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

[Mulligan]

GWSVP Stock Charts - Glacier Water Services Inc. 9.0625% Cum. Trust Pfd. Interactive Stock Charts - MarketWatch



I bought GWSVP for 24.85 in March 2012 it has spent almost all the time from 25.5-26 I got a feeling the board members own most of the shares.

I wonder if anyone else here does? I know Coolius does. We both have tracked it for a few years, but a few other people on an income forum mentioned they owned them and that jealously pushed us over the edge, and we bought. I have read a few articles on the company and precious little info is out there...A very "goofy" company in terms of its accounting..Many quarters it racks up massive "paper losses" from the accounting department. Mostly non cash losses through depreciation and such. Usually cash flow positive. Im hoping your theory is correct. Its tempting to buy more than my puny 200 shares, but it is out of my "safety" range when I am in my sane investing mode.

 

[Texas Proud]

I wonder if anyone else here does? I know Coolius does. We both have tracked it for a few years, but a few other people on an income forum mentioned they owned them and that jealously pushed us over the edge, and we bought. I have read a few articles on the company and precious little info is out there...A very "goofy" company in terms of its accounting..Many quarters it racks up massive "paper losses" from the accounting department. Mostly non cash losses through depreciation and such. Usually cash flow positive. Im hoping your theory is correct. Its tempting to buy more than my puny 200 shares, but it is out of my "safety" range when I am in my sane investing mode.

If it is what I think it is, it should be making a mint....

When I was working at my last job the previous controller signed a 5 year contract for a 'water cooler'... IIRC, like $50 per month or so... all they had to do was come out twice a year and change filters.... the machine cost maybe $200 retail, so who knows what they paid....

It was there the whole 5 years... or $3,000 for a $200 machine with some filters.... kinda a good markup...


I will be looking at these since they have a good yield and it looks like you can actually get some!!!

 

[Texas Proud]

I will throw out one that I have.... it is an exchange traded bond that was in a thread awhile back...

JSM...


I had bought 2750 shares in 2007 at $17.95.... then started to sell a few at a time when it got higher... sold out when over $20 per share...

But earlier this year bought 750 at $14.50.... still hanging on to them... my yield of cost is over 10%...

It is very volatile, so does not fit into most of your criteria.... just wanted to throw it out and see what people think....

 

[Mulligan]

If it is what I think it is, it should be making a mint....

When I was working at my last job the previous controller signed a 5 year contract for a 'water cooler'... IIRC, like $50 per month or so... all they had to do was come out twice a year and change filters.... the machine cost maybe $200 retail, so who knows what they paid....

It was there the whole 5 years... or $3,000 for a $200 machine with some filters.... kinda a good markup...


I will be looking at these since they have a good yield and it looks like you can actually get some!!!

Texas I am not an expert in accounting... Are you an expert on forensic accounting? We need one! Look at these financials...Look at those massive losses last year!
http://www.marketwatch.com/investing/stock/GWSV/financials/income/quarter
I frequently fight myself chasing yield. I know CNTHP is covered 50 times in income ratio on preferred dividends...This out fit has always paid, but with whose money? Earnings? Common stock offerings? Loans?
The market and companies arent into giving "excessive free lunches" so something is a bit fishy here. If you ever read Seeking Alpha " there are a couple articles on it.

 

[Mulligan]

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

I will throw out one that I have.... it is an exchange traded bond that was in a thread awhile back...

JSM...


I had bought 2750 shares in 2007 at $17.95.... then started to sell a few at a time when it got higher... sold out when over $20 per share...

But earlier this year bought 750 at $14.50.... still hanging on to them... my yield of cost is over 10%...

It is very volatile, so does not fit into most of your criteria.... just wanted to throw it out and see what people think....

I admit I have looked at it before. I have read articles that student debt loan default or legislation could really impact them. I dont really understand their finances enough. I can understand utility financing and know the century long tradition of always making payments with no defaults is what keeps me from panicking if they drop a buck. These bond ratings arent end all be alls, but that Ba3 scares me. Im sure Glacier Water is down in that area if not lower.
Many people are very successful in these types of issues though. Im afraid I have too much time on my hands and would watch price movement too much and be the classic "buy high sell low" investor in such issues...
But probably the biggest reason is I just do not have much tax free space available. So I get nailed at a 31% tax rate over 21% for QDI. So after deducting the extra tax, jumping up in risk to chase a bit more yield doesnt really provide me more income. I guess that is why I get so excited over the few very solid utility preferreds I am loaded to the gills with because I am already getting the 6.25% -6.40% that nets almost as much as 7.5-8% with almost infinite less risk.
If I had a big pile of tax free money, I would be more interested in philosophy of spreading risk out on higher yields with many issues at a 3% or so portfolio limit per issue.

 

[Texas Proud]

Texas I am not an expert in accounting... Are you an expert on forensic accounting? We need one! Look at these financials...Look at those massive losses last year!
GWSV Quarterly Income Statement - Glacier Water Services Inc. Quarterly Financials
I frequently fight myself chasing yield. I know CNTHP is covered 50 times in income ratio on preferred dividends...This out fit has always paid, but with whose money? Earnings? Common stock offerings? Loans?
The market and companies arent into giving "excessive free lunches" so something is a bit fishy here. If you ever read Seeking Alpha " there are a couple articles on it.

An accountant, but not a forensic accounting....


The company does look a bit shady... but unless I looked deeper I would not know why...

From what I read on their website, they are no longer a listed company on AMEX and do not have to give detailed accounting... But, from what I see it looks like they are spending a boatload of money... probably on new equipment. Look how much their revenue jumped in the 4th QTR... but, it does require a good amount of debt.... so right now it looks like new debt is paying off old debt....

Now that I have looked at the company I know what I said before was wrong... they have their machines inside grocery stores and people bring in their empty bottle to get refilled... not sure how great that is....


Also, I do not see any pref shares listed... so what are you actually buying? Would need to look into the structure to know where you would stand in case of BK....

 

[Mulligan]

An accountant, but not a forensic accounting....


The company does look a bit shady... but unless I looked deeper I would not know why...

From what I read on their website, they are no longer a listed company on AMEX and do not have to give detailed accounting... But, from what I see it looks like they are spending a boatload of money... probably on new equipment. Look how much their revenue jumped in the 4th QTR... but, it does require a good amount of debt.... so right now it looks like new debt is paying off old debt....

Now that I have looked at the company I know what I said before was wrong... they have their machines inside grocery stores and people bring in their empty bottle to get refilled... not sure how great that is....


Also, I do not see any pref shares listed... so what are you actually buying? Would need to look into the structure to know where you would stand in case of BK....

It technically is debt...Its a trust preferred. Their debentures are held inside of the trust... So it is technically not a true preferred. Several years ago, they filed with SEC a common stock offering to pay the trust debt off, but then quietly cancelled the offering and nothing has been heard of it since. A guy who wrote about it suspected many insiders owned the debt. Their finance spreadsheets look like a lemonade stand company from a junior high, ha! Yet this issue has been around a long time and always paid. The debt matures around 2028 so it has to be paid off.

 

[Mulligan]

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

Here are some comments about an article I cant get to link.
Hi Shawn--we have little concern with the negative book value--it has been large forever (at least since the issue of the Trust Preferred).

Remember that the largest liability is the debt which the trust owns--thus the Trust Preferred holders are by proxy holders of the debt ($85 million of it) so you are relatively insulated.

The company barely shows net income many years--but we mostly care that they are near breakeven as the net income reflects the interest paid to the trust (which is passed onto the trust preferred holders).
Thanks for the update. I bought it after reading your earlier (MUCH earlier) article and have watched those divvies hit my retirement account every month.

With all the depreciation, there is a good cash flow, and the "dividends" on the trust preferred are an expense before earnings are calculated.

Glacier has a marvelous simple plan. They continue to add capacity. I do not believe they will redeem the preferred as the admin costs would
outweigh the benefits. Since they are so small, cheap financing is not available to them. Plus I believe a lot of insiders own the preferred and take the income.
Here is my favorite one....
Thanks for your update Tim. I had a tour of their plant a few years ago and immediately bought some stock. Bad idea! I didn't understand how the business could continually lose money. Lost some $$$, sold and bought the Preferred. Great idea! I've held since December 2011 and added some since. This is a very different though simple business. I love it!

It is a nice family style investment.

I have owned is since de-listing and for someone looking for good income, even at today's prices a good buy IMO.


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[Mulligan]

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

Oh here is something really funny....When the common stock delisted in 2005, there were 37, yes, 37 people who owned the common stock. The trust preferred that we are discussing had 70, yes, 70 total people who owned the 85 million issue...That is why author suspects the insiders own the bulk of it.


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[Mulligan]

Here was last article from 2 years ago, Texas.
http://seekingalpha.com/article/193...-glacier-water-services-trust-preferred-stock


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[Texas Proud]

Here was last article from 2 years ago, Texas.
Revisiting Profitable Glacier Water Services Trust Preferred Stock - Glacier Wtr Tr9.0625 (OTCMKTS:GWSVP) | Seeking Alpha


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Not sure, but it looks like they set it up to not pay taxes....

IOW, if the main company has a huge debt, it gets to deduct that interest as a business expense... meaning there is no income to tax... and the common shareholders do not get any dividends... (remember, if a C corp there is double taxation)...

So, you create a trust that holds the debt and then dividends it out, so it does not pay taxes... I do not know why they have the extra step of having a trust as they could just as easily just have the debt outstanding... but I bet there is something that they are doing that has a tax advantage here...

It seems like it is making enough cash to pay... but, since you would have it in a taxable account it does not make sense to you to own this...

 

[Mulligan]

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

Not sure, but it looks like they set it up to not pay taxes....

IOW, if the main company has a huge debt, it gets to deduct that interest as a business expense... meaning there is no income to tax... and the common shareholders do not get any dividends... (remember, if a C corp there is double taxation)...

So, you create a trust that holds the debt and then dividends it out, so it does not pay taxes... I do not know why they have the extra step of having a trust as they could just as easily just have the debt outstanding... but I bet there is something that they are doing that has a tax advantage here...

It seems like it is making enough cash to pay... but, since you would have it in a taxable account it does not make sense to you to own this...

I got these shares in a tax free...but if i had more I would have to sell something or wait for my big $3300 annual hsa deduction. I got my interest bearing preferreds in my non taxable. KCC, CVB, KTH, BGEPF, MNR-A, and GJP, besides this crazy water issue...

 

[Texas Proud]

I got these shares in a tax free...but if i had more I would have to sell something or wait for my big $3300 annual hsa deduction. I got my interest bearing preferreds in my taxable. KCC, CVB, KTH, BGEPF, MNR-A, and GJP, besides this crazy water issue...

I was just looking at the prospectus of the trust... the company was making bookos of money prior to the debt issue.... they only has IS to 1996, so do not know what happened after that....

I might go for a few 100 shares... but there are all the other issues that I want to look at... just trying to get a decent portfolio to replace my HY fund with a higher rating, so I would like diversification...

 

[Mulligan]

I am going from memory and I do not have specifics but there were a lot of trust preferreds issued in early 2000's. I remember an article stating they were taking advantage of a now closed loophole, but it never mentioned details.
When first getting into these, if I were you, I would consider what yield in relation to safety that you want. For most of my issues 6% plus is high yield, QDI, for me. Most of my money is in the Ameren and Connecticut Light and Power, and Peco Energy preferreds. I like the fact that net income ratio covers the bottom feeding preferreds dozens of times over.
Some high yield searchers buy either comfortably (or unknowingly) with ratios as low as 1 or under... Ugh!!!! If I were creeping towards 8% in search of yield it would be on the debt side or "baby bond" preferreds where you are at least considered debt, albeit non secured.
That Quest baby bond Alaska mentioned may be worth looking at as its near 7%. I have a modest amount of CVB which is a KinderMorgan trust preferred. It is noncallable for decades and yields about 7.4% and is BAA3 lower investment grade..


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[capjak]

What is your collective guidance on the maximum to "risk" on preferred issues?

Realize each person has different reasons for being in these income producing issues. Mine is to generate income for retirement (LBE is 1.5 years to retire) and these are in my taxable account as my tax deferred is all 401k without these preferred options.

 

[Mulligan]

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

What is your collective guidance on the maximum to "risk" on preferred issues?



Realize each person has different reasons for being in these income producing issues. Mine is to generate income for retirement (LBE is 1.5 years to retire) and these are in my taxable account as my tax deferred is all 401k without these preferred options.

Seasoned professionals advocate no more 10% of portfolio for an investor wishing to invest in these securities, and 20% max for the "aggressive" investor. But keep in mind this is a recommendation based on what their perception of what a "preferred stock" is. This middle of the road perception is one of sector concentrated non cumulative bank preferreds needed for regulatory capital requirements and debt laden companies needing capital that it cant acquire through traditional means, usually because they are "tapped out" there also. To be honest with you, I have almost zero interest in owning any of those types even though they are probably over 85-90% of the total "preferred universe". The Glacier Water issue we have been describing in my mind fits the above, so I just have "fun money" on it. Yes, it may pay, but it is a junk company with a negative book value. Though technically it is not a "true preferred". The term preferred stock has become a lazy catch all term to also cover "baby bonds" "trust and 3rd party trusts" "convertible preferreds" and "mandatory convertible preferreds" (meaning they convert to common stock after a period of time or strike price on common is hit to force the mandatory conversion.
I have over 80% of my entire money in preferreds though almost none of it in areas the financial experts think of. Heck they arent even aware of these utility preferreds. These were issued WAY back in the day when they established their capital funding regimen, not because they have to because they cannot access debt markets as they have pristine balance sheets, retained capital, guaranteed rate of return, and monopoly status, and an unblemished history of paying through generations of recessions and other financial calamities. All of my main company's preferreds issued could pay their entire series in 6 months with their earned income alone. Most preferreds issued from companies couldn't be paid off unless they were rolling over the amount into more debt or a newly reissued series of preferreds.
Coolius has a way more balanced approach between stocks, true bonds, and "preferreds". Maybe he will sharpen the pencil and opine on what percent of his money is allocated to preferreds.

 

[Running_Man]

What is your collective guidance on the maximum to "risk" on preferred issues?

Realize each person has different reasons for being in these income producing issues. Mine is to generate income for retirement (LBE is 1.5 years to retire) and these are in my taxable account as my tax deferred is all 401k without these preferred options.

The percentage one holds would depend on the level of financial knowledge you maintain as an investor. For the average investor who does not like to read company financial statements and review potential issues I do not think any more than 5 percent in individual preferred issues. Place a little more work to determine financial risk and maybe then up to 10 percent

For someone who like Mulligan finds an area they are very comfortable with and willing to assume more concentrated I can see investing up to fifty percent, but beyond that I am of the opinion you are becoming too concentrated in one type of investment to be good for a 30 year retirement.

In a truly horrific economic environment, one beyond the control of corporate CEO’s and CFO’s a very good company with an excellent history may be forced to stop Preferred payments and there you would be in the worst of economic times and no income. This is where US government bonds, back when they actually paid an interest rate, served a very good purpose in a portfolio for providing income and why a percentage in short term bonds or CD’s also is necessary.

For myself as I look at this in the present economic environment a blend of 10% of my portfolio in individual preferred shares @ 6 percent with 15% of portfolio in a ladder of 5-10 yr US treasuries @ 2.2 percent income provides a nice blended yield of nearly four percent for the long term “bond” portion of my portfolio. But this additional “yield” is not lost on me as there is considerably more risk for obtaining this increase in yield. I am not nearly there yet with individual preferreds but yearly as a portion of my 10 year treasury ladder matures I will look at this with an eye of judging if this still makes sense in the interest rate environment at the time.

 

[Mulligan]

RM, from everything I have read you are right in line with a prudent plan for preferreds. And "loading up" in one specific issue is not smart for someone who is dependent on their portfolio to live off of. I have mentioned before, but not in previous post something important in terms what I do. I live off of a pension, not my investments. In fact I never will live off my investments. 6 years into retirement I only spend 60% of my monthly take home pension check. And it will be even less in a few years when I pay off my mortgage. So I can "violate conventional rules" and not worry about portfolio diversification. I actually just looked at it and eyeballing it closely, I am around 65% in just Ameren and CLP. Nothing I would recommend anyone to do, but for my money and goals they are the best of the bunch so that is what I do.


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[Coolius]

While I have not determined exact numbers, the rough allocation across all my accounts ( Taxable, ROTH, and TIRA ) would look like this:


Individual Corporate Bonds: 25%
Common Equities: 15%
Preferred, ETD, Notes: 45%
CEFs: 3%
Cash ( MM, CDs ) 12%


I have a withdrawal rate of around 3.6% to supplement Social Security, and provides a comfortable quality of life.

I am looking to reduce cash to about 5%, but finding good stuff to buy is difficult. The market does seem to be either fully valued, or getting to become overvalued.

 

[Running_Man]

RM, from everything I have read you are right in line with a prudent plan for preferreds. And "loading up" in one specific issue is not smart for someone who is dependent on their portfolio to live off of. I have mentioned before, but not in previous post something important in terms what I do. I live off of a pension, not my investments. In fact I never will live off my investments. 6 years into retirement I only spend 60% of my monthly take home pension check. And it will be even less in a few years when I pay off my mortgage. So I can "violate conventional rules" and not worry about portfolio diversification. I actually just looked at it and eyeballing it closely, I am around 65% in just Ameren and CLP. Nothing I would recommend anyone to do, but for my money and goals they are the best of the bunch so that is what I do.


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>That certainly feels good doesn’t it! Certainly you have shown genius in exploiting a hole in the efficient market hypothesis, it is a zen philosophy that certainly impresses me anyway. And you have been very helpful to many here understand preferreds I have an image now of you at home typing on ERF with uncashed pension checks littering your desk like Ty Webb in Caddyshack, and picking up preferred issues as easily as putting a golf ball

VisionBall - Be the Ball

 

[Mulligan]

>That certainly feels good doesn’t it! Certainly you have shown genius in exploiting a hole in the efficient market hypothesis, it is a zen philosophy that certainly impresses me anyway. And you have been very helpful to many here understand preferreds I have an image now of you at home typing on ERF with uncashed pension checks littering your desk like Ty Webb in Caddyshack, and picking up preferred issues as easily as putting a golf ball



VisionBall - Be the Ball

I wish I had uncashed pension checks... I physically had to touch every paycheck I earned, never signing up for direct deposit. My first direct deposit I ever had was my pension check. That caused me some angst for a few months as I always have touched my checks.
Besides, diversification and call issues aside, the issues I own are a heck of a lot safer than anything my pension system owns I am sure.
Of course if I had not spent the first 35 years or so of my life squandering all my free cash on frivolous things maybe I wouldn't need a pension. But they are great things for idiots like me who were not programmed to "save for tomorrow".

 

[Texas Proud]

Coolius, the odd thing about it, is the small transaction. You and I have both seen 10k-50k block transactions occur in these illiquid types bypassing retail. But a 300 share block sold on purpose at an intentional loss? The good thing is for people owning it,who worry about net worth, next transaction will occur in its normal range that is certain. In fact it will be higher than the previous transaction.


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I just started going back through the whole thread as I was pretty sporadic reading it....


This could simple be someone moving shares from one of their entities to another... IOW, if I had it in one trust but wanted in another I would just do the trade at par and be done with it.... since I had both sides of the trade I know where it was coming from and going.... since they are two legal entities the shares cannot just 'move'

 

[Mulligan]

I just started going back through the whole thread as I was pretty sporadic reading it....


This could simple be someone moving shares from one of their entities to another... IOW, if I had it in one trust but wanted in another I would just do the trade at par and be done with it.... since I had both sides of the trade I know where it was coming from and going.... since they are two legal entities the shares cannot just 'move'

I admit I have little understanding of the internal market processes. I have seen some odd things in the illiquids though. Just last week, CTPPO (a small leftover amount from a voluntary call of a Central Maine issue) had 3 trades last week. One share at $177 sold, then another at $177, and then a few days later one share at $109. Who would buy or sell one share of a 6% $100 par stock at $177 twice?
Then one day I got bored and decided to see if I could flush any more shares out of AILNP. It had a 1 share ask offer of $1000 for a $100 par stock. I put a 100 share ask of my shares at $500 and gradually lowered it. When I dropped it to $300, 25 shares joined mine and would instantly match my lower adjustments. But at my final ask of $200 the 25 shares disappeared. I pulled my ask at that point as I didnt want to sell mine, but I Was determined to see if I could flush anymore out if there were any. So there were 25, but they were hidden off the official level 2 trading price and really weren't seriously being peddled though.

 

[Coolius]

I have long ago given up any hope of understanding the gyrations of trading in illiquid preferreds. they defy all manner of rationale and logic.

As Mulligan has stated, there are sellers who pop up here & there with 1,3, 44, 68 shares and really mess up one's bid and/or ask.

I am fortunate to have full positions in most of the illiquids I want, and so no longer compete with others for bids/asks as I had to do previously.

However, if I see a bid or ask that is compellingly attractive, I have at times simply bought/sold at the published price.

 

[Coolius]

This morning, saw a seller offering 180 shares CNLPL @ $52.71. Bid was $52.70.

So I quickly bought those shares - exactly like the post above, where a good opportunity occurs now & then.