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

[Mulligan]

What would happen if KMI defaulted on the payments? Would US Bank be obligated to make the certificate holders whole?

I believe that US Bank is a strong company, but the question here is whether they have any responsibilities for maintaining the payments.

US Bank going belly up has nothing to do with the safety of the investment... If they go belly up someone else would run the trust. Lehman proved that when they went belly up. No effect on issue...Its all about the underlying company that issued the debt....KMI....


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[Mulligan]

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

Would you be willing to share what you paid for CVB and PVTBP
I look at the prices and worry that I'm missing something that would cause me to lose $$$ quickly.

Sure...I reentered CVB at $10.80... Since it is not callable being over par is not such a big deal. The yield is nice....PVTBP is a bit more problematic for someone entering... I bought 500 at $26.50 and sold before buyout offer at almost a buck profit in a week...A few hours later when call fear busted out from merger, I bought a 1000 that same day at $25.57 ...Then I bought more at $25.62, then $25.78, and my last 200 yesterday at $25.98.... Have about 2000 shares...Pays 62.5 divi every 3 months. It sure looks like next divi will happen. Most of mine was bought at one divi or less above par.

Added....Another member on another forum informed me there may be call warrant holders on CVB. Which means they have the right to call them at $10, and assume them...This has been that way since 2007. So there have been better times when issue was higher priced past call and this did not happen. So who knows, but one must decide that risk. Im not worried, but all of mine are so that is more of a reflection of my call tolerance than it is that they are not callable.

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[Winemaker]

Heads up! Merrill Lynch 6.45% Trust Preferred (MERPRM) called 8/15/16 for $25.00.

I had a great ride, many, many shares purchased for under $22 back in 2008-2009. I had to suffer through many divvies since.

 

[Mulligan]

Heads up! Merrill Lynch 6.45% Trust Preferred (MERPRM) called 8/15/16 for $25.00.

I had a great ride, many, many shares purchased for under $22 back in 2008-2009. I had to suffer through many divvies since.

Winemaker, lets dont just leave it at you complaining about all the income you received over the years...Are you going to try to fleece a buyer or just hold until call accepting the $25?....Have any plans for the incoming money or just digging some more foam out of the mattress to stuff it in there?


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[Winemaker]

Winemaker, lets dont just leave it at you complaining about all the income you received over the years...Are you going to try to fleece a buyer or just hold until call accepting the $25?....Have any plans for the incoming money or just digging some more foam out of the mattress to stuff it in there?


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I will be respectable and hold til call date. No foam digging, but come September, the grapes will be ripening in sunny Kalifornia. Do you know how many grapes it takes to fill a barrel?

My modus operandi has always been to purchase under par, but even the lowly GS-A and MS-A floaters are up over a buck in the past week. Methinks a bubble has been forming in preferreds the last 6 months as people are chasing yield. Don't know if it's bad, or what the bear trigger is, but I'm sure I can bail out fast enough. That is unless I'm up to my knees in grapes and grape juice.

 

[Mulligan]

I share your concern. That is why I have loaded up on PVTBP. Great upside, minimal downside and hope things cool down for better entry points and hopefully collect the 9.65% while patiently waiting. Even my glorious illiquids have been bit on. Glad I got in when I did and will just hunker down and hold them. The flipping days are over,


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[Coolius]

I share your concern. That is why I have loaded up on PVTBP. Great upside, minimal downside and hope things cool down for better entry points and hopefully collect the 9.65% while patiently waiting. Even my glorious illiquids have been bit on. Glad I got in when I did and will just hunker down and hold them. The flipping days are over,


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Hard to believe I'm hearing from the Great Mulligan - his Flipping days are over?? Say it ain't so !!

But there's simply no fun in investing if we don't Flip - for us ER folks the alternative is to go to the mall, ogle the young ladies there, and feel sorry that you're not 20 years younger.

I'd bet Mulligan goes back to flips, flops, twists & turns before too long.....

 

[Mulligan]

Hard to believe I'm hearing from the Great Mulligan - his Flipping days are over?? Say it ain't so !!

But there's simply no fun in investing if we don't Flip - for us ER folks the alternative is to go to the mall, ogle the young ladies there, and feel sorry that you're not 20 years younger.

I'd bet Mulligan goes back to flips, flops, twists & turns before too long.....

It was a forced retirement.... But I wont give up hope... I got a little more cash to put to work so that will keep my occupied a few days...BUT...I hope in a few months when the PVTBP scare dies down and a few divis pass, the idiot yield chasers come out and bid it back up again, and then I will flip a 1000 of my 2000 stash to book a nice little profit and get my total amount of PVTBP into a more sane ratio of my portfolio amount....Because it isn't anywhere near 3% I assure you!


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[Coolius]

I could not resist the siren song of the Flippers....

This morning, I saw a CNLPL bid at $55. Ask was $55.65.
Decided to sell 200 shares at that price - had bought those 200 shares couple days ago for $53.60..

Now the bid is $53.60.

Will watch and buy back if I can, hopefully below $54.

Mulligan will be proud of me - I'm carrying on the Flipping tradition !!

 

[Mulligan]

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

I could not resist the siren song of the Flippers....

This morning, I saw a CNLPL bid at $55. Ask was $55.65.
Decided to sell 200 shares at that price - had bought those 200 shares couple days ago for $53.60..

Now the bid is $53.60.

Will watch and buy back if I can, hopefully below $54.

Mulligan will be proud of me - I'm carrying on the Flipping tradition !!

I wish I could just do those sorts of things 3 times a day and still collect the dividends while trading....Life would be good.....The past few years dancing and flipping past call higher yield investment grade issues has been a great thing... But I fear the train wreck before it is even coming....I have Mickey moused around the edges to help mitigate it, but those solutions are not inspiring either... 1) Go lower yield adjustables 2) Buy lower yielding perpetuals and pray Mr. Market has forever forgotten about higher interest rates 3) Chase risker companies to "reach for yield". 4) Sit in the corner and pray the current issues are forgotten by management and never called.
Im at the point where I have at least popped Winemakers cork, and seriously considering drinking a big glass of "adjustable wine". It might wind up being very tasty!


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[Slow But Steady]

I have a fair amount of money that I need to put to work, but I'm having a hard time paying this week's prices. Is that what you folks are feeling too?

Your ideas are welcome.

Slow

 

[Slow But Steady]

By the way, we've been talking a lot about flipping. I've done it a time or two myself, but here are some results of my usual buy-and-hold strategy.

I opened a position in Weingarten Realty, a Houston-based shopping center REIT, in my IRA in 1992 for about $10,000, reinvesting all dividends. I invested another $10,000 in 2008-2009 as the market was going down. The cheapest shares I got were at a bit less than $9, and I had to grit my teeth when I placed the order.

WRI is now at $41+, and my $20,000 has grown to $135,000.

I also bought WRI-F in 2009 at about $8. They very reliably paid $1.62 (about 20% yield on cost) every year until they were called in 2015. This was my first venture into preferred stocks.

I bought a position in AHT in 2005 for about $18,000 and reinvested all dividends. Again, I bought more when the market was cratering in 2009, investing another $5,000 or so. The lowest price I paid was $0.86. Obviously there was some doubt about whether the company would survive. That $23,000 investment is now worth about $78,000.

I really don't know how these results would have compared to just buying the S&P 500, but I'm pleased with the outcome.

Edit to add: I also got killed on some GM baby bonds, but I don't want to talk about that right now.

 

[Winemaker]

More wailing and gnashing of teeth, Morgan Stanley Preferred G, called away in August.

We've been together for so long...warm and fuzzy during the Great Recession...our bonds got stronger over the last few years...we began to take each other for granted.

And that's when all relationships start to fail, when you take each other for granted. I should have been more supportive, maybe, more appreciative of the 6.25% yield.

I'll open a '13 Cab Sauv tonight and toast to the good times.
Here's to mud in your eye.......

 

[Mulligan]

By the way, we've been talking a lot about flipping. I've done it a time or two myself, but here are some results of my usual buy-and-hold strategy.

I opened a position in Weingarten Realty, a Houston-based shopping center REIT, in my IRA in 1992 for about $10,000, reinvesting all dividends. I invested another $10,000 in 2008-2009 as the market was going down. The cheapest shares I got were at a bit less than $9, and I had to grit my teeth when I placed the order.

WRI is now at $41+, and my $20,000 has grown to $135,000.

I also bought WRI-F in 2009 at about $8. They very reliably paid $1.62 (about 20% yield on cost) every year until they were called in 2015. This was my first venture into preferred stocks.

I bought a position in AHT in 2005 for about $18,000 and reinvested all dividends. Again, I bought more when the market was cratering in 2009, investing another $5,000 or so. The lowest price I paid was $0.86. Obviously there was some doubt about whether the company would survive. That $23,000 investment is now worth about $78,000.

I really don't know how these results would have compared to just buying the S&P 500, but I'm pleased with the outcome.

Edit to add: I also got killed on some GM baby bonds, but I don't want to talk about that right now.

Slow, the only reason why Im flipping is just because of the current market we are in. I just dart in and out to make quick gains and get out to minimize call loss chances. Its easy for Winemaker to toast a sincere found goodbye to an issue he has held long and started under par. But when your origin point begins above par, one has to be mindful of a quick purchase only to get smacked with a quick call.
Over a year ago Coolius and I gambled on high yielders DQUEK and ELUOP and that got called months after our purchase. However we captured dividends and still made a small profit despite call as we could get quality issues barely above par. Now you are looking 3-8 dividends above par on some quality issues and a call would cause one to throw the wine glass against the wall instead of celebrating the good times!
I keep darting in and out and also holding call risk issues because I do not want to get caught in the downdraft of holding a low yielder. Take UEPEN.... In the 1940s when someone bought this 3.5% utility preferred do you think 70 years later in "record low" rates this issue would still be $12 under par even now? Just think what this $100 par issue traded for the 1980s if it cant get back to par even now with an investment grade rating. I bet it was trading in the $30's.


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[Sunset]

....
I keep darting in and out and also holding call risk issues because I do not want to get caught in the downdraft of holding a low yielder. Take UEPEN.... In the 1940s when someone bought this 3.5% utility preferred do you think 70 years later in "record low" rates this issue would still be $12 under par even now? Just think what this $100 par issue traded for the 1980s if it cant get back to par even now with an investment grade rating. I bet it was trading in the $30's.......

This is an extreme example but it shows clearly something I have been thinking about lately.
Buying a preferred could end up being an income trap, which I think Mulligan has touched on when he says he doesn't plan to sell but collect the dividend forever.

Take the UEPEN example, I could buy it now at $88. Lets pretend interest rates stay the same for 30 more years. (a very excellent event for preferreds)

Instead I could buy VTI which pays 1.9% but, and here is the trap UEPEN in 30 years will still be worth $88 , but VTI will be worth about $120 more than current price (lots of assumptions here, based on past 10 yrs.) and will have paid about $36 less per share in dividends that UEPEN.
Net effect is that VTI is still a better deal as it's worth an extra $84 per share at the end of 30 years compared to UEPEN.

Higher rated Preferreds might be fine, because they are more sheltered from interest increases and the large differential in dividends over the next few years could be enough of a head start to win the race.

Is my thinking odd , correct , or just wacked ?

 

[Mulligan]

This is an extreme example but it shows clearly something I have been thinking about lately.
Buying a preferred could end up being an income trap, which I think Mulligan has touched on when he says he doesn't plan to sell but collect the dividend forever.

Take the UEPEN example, I could buy it now at $88. Lets pretend interest rates stay the same for 30 more years. (a very excellent event for preferreds)

Instead I could buy VTI which pays 1.9% but, and here is the trap UEPEN in 30 years will still be worth $88 , but VTI will be worth about $120 more than current price (lots of assumptions here, based on past 10 yrs.) and will have paid about $36 less per share in dividends that UEPEN.
Net effect is that VTI is still a better deal as it's worth an extra $84 per share at the end of 30 years compared to UEPEN.

Higher rated Preferreds might be fine, because they are more sheltered from interest increases and the large differential in dividends over the next few years could be enough of a head start to win the race.

Is my thinking odd , correct , or just wacked ?

This is just my opinion, but I dont think it is a fair comparison between index funds and preferreds (quality ones). I would think over a 20 year period the commons will provide more wealth. If looking for current income and not cap gains and rising divi from lower point, I dont think we are fair to compare them on same terms.
It really boils down to purpose and goals. Coolius and I buy similar issues, but our goals are different. He is looking for income, but also maintains a diversified portfolio too. I am hiding out here and love the relative safety of issues. But give me a heckuva market correction and I will be willing to jump in the commons.
Personally anything I have over 6% I have little concern over much price slippage besides the dollar or so wobbling.. And I also would be fine just collecting 5% also and I do not need a certain amount of income. If 10 year goes to 3% history shows little damage will be done to a 6% utility preferred. But I cannot figure out correctly how much damage it would do to a 5% one. There in lies my hesitancy. But yes I do own some. I have 1000 shares of CTWSO and will never consider selling this. And average purchased yield is about 5.3%. But its gold in my mind.


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[Mulligan]

But Sunset....I maybe missing the entire point. The question may not be what will happen to 5% issues on modest rate hikes, but what would happen to 4% issues as we may be heading there instead. Read this informative link on a broader basis what is happening.

http://boards.fool.com/reit-preferreds-to-infinity-and-beyond-32323600.aspx?sort=postdate



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[Slow But Steady]

I own the preferreds as part of my fixed income allocation, and their purpose is to provide diversification when common stocks are going in the ditch. (Now that I'm retired, I hope I never again have a 2009-style purchasing opportunity when everything is going in the ditch.)

To me, therefore, comparing a low-yielding preferred like UEPEN to VTI isn't really of interest. For me, the question is whether to stay in cash, buy more of the relatively high yielding but less liquid preferreds at current prices, or invest the cash in a preferred ETF like PFF and/or PFXF.

 

[Mulligan]

I own the preferreds as part of my fixed income allocation, and their purpose is to provide diversification when common stocks are going in the ditch. (Now that I'm retired, I hope I never again have a 2009-style purchasing opportunity when everything is going in the ditch.)

To me, therefore, comparing a low-yielding preferred like UEPEN to VTI isn't really of interest. For me, the question is whether to stay in cash, buy more of the relatively high yielding but less liquid preferreds at current prices, or invest the cash in a preferred ETF like PFF and/or PFXF.

I share your lack of enthusiasm for 4% issues! I hope that isn't our best option, soon, too!!!!
The trouble with those two funds is they are still buying into relatively illiquid issues and feeding frenzy has been high. A fund masquerading as liquid really is made up of illiquid issues (all preferreds are considered illiquid, the ones I own are super illiquid). There could be a stampede out the door on those and the illiquids which cannot be bought from the funds would side step the issue like many that I own.
I cannot beat a common stock index fund over any period of time. But it is easy to beat a preferred stock fund because they track bogus made up preferred indexes which have no relevance compared to the S&P 500 does with a common stock index fund.
But if absolute capital preservation takes priority over yield, its a tough market now everywhere. The best recent trades are the "chaos trades". Where people were dumping from confusion. That is why I hit BGLEN and PVTBP hard....Real hard...BGLEN has already paid off and PVTBP largely has too, but its upside is coming and I will wait. I booked easy profits with BGLEN and will sit on the other 400 as its all gravy now.
You have to find those and hit them hard!


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[Mulligan]

Slow I separated my post to show what I do when cash starts sitting around... I recently sold out of a few actual sub 5% ers I had for a few weeks and chickened out holding them...Made enough profit for a good steak dinner for 2 weeks but all I wanted was out... After thinking a bit and having no hot leads, I went back to what I usually do. Went back and bought a few hundred shares each of PFK and GJP. One is term dated call in 2018 and other is an adjustable. I also bought back 100 shares of CBB-B at par. I sold it for a quick gain a few weeks back as I would rounding up cash to load up on PVTBP. Cincinnati Bell holds promise as a modest risk issue paying about 6.75 at par. Its been around since the late 1990s I believe. They are doing what preferred owners want to hear...They are reducing debt, as they are spinning off a REIT that made them some good bucks and are using cash to reinvest in their core business and reduce debt. I doubt GJP and PFK though excellent issues suit your goals for owning preferreds. But you may wish to investigate CBB-B as you have an issue near par, relative high yielder, and has a long history of paying.


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[Winemaker]

A good article in Seeking Alpha about how Public Storage, a high quality REIT, recently issued a perpetual preferred yielding 4.95%, at $25.00 par, of course. The writer, admired PSA for lowering their cost of capital, because they replaced higher % preferreds that they called. He did not recommend purchasing the new issue; his thought process is the same as most bonds, rising rates would lower the value of the security.


What I liked about the article was the following comments and other investors sentiment and perspective. Some welcomed a 4.95% yield instead of a putrid
0.3% for their cash. Others thought it would be a great place to have a controlled capital loss to harvest while collecting a 4.95%, others thought the low interest rate would endure for several more years and even go negative, creating a future capital gain. Sure are interesting times.

I apologize for not posting a link, I get Seeking Alpha as an app on my phone and don't know how to link the link.

 

[Mulligan]

If you are like me, I get more info from the commenters than the articles. Many comments posted have helped prevent me from chasing yield in some issues.


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[Slow But Steady]

Thanks for the ideas, Mulligan. CBB-B is one that hadn't been on my radar screen, and, as you said, is in line with my requirements.

 

[Mulligan]

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

Thanks for the ideas, Mulligan. CBB-B is one that hadn't been on my radar screen, and, as you said, is in line with my requirements.

Its getting tough out there, Slow. I found me a partial called pretty safe little issue yielding 7.2% last night...was going to buy 400 shares this morning and POOF! Right out of the gate it jumped $1.50 about 6% before I had a chance...WTH!!! Its like they knew I wanted it and front ran me...I may just put it in short term or an adjustable. May buy some more CBB-B if it drops a bit though.Even it has risen in past few days...Its either get in now or get left behind. Or this is it already and the lambs are being lead to the slaughterhouse. I dont know which way is the outcome, but I wont chase yield on risky crap like MReits or buy too much low perpetuals. Preservation of capital is more important to me than yield is.


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[Slow But Steady]

I bought a few TNP-B the other day, for a few cents below par. It's another one of those shipping companies that issue preferred to build tankers. Looks like they are covering the dividend well.

It's should be called in 2018, or else the interest rate will go way up. I wish I'd bought a few more, because now it's up to $25.49