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

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

Coolius said:
Those who own CNLPL, give yourselves a pat on the back.

Hitting close to new highs today - at $54.90, before settling back a little. As I write this, the bid is 900 shares @ $54.75, wow. :eek:

Sorely tempted to sell, but then the problem is how to replace the income stream, with comparable safety and reliability? Guess I'll hang onto mine....


Update: I could not resist - sold 35% of my position @ $54.95. I hope to buy back at the right opportunity in future, but feel a little sad, like a child going off to college.....:(
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Excellent job of taking profits on the feeding frenzy, Coolius! I ditched a bunch but unfortunately around the $54 plus mark. I also recently took heavy profits on KTH. Been playing the "Hi" "Low" yield trades to spread my bets... This week I bought 500 shares each of GJT and GJP on the "Low" and 1000 of EGXKP on the "Hi"


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Well, got a partial order on KCC... then the price started to go UP....

Not quite half of what I was hoping to get...


Lost internet this morning due to storms and it just came back up... so kinda too late to do anything else... do not have any CNLPL, so could not do anything with it anyhow...
 
I know you will, but be patient with it and dont chase.. If it wasnt so far above call, yield still screams it a buy... But that call risk has to be respected.


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I tried to mow got rained on so I quit. Lost all my golf matches this week due to rain. Oh well, I dug through my 3 accounts to see exactly what preferreds I have now. Here is what I got now... AILNP/AILLL, CNTHP/CNLPL, EGXKP, NGHCZ, UEPCO, CVB, CTWSO, BGLEP, GOODO, KCC, MNR-A, GLT, GJP, OSBCP.
Sold all my KTH when it bounced near $34 the other day...Greatly reduced CNLPL due mostly to dumb bids which have since got even worse. Used the money and a little sitting around to buy a big slug of EGXKP, and Smaller 500 doses each of GJP and GLT.
Despite mostly having 6% safe issuers, I have bought and flipped enough to already be up 7% this year. Sell the rip, and buy the dip on same issue or similar one and grind out more money. Though I must admit I dont do it to increase profits (though it has for now), I do it for entertainment. Its hard to get into trouble mostly flipping investment grades for other investment grades.


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Mulligan said:
I know you will, but be patient with it and dont chase.. If it wasnt so far above call, yield still screams it a buy... But that call risk has to be respected.


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WOW.... my order was filled after closing!!!

Got the 250 shares I wanted.....


OH... what was that website with the info:confused: Lost it when I got my new OS I did not want!!!
 
Bored at Mall, so thought I would explain my last 2 purchases in case one would be interested in understanding them ( not recommending them). I recently purchased 2 "synthetic floaters" GJT and GJP. 3rd party trusts whose certificates are backed ultimately by AllState and Dominion Energy. GJT has no floor and is 3 month treasury plus 80 bips GJP has a 3% floor at $25 par, and pays 3 month plus 1.15. Obviously these are trading way under par due to low rates and do no mature for another 18-20 years. They tend to move directionally with short term rates, GJT more so as it has no protective minimum floor. So these are my "risky" plays, betting on low end instead of long end. But my definition of risk I believe to be muted due to the fact the underlying bonds are safe.
There were dozens and dozens of these issued in the early 2000's but most have been called due to the asymmetric risk of the issues... Trust holders called all of the fixed ones at par and pocketed all the bonds and profits when long end dropped. The ones that are left are the adjustables which trade under par. No incentive for the trust to call and confiscate them. The only ones left I track are the AllState, Procter and Gamble,Dominion, and a Walmart one. A contrarian play. Look for a rate spike fear and then sell.. Of course if rates rise in 3-7 years these will still make good returns. I played GYC 2 weeks ago for a quick $500 profit holding 2 days buying 500 shares. The key is looking for a "dump day" and buy.
3rd party trusts do have other risks associated to it through counter party
Swaps, but the ones I have monitored have underlying bonds basically uncallable due to punitive buyout feature, which keeps the counter party derivative risk in check . Plus all of these survived the 08-09 crisis with no loss of income happening. I doubt much worse can be thrown at them.


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For those who own Wells Fargo Preferred series L, WFC-L, I have attached a link to a SA article.

The comments are very revealing - shows a large % of the investing public still do not understand preferred stocks. They keep harping on the call issue, even when others point out that it is a "conversion call", and only possible if WFC common trades above $165 for 30 days ( it is about $50 right now ).

Many other commentators say they will wait for a lower price as it is bound to drop when interest rates rise. I heard the exact same arguments last year, when the stock was at $1,160 and before the December hike by the Feds. :facepalm: Very familiar argument - and likely to keep such folks on the sidelines for a long time, maybe forever.

Quarterly Buying Opportunity In A Wells Fargo Preferred Nears - Wells Fargo & Co. (NYSE:WFC) | Seeking Alpha

While I do not think there is much capital appreciation left in WFC-L, I am in it for the income and so long as it is above my cost basis, I am relatively unconcerned about the day-to-day price.

Definitely not selling, but would not be looking to buy more at this price.
 
I'm about to retire and I need to decide whether to take a lump sum or a monthly pension payment. I'm leaning toward the lump sum, since (using a discount rate of 4.5%) the breakeven for taking the monthly payout is when I'm 88.

If I take the lump sum option, I might invest 25% or so in the kinds of preferred issues we've been discussing here. Perhaps 50% might be in dividend-paying stocks and 25% in corporate bonds.

I realize it might take a few months to get invested, but does such an allocation to illiquid preferreds seem imprudent? (These percentages would be of the lump sum payout. The percentage of our overall portfolio would be maybe a tenth of that.)
 
Slow But Steady said:
I'm about to retire and I need to decide whether to take a lump sum or a monthly pension payment. I'm leaning toward the lump sum, since (using a discount rate of 4.5%) the breakeven for taking the monthly payout is when I'm 88.

If I take the lump sum option, I might invest 25% or so in the kinds of preferred issues we've been discussing here. Perhaps 50% might be in dividend-paying stocks and 25% in corporate bonds.

I realize it might take a few months to get invested, but does such an allocation to illiquid preferreds seem imprudent? (These percentages would be of the lump sum payout. The percentage of our overall portfolio would be maybe a tenth of that.)
Click to expand...



This is above my pay grade, but I swear I know 3X as much as Ameriprise salesman, I mean advisors, based on my discussions with some (and that still isn't saying much). I can only offer thoughts not recommendations. Do you have other pensions or meaningful SS base support? That is a biggie in the scheme of things.
Yes, I violate every investing rule there is... Little diversification in companies and sector, all why buying past call over par issues.
BUT..... I dont even live off any of my investment money, nor ever plan to use it...Just today I flipped a 500 share issue of GJT which is a monthly paying STRAT preferred and pocketed $250 for 3 days..Easy HSA money..
But the reality is preferreds are the last in line of payment, except the common dividends. Eventually no profits......no preferred divi payment which equals a huge cap loss....That is why I stick to monopolies and a few trust preferreds which is debt and that is on the other side of the capital ledger. For example I snagged 400 shares of SIVBO which yields 6.7% past call and Baa1 rated by Moody's. No junk preferreds for me as a general rule.
Yes, I love my preferreds and investing in them, but no way would I give up my pension life support to attempt to manage a portfolio and live off it. I would want a base security level to live off and go from there... But that is just me.



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Unlike Mulligan, I have no pension. So I live off 2 streams of income - Social Security, and dividends from my investments.

SS only covers a third of what I need to maintain my quality of life, so the other two-thirds must be generated from investments - and these are mostly in the kinds of Preferred stocks that Mulligan describes.

I do have a ladder of investment grade corporate bonds, where maturities are staggered. These are all in IRA and ROTH.

I do feel comfortable with what I now hold, and will only seek to replace a stock should it be called. If not, I continue to enjoy the dividend stream.

Stocks like WFC-L fit the bill well, they do not have a call date, and the "conversion call" requirement is easy to see coming ( the common MUST trade at around $165 for 30 days or more ). And in the meantime, a 6.1% income stream fully qualified.

I do appreciate the need for a well diversified portfolio in retirement, but at this time I am certainly not in that category.

As I get along in age, I intend to shift funds into Vanguard Index funds so that DW will not be concerned about investing - she has no interest now, and not likely to change.
 
Coolius said:
Unlike Mulligan, I have no pension. So I live off 2 streams of income - Social Security, and dividends from my investments.

SS only covers a third of what I need to maintain my quality of life, so the other two-thirds must be generated from investments - and these are mostly in the kinds of Preferred stocks that Mulligan describes.

I do have a ladder of investment grade corporate bonds, where maturities are staggered. These are all in IRA and ROTH.

I do feel comfortable with what I now hold, and will only seek to replace a stock should it be called. If not, I continue to enjoy the dividend stream.

Stocks like WFC-L fit the bill well, they do not have a call date, and the "conversion call" requirement is easy to see coming ( the common MUST trade at around $165 for 30 days or more ). And in the meantime, a 6.1% income stream fully qualified.

I do appreciate the need for a well diversified portfolio in retirement, but at this time I am certainly not in that category.

As I get along in age, I intend to shift funds into Vanguard Index funds so that DW will not be concerned about investing - she has no interest now, and not likely to change.
Click to expand...



We PM and discuss often, and I dont think you give yourself enough credit. In my opinion you are quite diverse and also hold a safe conservative portfolio that yields good income. But you havent been sharing with me your hidden opulent lifestyle...SS covers only 1/3 your income? My Dad and his wife don't even spend all of their monthly SS income. And touching investment income? Well that isnt happening as long as Dad is alive. I was on him again today about and shut me down...He said "Son you dont know how hard I worked to make this money. I am not letting it go!"



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Mulligan said:
We PM and discuss often, and I dont think you give yourself enough credit. In my opinion you are quite diverse and also hold a safe conservative portfolio that yields good income. But you havent been sharing with me your hidden opulent lifestyle...SS covers only 1/3 your income? My Dad and his wife don't even spend all of their monthly SS income. And touching investment income? Well that isnt happening as long as Dad is alive. I was on him again today about and shut me down...He said "Son you dont know how hard I worked to make this money. I am not letting it go!"

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Click to expand...

More grandkids = increased spend down of SS funds. Add 50% more for granddaughters.
 
My working career is much shorter than typical, because I moved to the US from another country in my late 30's due to a job promotion transfer.

And my wife has not worked in the US because we had kids at the time. Plus her credentials would not be accepted here unless she took qualifying exams which would be a hassle with 2 very young ones.

We made a decision that so long as my income allows us to live in LBYM status, she would stay home with the kids and instill in them strong values morally & spiritually. She never went back to work.

As such, the SS amount is much smaller than for one who has worked since college graduation.

Fortunately, I have no grandkids as my children are not yet married. :)
 
Preferred Stock Investing-The Good , The Bad and The In Between

aja8888 said:
You are fortunate (for now). Mulligan's Dad needs to heed this if they have them.:LOL:
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He is "old school" once you turn 21 no more gifts. :) I am a bit harsh...When you have zero health care costs, paid off home (bought a new 1700 sq ft ranch 7 years ago, but they are cheap here around $160k) paid off cars (one new), and only likes his wife's home cooked meals (they are excellent) there really isnt much to spend money on for their needs. He has a brand new John Deere mower so he thinks anything else is a waste of money.
Sunset, he has talked about that too. He says he needs to be cremated, a waste of money to have a funeral!

Added thought...My Dad might sound a bit tight, but he is nothing to my friends Dad. Leaves in an old $40,000 small farm house and shut off heat to bedrooms to save money. And he is a multi millionaire himself. The generation of people who lived in houses without running water and accumulated money over a lifetime through hard work and saving, are just not going to turn the spigot on late in life where I live.
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Slow But Steady said:
I'm about to retire and I need to decide whether to take a lump sum or a monthly pension payment. I'm leaning toward the lump sum, since (using a discount rate of 4.5%) the breakeven for taking the monthly payout is when I'm 88.

If I take the lump sum option, I might invest 25% or so in the kinds of preferred issues we've been discussing here. Perhaps 50% might be in dividend-paying stocks and 25% in corporate bonds.

I realize it might take a few months to get invested, but does such an allocation to illiquid preferreds seem imprudent? (These percentages would be of the lump sum payout. The percentage of our overall portfolio would be maybe a tenth of that.)
Click to expand...


Hey Slow but Steady.... I am new to the game... and there is a lot of good info on this site...

Diversification does not take a lot of work... I think you can get a good amount of diversification with 10 issues... right now I have 7... trying to get two more...

I will give some of my thoughts on this also... I am replacing my HY bond allocation with these issues... so I am looking at buy and hold for almost all of them... not that I will not sell if the price goes up enough...

It also represents about 6% of my total investments... I am not looking to have this as my income stream... just a supplement to my stock holdings... now, I might change with time and when I can actually start to take the income (well, I guess I could since all my investments are in a ROTH, but I choose not to)....

I will also say they are not as illiquid as you might think.... shares for a good number trade almost every day.... and I have never seen any without a buy or sell bid that is at least close to the current price... (close is relative... say 50 cents to be in the ball park)... so you could sell if you actually needed too.... but, I keep money in a ST bond fund for my current needs, so selling is FAR off in the future for me...

Also, it might take you awhile to get all the issue you want at a price you want... but, if you are willing to pay up a bit you can probably get everything you want in a week or so... I sit and wait... so far it has been working for me except for one issue that Mulligan says have very very little shares outstanding... seems to not trade that often, but I can wait for now...
 
Texas Proud said:
Hey Slow but Steady.... I am new to the game... and there is a lot of good info on this site...

Diversification does not take a lot of work... I think you can get a good amount of diversification with 10 issues... right now I have 7... trying to get two more...

I will give some of my thoughts on this also... I am replacing my HY bond allocation with these issues... so I am looking at buy and hold for almost all of them... not that I will not sell if the price goes up enough...

It also represents about 6% of my total investments... I am not looking to have this as my income stream... just a supplement to my stock holdings... now, I might change with time and when I can actually start to take the income (well, I guess I could since all my investments are in a ROTH, but I choose not to)....

I will also say they are not as illiquid as you might think.... shares for a good number trade almost every day.... and I have never seen any without a buy or sell bid that is at least close to the current price... (close is relative... say 50 cents to be in the ball park)... so you could sell if you actually needed too.... but, I keep money in a ST bond fund for my current needs, so selling is FAR off in the future for me...

Also, it might take you awhile to get all the issue you want at a price you want... but, if you are willing to pay up a bit you can probably get everything you want in a week or so... I sit and wait... so far it has been working for me except for one issue that Mulligan says have very very little shares outstanding... seems to not trade that often, but I can wait for now...
Click to expand...


On the subject of waiting for an illiquid stock to emerge from its grave, I have had open bids out for what seems like months for stocks like AILNP, AILLI and IPWLK. Nothing. :facepalm: So I continue to sit & wait.

The odds of reasonable pricing are better with stocks like CNLPL, CNTHP, and AILLL. But the prices for those have risen to where it is kind of frothy, so I would not add at current asking prices. One just has to wait for a seller who needs to dump, then be quick to react.

Patience is likely the watchword for this kind of strategy. :LOL:
 
Thanks for the responses.

If I take a monthly payout, this pension would make up about 20% of our living expenses. Until social security starts, there is no other source of income other than what can come from the investments. That means I'm a long way from being like Mulligan and not needing the investment.

Fortunately, we've saved enough that we can get by on about a 3.5% withdrawal rate, going down to 2.5% or so after Social Security kicks in.

At this early stage, a lot of our money is in tax-deferred accounts, so I won't necessarily be looking for issues that pay qualified dividends. I think I'll get the rollover about August 1, but I'm looking at ways to get invested using some funds that are already in my various accounts. I should have been doing more of that anyway, but I'm still working, so I just don't have that much time.

Thanks again for your insights!

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

And some people like me dont have as much patience and like "shooting fish in a barrel" take the profits and go to the next best thing, and sometimes buy and flip before settlement date. Snagged some easy money this week with issues preferreds bought and sold already! Have a little but more cash to finish off, but this is my starting lineup tonight.
CVB, MNR-A, NGHCZ, CNLPL/CNTHP, AILLL/AILNP, KCC, GJP,SIVBO, EMZ, EGXKP, BGLEP, CTWSO, OSBCP, UEPCO.
Really intrigued by SIVBO, not many trust preferreds left and a juicy 6.7% yield with Moodys Baa1 backing... Bought 400 of these bad boys. Plan on putting these in the vault with my other Ameren and CLP issues. Picked off yesterday 250 of EMZ high quality A debt rated baby bond at $25.36. 5.9% plus yield for a mortgage backed bond. Hope this doesnt get called.
Bought way too many EGYXP recently, like a 1000 shares. Will pull back some after I dine and dash on the upcoming dividend as it goes exD in about 2 weeks.


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Slow But Steady said:
Thanks for the responses.



If I take a monthly payout, this pension would make up about 20% of our living expenses. Until social security starts, there is no other source of income other than what can come from the investments. That means I'm a long way from being like Mulligan and not needing the investment.



Fortunately, we've saved enough that we can get by on about a 3.5% withdrawal rate, going down to 2.5% or so after Social Security kicks in.



At this early stage, a lot of our money is in tax-deferred accounts, so I won't necessarily be looking for issues that pay qualified dividends. I think I'll get the rollover about August 1, but I'm looking at ways to get invested using some funds that are already in my various accounts. I should have been doing more of that anyway, but I'm still working, so I just don't have that much time.



Thanks again for your insights!



Slow
Click to expand...



Starting out Texas's plan isnt too bad based on percentages. Coolius knows exactly what he is doing and has done it for many years buying and selling preferreds. Even though I do it, I hate to just say "I love it and you should do it too" and get you in a tough spot. Personally you need little investing acumen to own the Ameren and CLP, and BGE issues. They will pay come hell or high water... But what if they are called? What is the plan B? Buy something and hope? Become more of a student and learn the craft?
I will be honest they are fun to own, when people are barking about the market going up and down, it has been nothing but an investing snoozefest and collect the dividends. But if you start reaching for yield in places you can get your fingers bit off. Although it has returned back near par, AHT-D went from $25 to $16 in about a week earlier this year. Who wants to deal with that? There is a reason why...Though profitable it is up to its eyeballs in debt. If credit market locks up at wrong time on this issue, you may be screwed, or any other "low rent" preferreds which there are endless bounds of.


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