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

[Running_Man]

Anybody own any issues that got taken behind the woodshed for a beating? I actually am up for the week. Unloading some earlier in week and selling some AILLL into a high bid along with a few hundred of my water preferred at a nice purchase profit. Outside of my Amerens my largest individual positions by far is MHNB and WFC-J. Bought WFC-J several times as it traded to $26.77 and eventually loaded up hard on it. Pretty self apparent why I bought an extensive amount of those two issues. Still hanging on to near 15% gains and that is my goal to keep it until the new year.

Well WFCPL certainly was brutalized this week, though I am still above water on this issue. There is certainly protection against rising rates with the WFC-J and that looks like a good move along with MNR-B instead of the newly issued “C”.

I was looking at Net Present Value of the WFCPL since there is more likely to be a long stream of payments for years as compared to the WFC-J as an offset to the better capital preservation that WFC-J holds over WFCPL. As of this moment you can buy a 30 year Wells Fargo Bond for a yield of 4.45 percent. This is after the interest rate decline of this past week.


If you assume the WFCPL pays for 30 years and then is converted at the 1300 as Wells Fargo stock finally gets to the conversion price after 30 years the net present value utilizing the Wells Fargo 30 year bond as the discounting interest rate is $1,566 per share. Changing the years to conversion does not considerably alter the value at 20 years the NPV is $1,492. Adjusting value for a 2 percent increase in interest rate (to 6.45% discount rate) in the near term future the NPV at 30 years is $1,171 ($1,180 for 20 years). The low price on Friday was 1192.

At the current price the preferred is offering a two percent premium over the bonds for taking the risk of being lower in the claim of assets of Wells Fargo (45 percent more income). However I think this past week has actually lowered the risk of that type of event. So while the risk of interest rates rising are greater than a year ago, the value of WFCPL is compensating well for this risk in my mind.

Watching carefully over the next week if there is a continuation of the interest rate effects the WFC-J is going to offer strong protection on your capital, though offset by reinvestment risk of being called in 14 months should interest rates reverse course. So understanding the risk you want to take with a preferred is imperative.

 

[Mulligan]

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

RM, I didnt flesh out comments, but you picked up on it. There are so many ways to play preferreds. It is like a mini world of investing, not just yield chasing. The MHNB and WFC-J are just "marker" investments. Essentially playing the "short term yield market" with a long term instrument. These more than likely are called. If they are not, that means anything with a 6% yield or less has absolutely been smoked. Those 2 issues give me a place to hide out with their over market yield and over market safety as a ballast until other longer call protected issues stabilize to reenter.
Guessing rates is folly, but modest capital protection still can be done while invested though. Here is the rub....Rates have dramatically shot up on a relative basis in a short period of time..However....They are still lower than 12 months ago and we were complaining about excessive low rates then. So basically the safer preferreds still could fall more if long treasury market returns back to lowly yields of last year.
At some point I will bail out of these 2 issues and reenter but maybe not for a few months. If you soon start to get stronger investment grade issues poking north of 6.5% and very good low investment grade issues above 7.5% you almost reach a point where you just buy them and let it ride the bumps of time. Im watching, but I doubt it comes that easy. I did buy 5 shares of WFC-L though thursday. Maybe a tad too early, but with only 6k in it, not a concern. And at 6.2% that is still a fair yield whether stock goes up or down. It will be treated as a long term hold and largely forgotten about now. But if it drop $100 or more, I will sell out of the J and roll into the L more though.

 

[Slow But Steady]

Anybody own any issues that got taken behind the woodshed for a beating? I actually am up for the week. Unloading some earlier in week and selling some AILLL into a high bid along with a few hundred of my water preferred at a nice purchase profit. Outside of my Amerens my largest individual positions by far is MHNB and WFC-J. Bought WFC-J several times as it traded to $26.77 and eventually loaded up hard on it. Pretty self apparent why I bought an extensive amount of those two issues. Still hanging on to near 15% gains and that is my goal to keep it until the new year.

The AHT-A and D preferreds took a beating but are almost back to par. The common is also up, and as I mentioned, I sold half my shares to lock in a profit. Will look to buy back at $5.90 or less.

I also have NGHCO and OSBCP , which both got beat up by 2% or so, and SIVBO, which has taken a 4% beating since late October. Considering the dividends already collected, I am still above water on everything but the NGHCO, which I just added in late October.

To be honest, I have been spending a lot of time trying to learn how to sell covered calls and cash-covered puts, and I have neglected the preferred holdings a bit.

 

[Mulligan]

The AHT-A and D preferreds took a beating but are almost back to par. The common is also up, and as I mentioned, I sold half my shares to lock in a profit. Will look to buy back at $5.90 or less.



I also have NGHCO and OSBCP , which both got beat up by 2% or so, and SIVBO, which has taken a 4% beating since late October. Considering the dividends already collected, I am still above water on everything but the NGHCO, which I just added in late October.



To be honest, I have been spending a lot of time trying to learn how to sell covered calls and cash-covered puts, and I have neglected the preferred holdings a bit.

I really dont have an opinion on the NGHCO issue (do not know enough, maybe dont know enough about anything, lol), but if I was you I would consider any price movements of OSBCP and SIVBO as just "noise". They already yield higher than above market rates, and they are debt which is even safer than preferreds. If anything they would be candidates to buy more on price drops.
Im too chicken to invest in AHT long term, but come on, Slow, AHT-A and D dropping a quarter isnt a drop. You have become spoiled, lol.
The spankings have been in lower yielders that are safe such as IPL-D. That thing has went from $28 to $24 ish in about 2 months and still barely yields above 5%. I would love to own that issue but it needs to get to $22 to get my interest up a bit.

 

[Slow But Steady]

I really dont have an opinion on the NGHCO issue (do not know enough, maybe dont know enough about anything, lol), but if I was you I would consider any price movements of OSBCP and SIVBO as just "noise". They already yield higher than above market rates, and they are debt which is even safer than preferreds. If anything they would be candidates to buy more on price drops.
Im too chicken to invest in AHT long term, but come on, Slow, AHT-A and D dropping a quarter isnt a drop. You have become spoiled, lol.
The spankings have been in lower yielders that are safe such as IPL-D. That thing has went from $28 to $24 ish in about 2 months and still barely yields above 5%. I would love to own that issue but it needs to get to $22 to get my interest up a bit.

I may be spoiled, but, to be fair, the low on AHT-D was 24.47, a spanking of 75 cents or so. And I was sitting in front of the screen watching it, which makes it a bit worse.

 

[Mulligan]

I may be spoiled, but, to be fair, the low on AHT-D was 24.47, a spanking of 75 cents or so. And I was sitting in front of the screen watching it, which makes it a bit worse.

Well if you would quit staring at your computer screen (like I do) you wouldnt have ever noticed the biggest part of the drop, ha!
I just cannot wrap my head around that company. I just dont trust it (my problem). They issue a new preferred in low 7s and call a 9%. They the issue a big one right after that with the perceived intention of calling A and a slug of D. They then reverse pivot and are looking at "buying opportunities" with the cash instead of calling... So this basically means since A is an 8.5% par they have no better access to capital to acquire things than to pay 8.5%. That is unbelievably high. And now F and G the new issues have fallen in price edging toward the original issues intended to be called... Very strange to me.
Anyhow, I have kind of consolidated a bit and moved up yield curve, though not necessarily through YTC though. Hiding out in some issues that are likely to be called and providing me a price backstop, while patiently waiting for a few that are in my cross hairs but need to drop more.
As of now I have AILLL, AILNP, CTWSO, FIISO, HE-U, KCC,CNLPL, WFC-L, WFC-J, MHNB

 

[Running_Man]

Today should be interesting another big move up in long term interest rates 10 year treasury trading at 2.23

 

[Sunset]

I was thinking of buying WFC-J, but I'm not convinced it's a good buy.

Currently it's $26.72 and pays $2 div, but is callable 12/15/2017 at $25
So at worst (and expected) it's return is: (2.5−1.72)÷26.72 = 2.9%
Which seems ok, but tax will be paid on the 1.72 at 15% which is in a sense return of capital. (so double taxed in reg accnt)

Am I missing something ?

 

[Running_Man]

I was thinking of buying WFC-J, but I'm not convinced it's a good buy.

Currently it's $26.72 and pays $2 div, but is callable 12/15/2017 at $25
So at worst (and expected) it's return is: (2.5−1.72)÷26.72 = 2.9%
Which seems ok, but tax will be paid on the 1.72 at 15% which is in a sense return of capital. (so double taxed in reg accnt)

Am I missing something ?

If called in worst case you have a capital loss of $1.72 and income of $2.50 with both being eligible for the 15% rate so you net only pay tax on the 78 cents of income @ 15% which returns 2.9% for 13.5 months of holding. If interest rates rise you now hold an instrument that is paying an ongoing return of 7.5% which will protect the preferred from a large drop below 25. This compares to the 6.4% you would get from the WPCL which is in no danger from the call but offers more than a percent less protection on yield.

This is the risk profile you have to adjust to, with corp BBB bond rates for one year at 1.7 percent you are receiving an extra 1.2% on your money for the risk of not getting your capital back in a year, but then it converts to an ongoing long term note at 7.5 percent while BBB bonds 30 year bonds are yielding about 6 percent at present. Additionally as an advantage the dividends are eligible for 15% tax treatment while the bonds are not.

 

[capjak]

Here my list...hoping to hold steady

AILLL 2525 shares
CNPL 800 shares
CNTHP 650 shares
CHS 100 shares
KTH 500 shares


PFF 750 shares

 

[aja8888]

Is it time to buy PFF yet, or should one wait?

 

[Running_Man]

This has been a very modest decline in general the preferred went from being not a value proposition to a fair proposition, would depend on your investment goals. For myself I have 60% of the funds I plan on investing in preferred invested right now. But I am hoping at some time for a very clear cut panic before I would jump into them, but long term this is not a significant portion of my portfolio.

 

[Mulligan]

I was thinking of buying WFC-J, but I'm not convinced it's a good buy.

Currently it's $26.72 and pays $2 div, but is callable 12/15/2017 at $25
So at worst (and expected) it's return is: (2.5−1.72)÷26.72 = 2.9%
Which seems ok, but tax will be paid on the 1.72 at 15% which is in a sense return of capital. (so double taxed in reg accnt)

Am I missing something ?

Sunset, I am using it as a placeholder. If things modestly go to hell, I hold until call, which nets a small but positive gain, which would beat the pants off the preferred market. If things go really poor WFC may have a market where they cant get enough benefit to call after fees, and I get to hold on an investment grade issue which would have held up considerably better than the lower yield ones they have.
Mostly looking to stay in it grab that 50 cent divi next month and flip on an uptick. While sitting in MHNB and WFC-J Im watching for some fall of a better magnitude than what has happened and roll into them.

 

[Mulligan]

Here my list...hoping to hold steady

AILLL 2525 shares
CNPL 800 shares
CNTHP 650 shares
CHS 100 shares
KTH 500 shares


PFF 750 shares

Cap, with those issues, you wont exactly have to scurry for the latest financials to determine safety of them. In fact if the income is all you care about, you can forget you even own them and divis will always find their way into your account.

 

[Mulligan]

Is it time to buy PFF yet, or should one wait?

That is a tough guess. It probably depends on what path you want to guess the 10 year is going. If you think higher, then no. If you think stable to down it would be yes. I have been pretty lucky holding onto most of my yearly gains outside of the AILLL dump, thanks partly to going and hiding out in MHNB and WFC-J. But going forward.....First time in a long time I am at loss... I sense a relief rally rate drop from past few days... I doubt I trade that bet. Half my issues are not even paid attention to because I will never sell. But the other half is my fun trading issues. And I dont know next step. Might explore looking at some with a fixed to float rate, with the float 5-6 years away.
Im no help!

 

[jim584672]

I hope this isn't the start of a reversal of the 30 year bull market in bonds. 30 year Treasury ran up to 3%, 10 year 2.25%. Trade wars / tariffs are not good for inflation or bonds.

 

[Running_Man]

The recent election has broken the hold Central Bankers have been able to maintain on the need for low rates. Remember there has never been a successful liftoff from ZIRP. Japan has tried on multiple occasions but the rapid decline in economies that follow the rise in rates lead to a return to zero historically. Rates were higher a year ago, difference is there is almost certainly a rate hike coming in December, the impacts or influence won’t be showing through until later in the first quarter. I am letting the market tell me what interest rates are going to do, so far it is a quick one way move, often these quick moves in one direction are either wrong or the start of a new trend so time will tell which is which. An increase over 2.44 percent would be a new 2 year high in interest so that would be the first key. The impact this is going to have on the housing markets will be quickly felt. Continued beyond that and zero interest loans on car leases and loans are also imperiled so economically I have a hard time seeing this occur. But we are in a new world for now.

 

[Mulligan]

RM, How far is it realistically possible do you think it is for US long rates to separate from Europe's present rates? They are not exactly going through the roof either. I think your analysis is spot on. Consensus usually is wrong when aligned with fear. So that would make me think for near future we wont climb much above 2.5% . Looked like some of the rocked preferreds rebounded slightly from morning lows.

 

[Sunset]

I did pick up 10 WFC-L for $1,180 ea.

I recognize the inconsistency considering my thinking on WFC-J , meaning the rate after allowing for the redemption price loss is not really terrific, but pickings are slim when wanting the 15% tax rate.

 

[Mulligan]

I did pick up 10 WFC-L for $1,180 ea.

I recognize the inconsistency considering my thinking on WFC-J , meaning the rate after allowing for the redemption price loss is not really terrific, but pickings are slim when wanting the 15% tax rate.

I forgot to add about WFC-J. J would not be double taxed. You get a cap loss from a call. So that is a positive on taxes. You get to write off the cap loss from divi gains or other trading. So that technically would increase your rate of return, not decrease or double tax it. Now keep in mind that has absolutely no impact on my decision making. Chances of me holding that long are almost nil.

 

[Running_Man]

RM, How far is it realistically possible do you think it is for US long rates to separate from Europe's present rates? They are not exactly going through the roof either. I think your analysis is spot on. Consensus usually is wrong when aligned with fear. So that would make me think for near future we wont climb much above 2.5% . Looked like some of the rocked preferreds rebounded slightly from morning lows.

I think just getting interest rates to break out to new highs over a year ago is going to be incredibly difficult. Interest rates while this rise was unexpected is certainly relatively small and a year ago I could get a 5 year CD online for 2.3 percent and today they are going for 2 percent so interest rates are not going that far. The increase in rates supports the dollar is problems for everyone overseas — Europe, all the emerging market……. and eventually pressures foreign economic realities and they push back on our Central Bank. If inflation is 2-3 percent a 4-5 percent 10 year would be normal excepting for the economy and it’s inability to handle that kind of a rise. The deflationary impacts from technology advances in the economy and the aging of the population in the US are bigger hurdles I think than Europe interest rates where the problems are similar with much larger debt issues. Europe and US are more running side by side with similar problems only Europe needing lower hurdles to complete it’s economic vision than the US economy due to it’s greater debt issues. If larger hurdles come into play they will trip and fall on their face and probably fall into our lane and knock us over as well.

 

[Freedom56]

Today was a much better day. There was a significant amount selling pressure during the last few days as a result of preferred and income fund redemptions just like last February. With tax loss selling season, many of the losing positions will be under pressure over the next month. The 10 year looks like it's headed to 2.5% in the near term unless the consumer confidence numbers, based on surveys taken after the election, show a more bleak outlook. 70% of the economy is still consumer spending. The big picture - there is too much debt outstanding for the 10 year to spike up to 4%-5% in 2017. It would crush the housing market and auto sales which is directly and indirectly responsible for much of consumer spending. If rates did spike that high, it would be more likely due to a lack of confidence rather than inflation pressure.

 

[Mulligan]

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

Today was a much better day. There was a significant amount selling pressure during the last few days as a result of preferred and income fund redemptions just like last February. With tax loss selling season, many of the losing positions will be under pressure over the next month. The 10 year looks like it's headed to 2.5% in the near term unless the consumer confidence numbers, based on surveys taken after the election, show a more bleak outlook. 70% of the economy is still consumer spending. The big picture - there is too much debt outstanding for the 10 year to spike up to 4%-5% in 2017. It would crush the housing market and auto sales which is directly and indirectly responsible for much of consumer spending. If rates did spike that high, it would be more likely due to a lack of confidence rather than inflation pressure.

You looking to buy anything Freedom? I moved in and out of some issues yesterday and today. Kinda dont remember which ones were purged and bought, so I will pull up my laptop tomorrow. Bonds creeping up again overnight so may be some selling tomorrow again.

 

[Freedom56]

You looking to buy anything Freedom? I moved in and out of some issues yesterday and today. Kinda dont remember which ones were purged and bought, so I will pull up my laptop tomorrow. Bonds creeping up again overnight so may be some selling tomorrow again.

The only (exchange traded) one's I'm looking at now are:

RJD (rated BBB, 6.9% coupon) if it drops below 25

I would also like to add to my positions in MHNB and MHNC if they drop below par.

I am also looking at any short to medium term corporate note, which makes up most of my income portfolio.

With tax loss selling season upon us, I'm not rushing in with guns blazing. I only buy securities rated BB+ and higher which limits what I will can buy.

 

[Phisher]

Assistance if you may.....

Good Morning Everyone,

I recently retired and my Edward Jones guy is asking for more of my $$. He has not performed well for me.I would prefer to do my own investing. I have about 105k in what I consider good dividend stocks EPD F WY T CSCO DUK LNT SO GE and I just bought some FTR I know the latter is a more risky, I will add to these holding with dividend reinvestment.

I will be receiving 8k net a month. I have zero debt property taxes,insurance and cell phone bill. I live on a catamaran and am very frugal. I will have about 5k a month to invest. I am 54 and looking to squirrel away the $600k I will save over the next 10 years. I am not much of a gambler and like lower risk, preferred stocks interest me.

If someone could assist in pointing me in the right direction to find some reasonably safe avenues I could put some of this cash.

Thanks for your help and I appreciate your time.

Brian