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

[Coolius]

intl,


As you read through this thread, you'll see names being mentioned, plus reasons why some of us like them.

Too complex to summarize here, but in general, yield-trapped and ring-fenced Ute Preferred Stocks ( especially the T&D ) would fit a long term stable income objective. The only real risk is of the issue being called, but do review past posts for why we feel some of them will not be called anytime soon.

Because of their illiquidity, these do not often present themselves as bargains. You'll have to be quick to recognize when a seller is dumping, and be prepared to bid promptly.

Here are some of the names we've discussed:

AILNP AILLL CNTHP CNLPL KTH KCC HE-U WFC-L EYMXP

Target buy prices are also in past posts, but feel free to ask here if you need particular prices.

Put these on your watchlist and WATCH them !!

Good that you found this thread - you'll learn a lot about our rationale and income philosophy from the very experienced guys here, especially Mulligan.

But - I am concerned that Lord Darth Mulligan may have wavered in his convictions lately - and gone over to the Dark Side of the Evil Empire - he was recently talking about buying a common ( ) that has had poor financials ( ) - so as to capitalize on a possible merger buyout. ( )

Please remember Lord Mulligan in your entreaties & supplications to the Force.......

 

[Mulligan]

Coolius, your being tough on me. My 2 commons consist of play money. A couple hundred shares of BGS Foods and 500 of Pepco. Heck they are up 30 cents since I bought it. Its not like I am buying Valeant. Bill Ackman would love dearly to have my portfolio returns the past few years including this year. Besides I had to buy Pepco because I have so many shares of Peco.... I just now at the age where I will be able to get confused between the two. I will be talking about Peco when I meant Pepco and get it all messed up now.
We better warn Intl to scratch AILNP from list. I am the only lucky guy there. He has a better chance of growing a 3rd eye in his head than getting any of that.
Capjack, I noticed a few hundred more shares of CNLPL traded today. Did you purchase any of those?


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[Coolius]

Yep, AILNP is probably as scarce as Pink Unicorns in Central Kansas.

The only issue within reasonable price is EYMXP; but of course that has Call Risk as a top consideration. I calculated that call proceeds total about $25.13 minimum ( par plus 30 days accrued interest ), so max exposure is about $0.17 per share. EYMXP is one of my holdings.

Unfortunately, the others seem to be on the high side; just have to be patient and wait for the next interest rate scare.

 

[Mulligan]

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

Yep, AILNP is probably as scarce as Pink Unicorns in Central Kansas.

The only issue within reasonable price is EYMXP; but of course that has Call Risk as a top consideration. I calculated that call proceeds total about $25.13 minimum ( par plus 30 days accrued interest ), so max exposure is about $0.17 per share. EYMXP is one of my holdings.

Unfortunately, the others seem to be on the high side; just have to be patient and wait for the next interest rate scare.

I agree EYMXP is probably a good entry point into one due to someone patiently selling off thousands of them with zero urgency at $25.40.
I just havent had the conviction to buy them, though I have toyed trying to get them on the cheap.
Mostly just being hard headed, but mostly from 1) Not understanding the company. Entergy has kind of swallowed it up and incorporated it into its family so I havent be able to see its stand alone makeup. 2) I didnt dig too deeply but I havent figured out how much of a power producer or T&D it is or if there are any "ring fenced" measures. 3) Still ticked off ELUOP was called on us after owning it a few months and wasting time breaking even on a call. The preferred I now own companies have had no history of calls.
Weak excuses, but that is mostly why.


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[jim584672]

WFC-L is up like a rocket, was $1170 went ex-div $18.75 and shot up to close at $1190, almost to $1200 today intraday. Crazy.

 

[Mulligan]

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

Trying to get into so long term solid PS plays for income. Any suggestions? I've been trying to get into the WF one, but doesn't seem to want to come back down to around 1150 or so. Any other ones I should look into? Looking for companies that will be here for the long term. Solid companies if you will. Am I hoping for too much?

Well Intl, It is all about aligning your expectations, and needs. Someone who says "I like preferred stocks" is equivalent of saying "I like food". Way too general for any true meaning... Generally speaking quality safe company preferreds which I assume is your desire are priced "to a premium". Of course they have been that way mostly the past 5 years. "Safe ones will reside in 5%-6% ish range... There are many with yields of 9-12% that pay on time and never have missed a beat....so far...but they are leveraged to hilt... In simplistic family finance equivalent terms I mean this... Its like a family living month to month with no money left over after mortgage, bills, and maxed out credit cards minimum payment are made. Yes it works....Until the car breaks down, someone goes to hospital, or dad loses his job, then the house of cards fall instantly...
IMHO, If you want high yielders, just buy common stocks instead. If you want preferreds for income, buy ones that you know with 100% certainty they will pay. I own a slug of one Insurance preferred from Unum and a tiny amount of CVB which is a Kinder Morgan backed bond.
Other than that all I own are electrical utility preferreds. They are the only industry that has never not paid and their prices are more stable, also.
I am admittedly over paranoid, but if I am investing for income I darn well want to be paid my income.
Other areas can be very good, but I am set in my ways... BDC's and Mreits can "cook the books". Reits can be over leveraged or get stuck with bad properties and broken contracts in a recession. Shipping preferreds? If you read the fine print the prospectus will say... be ready to be fleeced... Non cumulative bank preferreds? Well lets just say the word "bankrupt" wasn't created from regulated T&D utilities going under....


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[Coolius]

Mulligan, you might be scaring off intl from the entire world of preferred investing.

Your list sounds like the boilerplate disclaimers that companies put out on their reports & prospectuses; all manner of things can go wrong and any one of them occurring means the enterprise crashes & burns to a crisp !


Looking at dividend payment history should provide some re-assurance. That should form a core activity for one's DD on any particular Preferred Series.

 

[Mulligan]

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

Mulligan, you might be scaring off intl from the entire world of preferred investing.

Your list sounds like the boilerplate disclaimers that companies put out on their reports & prospectuses; all manner of things can go wrong and any one of them occurring means the enterprise crashes & burns to a crisp !


Looking at dividend payment history should provide some re-assurance. That should form a core activity for one's DD on any particular Preferred Series.

Your right Coolius...But many people (not referring to Intl) just dive right in chasing yield and not doing the due diligence that someone like you does. When it gets down to the final shakedown, preferreds are bottom of the rung bond obligations that dont even have to be paid off. A company can survive in theory forever and stiff you for longer than you can live waiting to collect.
That is why it is important to have ones that continually have profits, with retained earnings, and cumulative in nature as you will get your money if the companies profits return. And the monopolist rigged machine of Utes with their guaranteed minimal profit level set by regulators will ensure payment.
Anybody fairly new to preferreds needs to see what those stocks did in 2008-09.... If you had owned preferred stocks in 2008-09 except for utilities or old school illiquid ones you would have seen your $25 par stock sink all the way down to $2-$7 depending on whether it was a Reit, bank, or insurance... Talk about making someone go to the bathroom and throwup watching their $25 stock go to $2...The utility preferreds dropped nowhere near that. Their selloff mirrored a collective yawn compared to the other 96% issues that make up the preferred universe.
And you know this too, but newbees, may want to check the prices of late 2013 "Taper Tantrum". Most preferreds took a quick dive when market was scared of Fed rate hikes... The electrical preferred stock movement? A market yawn....
And the financials of any of these companies issuing preferreds? Lets just say we often scan a few financial statements, pat ourselves on our backs for our "due deligence" and then buy.. We know nothing...off balance sheets, cross debt default covenants, leverage, Fine print, true market value of underlying asset backed debt, cooked books, ability to refinance and roll over debt in a locked up market....the list goes on.
I want none of that. This is why I buy what I buy... Personally if I run out of utility preferred stocks, its back to the CD dungeon my money goes....But....this is only me!



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[Running_Man]

Trying to get into so long term solid PS plays for income. Any suggestions? I've been trying to get into the WF one, but doesn't seem to want to come back down to around 1150 or so. Any other ones I should look into? Looking for companies that will be here for the long term. Solid companies if you will. Am I hoping for too much?

I did purchase the WF preferred at 1170 and was very happy with that purchase. Due to the recent FED putting on hold interest rate hikes until the rest of the world approves the US FED to be able to raise rates there have been moves up in preferred stock as the competition for investment dollars is now offering lower yields. At 1200 WF preferred is paying 6.25% instead of 6.50% at 1150, which I do not view as stopping a purchase, if I wanted a preferred today that I could buy easily and with relative safety to other preferred stocks that is the one I would buy.

You just have to be willing to accept the interest rate risk and be happy with the 6.25%, for the long term, you have to realize you have corporate risk in that Wells Fargo could get a crazy leader and spin the company into inability to pay the dividend, there could be another financial crisis that upends WFC outside the control of anything the CEO or CFO could manage and also end up with no dividend payments and you have to be prepared that your investment most likely has limited upside potential and that the cash flow is your most reliable indicator of what you will receive.

Personally I see long term horizons as being generally deflationary such as what has occurred in Japan over the last 25 years and in that scenario WFCPL will be a good investment. So I have replaced some of my bonds with preferred issues in WFCPL BGEPF and CHSCM as I also personally like the agricultural area and do not want to only be invested in Financial area preferred. I simply do not have the patience of “Rambo” Mulligan to sit in the woods for days in camouflage waiting for an illiquid utility preferred to pass buy into my traps unexpectedly,I am just too impatient, even though I know he is picking up better values than I. While I will do not expect my preferred stock do as well as Rambo’s at present yield on my trio as a group is 6.24% at Friday’s close and I think they are still worthy of purchase at today’s prices though I am glad that I got them at 5% lower prices than you can today.

 

[Mulligan]

I did purchase the WF preferred at 1170 and was very happy with that purchase. Due to the recent FED putting on hold interest rate hikes until the rest of the world approves the US FED to be able to raise rates there have been moves up in preferred stock as the competition for investment dollars is now offering lower yields. At 1200 WF preferred is paying 6.25% instead of 6.50% at 1150, which I do not view as stopping a purchase, if I wanted a preferred today that I could buy easily and with relative safety to other preferred stocks that is the one I would buy.

You just have to be willing to accept the interest rate risk and be happy with the 6.25%, for the long term, you have to realize you have corporate risk in that Wells Fargo could get a crazy leader and spin the company into inability to pay the dividend, there could be another financial crisis that upends WFC outside the control of anything the CEO or CFO could manage and also end up with no dividend payments and you have to be prepared that your investment most likely has limited upside potential and that the cash flow is your most reliable indicator of what you will receive.

Personally I see long term horizons as being generally deflationary such as what has occurred in Japan over the last 25 years and in that scenario WFCPL will be a good investment. So I have replaced some of my bonds with preferred issues in WFCPL BGEPF and CHSCM as I also personally like the agricultural area and do not want to only be invested in Financial area preferred. I simply do not have the patience of “Rambo” Mulligan to sit in the woods for days in camouflage waiting for an illiquid utility preferred to pass buy into my traps unexpectedly,I am just too impatient, even though I know he is picking up better values than I. While I will do not expect my preferred stock do as well as Rambo’s at present yield on my trio as a group is 6.24% at Friday’s close and I think they are still worthy of purchase at today’s prices though I am glad that I got them at 5% lower prices than you can today.

Thats good stuff Runningman, and yes, guilty as charged! I dont believe my yields are any better, its just I like price stability and the illiquids are that... In real life, I have no "apocalypse survival" items other than a few bottles of water in fridge for consumption. But yet on my preferreds money, I am more like that though. Those old illiquids have all sorts of covenant protections that companies "have forgot" to put in the newer ones. A little extra if unneeded security.
If a person wants to study preferreds there are definitely capital gains opportunity in them and as trading vehicles on the right distressed issues. But I was keeping my thoughts more to pure safe income.
Like you and Coolius has said, WFC-L is just fine. I also think any of CHS harvest issues are good long term plays...They tend to sell off every few months, with market scares due to their liquidity, so I would look for a more attractive entry point in those than todays prices and then pounce.
Like you I own BGEPF. I really dont view it as a preferred (even though it is) as much as I view it as a yield grab over the common stock of Bunge as it essentially is a tracking stock of Bunge with lower highs and higher lows with a better yield.
I just like to throw out the danger flags often to make sure people understand risks. RM, you are extremely versed in this area (way more so than me) so you know all the dirty accounting tricks and mayhem that can lie beneath the weeds. Many novice people looking for income just see a nice yield and read they are a profitable company so they conclude its a safe investment. Unlike yourself, I suspect many people do not understand recent "profits" are not in any way of themselves a true barometer of a companies viability. Good ol Valeant is a prime example... Currently "profitable" and yet a few chain reaction sequences away from possible insolvency all at the same time.


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[Coolius]

WFC-L at SA

Article on Seeking Alpha on WFC-L and BAC-L.

Bank Of America, Wells Fargo: Which Preferred Stocks Are Not Like The Others? | Seeking Alpha

I was amused by the comments - that they would avoid all above par preferred issues. Obviously, they are applying the broad brush to these stocks, which cannot be called unless the common trades at much elevated prices from today.

I'm happy with the perception that WFC-L is not a good investment, however, that is the opinion of retail types, and not the institutions, who have pushed the price up to its present $1,190. We can well do without the nervous nellies who sell at the drop of a hat.

Hoping for the price to come back down to $1,160- $1,170 where I will likely add to my position.

 

[Mulligan]

Article on Seeking Alpha on WFC-L and BAC-L.

Bank Of America, Wells Fargo: Which Preferred Stocks Are Not Like The Others? | Seeking Alpha

I was amused by the comments - that they would avoid all above par preferred issues. Obviously, they are applying the broad brush to these stocks, which cannot be called unless the common trades at much elevated prices from today.

I'm happy with the perception that WFC-L is not a good investment, however, that is the opinion of retail types, and not the institutions, who have pushed the price up to its present $1,190. We can well do without the nervous nellies who sell at the drop of a hat.

Hoping for the price to come back down to $1,160- $1,170 where I will likely add to my position.

Usually, I receive better incite from the commenters on the articles, than the article itself, but on this one only the ones with severely limited cranial capacity responded. Its like they didnt even read the article. "Only buy preferreds under par as they are better deals?" What ridiculous group think response was that? If over par "L" was called, you don't lose money, you would receive an additional capital gain 30 years from now if common stock price reached the strike point... You do not get paid back with a $1000...


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[Coolius]

Usually, I receive better incite from the commenters on the articles, than the article itself, but on this one only the ones with severely limited cranial capacity responded. Its like they didnt even read the article. "Only buy preferreds under par as they are better deals?" What ridiculous group think response was that? If over par "L" was called, you don't lose money, you would receive an additional capital gain 30 years from now if common stock price reached the strike point... You do not get paid back with a $1000...


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The positive take-away is that there will be less buyers for WFC-L. People who do not understand the issue's features will tend to stay away because of perceptions like what you read in the comments. They are not likely do further DD that provides better understanding, choose to remain in their ignorance, and stay away.

And, honestly, that's good for us. It means the issue will tend to be held by knowledgeable, and therefore stronger, hands. The downside to this is that there may not be as many " buying opportunities " as we would like.

 

[Golden sunsets]

Interesting article on the BAC-L issue. I'm curious. Why would the BAC issue not be just as good as WFC-L? Is it the health of the bank, which is inferior to WFC?

 

[Mulligan]

Interesting article on the BAC-L issue. I'm curious. Why would the BAC issue not be just as good as WFC-L? Is it the health of the bank, which is inferior to WFC?

By financial metrics they are not in same ballpark as Wells... BAC preferred pays 12 basis points more...Not even close to being worth the risk to buy that over Wells for a few pennys difference in dividend check.


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[Mulligan]

Bought 200 more shares of CNTHP (Connecticut Light and Power) at $53. Somebody is hiding behind the ask and letting them go at $53.00. Goes exD early next month and kicks out 82 cents every quarter since 1968. May be more out there if one is so inclined..


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[jim584672]

Thanks for the heads up, snagged 200.

 

[Slow But Steady]

I snagged a few myself. (I also discovered that they aren't letting them go at $52.90)

 

[capjak]

Thanks Mull I added 250

 

[Coolius]

I threw out a bid for CNLPL @ $52.74 - and was a little surprised to see it fill. But that's good !!

 

[tmm99]

When its time to sell, what if nobody wants to buy it, and you end up waiting for a long time?

Just askin...


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[Mulligan]

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

When its time to sell, what if nobody wants to buy it, and you end up waiting for a long time?

Just askin...


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If you are one who needs access to cash quickly they may not be a good investment... They do sell but you have to be patient. Just like you have to buy on a limit order, you have to sell that way also. It is definitely a purchase for the "buy and hold" investor. That being said, despite maintaining a healthy core of these issues whenever I have seen a bad bid price of $54 or above, I have accommodated and sold a few knowing I can buy back in the $52-$53 range. What is nice about todays selling was a dividend is just around the corner and you get a fair buy price, also.
Btw- There is ALWAYS buyers, if nothing else the market makers, but that may not be at a price you are willing to sell so one must be patient.

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[Mulligan]

I threw out a bid for CNLPL @ $52.74 - and was a little surprised to see it fill. But that's good !!

Coolius, must have a Schwab discount brokerage card....Automatically 25 cent off discount price of any purchases!


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[Mulligan]

So Capjack, Slow and Steady, and Jim do you all have any other preferreds now? Did you have any of the CNLPL/CNTHP prior to this purchase?
BTW-Slow and Steady is perfect name for a utility preferred stock investor!


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[Mulligan]

In case those who havent checked the details of CNLPL, you will find it to be safe as far as investing can be safe... CNLPL is a "cash cow" for its parent company Eversource... 2014 it had net income of about 300 million... Preferred dividends come out of that. Total yearly preferred dividend payments for all issues is about $6 million. I would say that is a very good coverage ratio...Eversource helped themselves to almost $200 million in 2015... They cant take a penny until we get paid. And they cant rape the company because its "ring fenced" protected.


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