM   #1149
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I wish I could get bond funds paying 6.5 % that would not drop hugely when interest rates move up.

My intention is to keep preferred shares at a low % of overall investment, as a hedge for continued low interest and/or low inflation for a long time.
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Old 09-02-2016, 01:47 PM   #1150
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Just found a source confirming that EGYKP is to be called.

From Utility Giant Entergy Corp. Sells High Quality Baby Bonds | The Yield Hunter

Entergy Arkansas Inc. has sold a $25/bond issue at a coupon that reflects the quality of the offering as well as the rock bottom coupon market we currently live in. With an offering of $410 million of 4.875% First Mortgage Bonds the company has sold the lowest yielding issue seen in many years. The company will use the proceeds to call in 2 outstanding issues with higher coupons. They will redeem the $25/share 6.45% preferred stock issue (NASDAQ:EGXKP) as well as the 5.75% $25/bond 1st Mortgage Bonds (NYSE:EAA).

Now to check on EyMXP
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Old 09-02-2016, 02:03 PM   #1151
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RE2Boys,

Concerning EYMXP .... I sold my entire position today.

If called today, EYMXP will pay about $0.26 in accrued interest ( including the usual 30 day advance notice ). Every day with no call adds $0.0043.

Deciding to hold is a bet that EYMXP will not be called after the next dividend.

I was not willing to take that risk, sold today for par+1 dividend.

YMMV
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Old 09-02-2016, 04:08 PM   #1152
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Originally Posted by RE2Boys View Post
Just found a source confirming that EGYKP is to be called.

From Utility Giant Entergy Corp. Sells High Quality Baby Bonds | The Yield Hunter

Entergy Arkansas Inc. has sold a $25/bond issue at a coupon that reflects the quality of the offering as well as the rock bottom coupon market we currently live in. With an offering of $410 million of 4.875% First Mortgage Bonds the company has sold the lowest yielding issue seen in many years. The company will use the proceeds to call in 2 outstanding issues with higher coupons. They will redeem the $25/share 6.45% preferred stock issue (NASDAQ:EGXKP) as well as the 5.75% $25/bond 1st Mortgage Bonds (NYSE:EAA).

Now to check on EyMXP
Quote:
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RE2Boys,

Concerning EYMXP .... I sold my entire position today.

If called today, EYMXP will pay about $0.26 in accrued interest ( including the usual 30 day advance notice ). Every day with no call adds $0.0043.

Deciding to hold is a bet that EYMXP will not be called after the next dividend.

I was not willing to take that risk, sold today for par+1 dividend.

YMMV

I agree... do not take the chance... like BGLEN... I was hoping that the earlier call was all that was going to happen... I could have sold out all at $105 but thought they were done... nope... so now, if there is a call for any I will take it as a call for all if it is selling for a good amount above call price...

IMO, once they see they can lower their rate there is nothing to stop them from doing it for all their high rate issues... in fact, that would be stupid for them not to do it... the only thing is the timing of it happening... how many people do they have that can do this and how many can they take on at a time...
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Old 09-02-2016, 04:51 PM   #1153
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I agree... do not take the chance... like BGLEN... I was hoping that the earlier call was all that was going to happen... I could have sold out all at $105 but thought they were done... nope... so now, if there is a call for any I will take it as a call for all if it is selling for a good amount above call price...

IMO, once they see they can lower their rate there is nothing to stop them from doing it for all their high rate issues... in fact, that would be stupid for them not to do it... the only thing is the timing of it happening... how many people do they have that can do this and how many can they take on at a time...
I agree mostly, which is why I will pay a little over par, but not a lot over par as it's too risky.

As for the stupid part, companies do stupid things for lots of reasons because if you think about it, a lot of companies in low rate environments could call but they don't probably for many accounting fashionable reasons.
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Old 09-02-2016, 05:17 PM   #1154
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Quote:
Originally Posted by RE2Boys View Post
Just found a source confirming that EGYKP is to be called.

From Utility Giant Entergy Corp. Sells High Quality Baby Bonds | The Yield Hunter

Entergy Arkansas Inc. has sold a $25/bond issue at a coupon that reflects the quality of the offering as well as the rock bottom coupon market we currently live in. With an offering of $410 million of 4.875% First Mortgage Bonds the company has sold the lowest yielding issue seen in many years. The company will use the proceeds to call in 2 outstanding issues with higher coupons. They will redeem the $25/share 6.45% preferred stock issue (NASDAQ:EGXKP) as well as the 5.75% $25/bond 1st Mortgage Bonds (NYSE:EAA).

Now to check on EyMXP


Yes, they had this out in SEC filings a few weeks ago...I thought I mentioned it here a while back. I didnt own the 6.45% issue as I flipped out a long time ago. But I owned the 6.08% issue that is getting snagged too ( a tiny float). I bought under the $102.83 call price so it wasnt a ding to me. But, I got a call on PJS today.... Bummer... I have to go but I need to send a shot across the bow for any CVB owners out there... Try to post tonight as it is a bit long and Gf is coming through the door now. Chasing past call above par issues is getting to be a dangerous game now... One needs to be careful and preserve capital, as it has got my attention, now. Or one constantly risks spinning wheels buying issues that call, and next thing you have nothing to show for it... I was up 15% this year, probably 13% or so now...Might be time to take a few chips off the table or at least rethink my strategy!


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Old 09-02-2016, 08:24 PM   #1155
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Some of you may own CVB. Just a word of caution, not advise. As mentioned I had PJS called from under me ( and basically it appears my money is confiscated until payment Oct. 3 as trading was suspended). Any how they share similar traits... These are trusts of an underlying non callable bond. Owners only own certificates of the trust not actually the bond itself. Just like companies can call their own preferreds, brokerages which create the trust preferred and sell the certificates, actually own the call warrants themselves...
Merrill Lynch after noticing the underlying bond was trading around $108 called the trust issue today at $25. Now they have already probably lined a buyer of the $45 million bond. So they take your money at $25 par, and then resell the actual bonds at $108, booking and easy 8% profit taking from you and selling to someone else...
I bring this up only because the CVB underlying bond (KMI bond) is trading around $108 also. So IF they wanted to they could call at $10, and resell the actual bonds at $108 and book an 8% instant profit just calling the CVB. Now, I have no idea if they will. They can patiently wait and see if bond climbs higher, or maybe being only a $10 million issue it may not be worth their time to even do it and book a $800,000 quick profit... Who knows...But at $10.70, I decided not to wait around and risk a 7% haircut. I had 1600 shares but sold 500 last week to give me enough cash to get my 500 AES-C shares. I sold the remaining 1100 shares today. I am not getting bit twice...Hey, it may all work out great and never be called. I just felt this info may help you understand the risk better....One can always actually buy the underlying bond itself and get near 7% as it isnt callable... But it doesnt mature until 2098 or so. Bonds also have horrific bid/ask spreads, so buying and trading doesnt usually work here.


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Old 09-02-2016, 08:36 PM   #1156
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Mostly we have just discussed trades, but while I am thinking, I thought a little strategy post may be needed now...Basically for almost 3 years, I have feasted on past call above par issues, and flipping quite frequently often buying same thing over and over. It is worked very well, with almost zero market angst while avoiding all market ups and downs. But, like anything, it works until it doesnt....And I think the "doesnt part" is steam rolling down the path....Rates have just been low too long now. Companies reaching to expand profits in low growth environment are now with more frequency plucking the "low hanging fruit". Though most were not mine, past call preferred issues are dropping like flies...
The risk/reward is just not there anymore for me. Protecting my double digit returns are more important than risking money on past call above par issues...I may be pruning a bit more, with no real strategy yet of what to buy. One thing is certain....I bought 500 shares of AES-C looking to flip 300 of them around next divi time as holding that many is a bit beyond my comfort zone. However, being close to par, and no viable suitable replacements, I may have to change my mind and hold them all due to no viable alternative.


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Old 09-02-2016, 09:16 PM   #1157
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I agree mostly, which is why I will pay a little over par, but not a lot over par as it's too risky.

As for the stupid part, companies do stupid things for lots of reasons because if you think about it, a lot of companies in low rate environments could call but they don't probably for many accounting fashionable reasons.

I agree that there are other things in place when it comes to a call... there might be some covenants that hinder it happening... it might be that the issue is just too small for them to worry about when you factor in the time, money and effort to place another issue... that is why I said IF a company has already called one of their issues... if they have done it once then the likelyhood of them doing it again go up IMO....
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Old 09-03-2016, 06:13 AM   #1158
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How does one feel about Alcoa?

Their preferred is way below par at ~$34 for a $50 issue, yielding over 7%. I took a chance with 200 shares. What you say?
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Old 09-03-2016, 06:58 AM   #1159
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How does one feel about Alcoa?

Their preferred is way below par at ~$34 for a $50 issue, yielding over 7%. I took a chance with 200 shares. What you say?


My Quantum is down, so I am going only off memory...Is this their convertible preferred or their old traditional preferred issued many many years ago?


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Old 09-03-2016, 08:02 AM   #1160
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AAprB. It's the convertible; callable 10/1/17.
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