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

[aja8888]

The yields are a helluva lot better than a year ago...If I didnt have a pension, more would tossed in there than I have.. I probably will bite on one more 9 month secondary issue...I like the cash locked down until Jan 2019...The fed may be done hiking by then, and may be a bargain somewhere at maturity for me.

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Yes, rather than buy bond funds, the TBills are paying 1.7 to 2.1% for safe money. When rates stop rising (??), I will do something else with the money. It's part of my re-balancing strategy (TBills).

 

[bobandsherry]

The yields are a helluva lot better than a year ago...If I didnt have a pension, more would tossed in there than I have.. I probably will bite on one more 9 month secondary issue...I like the cash locked down until Jan 2019...The fed may be done hiking by then, and may be a bargain somewhere at maturity for me.

It will be interesting to see what rate moves money from the market to TBills and CD's. That ebb and flow may keep things in check for a while, if money floods into TBills it will drive the rates back down (the law of supply and demand). With a fair share of money in ALLY-A and NSS I'm more interested in 3 month LIBOR rising

 

[Mulligan]

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

It will be interesting to see what rate moves money from the market to TBills and CD's. That ebb and flow may keep things in check for a while, if money floods into TBills it will drive the rates back down (the law of supply and demand). With a fair share of money in ALLY-A and NSS I'm more interested in 3 month LIBOR rising

Bob, we gotta be careful of the killing the goose that lays the golden eggs. Libor has been rising about a basis point every day...but long end isnt moving...If it keeps rising and long end doesnt at some point they will be compelled to do something about it. Its 2.33 now.. NSS could get in a very unique and odd spot where the debt is paying a higher yield than their preferreds which is just basically unheard of. It would scream call.

In fact it will pass NS-B already next payment if Libor stays where it is today...On closing prices, B is yielding 8.76%. NSS at current trading price will go to 9.0%...9.06% off par...

 

[brokrken]

I think I may be the only one here that watches this one, but my SSW-E has spiked from $24.12 as recently as Thursday to $24.90 today. Can't find any news. Any of you guys know of anything or have a better source for info than I?

 

[pb4uski]

Thinking about wading into this preferred stock water as a bond substitute. I would probably start with investment grade utility preferreds which if seem to be paying ~5% or so if bought at or below par/call. My concern is.... if interest rates increase, say 2% over the next 3 years, what would happen to these preferreds?

Let's say I bought a $100 stated value preferred that pays $5/year in dividends so the current yield is 5%. If interest rates increase 2%, will this preferred decline in value to $71 ($5/7%) and stay there? I realize that my yield will still be 5% as long as I hold, but if I need an out will I take a beating?

 

[Coolius]

I added to my already overweight position in AILLL today, bought at $26.79.

With prospect of increasing rates, spread is reduced, and my rationale is since Ameren did not call these back in 2010-2013 when Fed rates were so much lower, they will not call now.

With 70X dividend coverage, the only real exposure is a call. My maximum exposure for today's buy is a year's worth of dividends. In other words, a maximum loss risk of $1.79 or 6.5% Not a good level of exposure, but I'm willing to take the risk.

We'll see if this was a wise or foolish buy in a year from now.....

 

[Mulligan]

Coolius... Its even better now...$271 million operating earnings after tax... 3 million in preferred stock divi obligations..So its over 90 times dividend coverage now.

 

[Mulligan]

PB, I would be a bit leary of the 5% issues. If market deems them to be 6%, you are looking at prices sinking to $20-$21...That is why I prefer AILLL at plus 6% and risk the call. Now if you buy into old illiquid 5% issues, historically they hold up better price wise, being past call, and tight trading float which bolsters its price better...Personally maybe just develop a list you are comfortable owning and just watch a few months.

 

[Mulligan]

Also PB, many of these old 5% issues have long trading histories. Punch tickers into CNBC price chart which will go back 20 years. You can see how they traded in high rate late 1990s and 2004-05 last rate normal period.

 

[pb4uski]

5% was just as an example... it could have been 6% and a 2% increase in interest rates.. so the price drops from ~$25 to ~$19 permanently and I'm behind by 4 years worth of interest if I sell.

So if I buy a 6%er today at $25, collect 40 quarterly dividends of 0.375 and over 10 years rates increase 2% and I sell for ~$19 ($1.50/8%), then my return is 4.1%... not the 6% I was expecting. That is a big difference in my mind but I just wanted to see if my presumption that the price would decline to ~$19 and remain there was a realistic assumption.

 

[Mulligan]

5% was just as an example... it could have been 6% and a 2% increase in interest rates.. so the price drops from ~$25 to ~$19 permanently and I'm behind by 4 years worth of interest if I sell.

So if I buy a 6%er today at $25, collect 40 quarterly dividends of 0.375 and over 10 years rates increase 2% and I sell for ~$19 ($1.50/8%), then my return is 4.1%... not the 6% I was expecting. That is a big difference in my mind but I just wanted to see if my presumption that the price would decline to ~$19 and remain there was a realistic assumption.

But it really doesnt work that simple....AILLL was issued in 1993 when 10 year was 4.5% at a 6.625% par yield. It presently yields 6.18% with a 2.8% 10 year...See quality of issue, rate expectations, and par yield in relation to par and being callable or not will all factor in...Then you the rare 08-09 crisis that can pull everything under water....All crisis aside, history has proven AILLL wont do that...It was trading at par and above in 2004 during last normalized rate periods...A lot depends on the initial par yield and current rate yields of the moment, plus anticipated future expectations, and any current fear or lack of fear... Take IPL-D...It sunk to under $21 when 10 year last hit 3% In 2013....We are near that now, yet this issue is still near par...See what I mean? Fear and expectations kick in also...

 

[Mulligan]

But it really doesnt work that simple....AILLL was issued in 1993 when 10 year was 4.5% at a 6.625% par yield. It presently yields 6.18% with a 2.8% 10 year...See quality of issue, rate expectations, and par yield in relation to par and being callable or not will all factor in...Then you the rare 08-09 crisis that can pull everything under water....All crisis aside, history has proven AILLL wont do that...It was trading at par and above in 2004 during last normalized rate periods...A lot depends on the initial par yield and current rate yields of the moment, plus anticipated future expectations, and any current fear or lack of fear... Take IPL-D...It sunk to under $21 when 10 year last hit 3% In 2013....We are near that now, yet this issue is still near par...See what I mean? Fear and expectations kick in also...

But....AILLL barely budged during this time... So I look for issues with price stability and those are the illiquids....

 

[Coolius]

It sure would be interesting to know how illiquid AILLL is.

From the internet, there are about 497,000 shares outstanding. I can't find any info about institutional holdings.
From Marketwatch, it would appear insiders hold a couple hundred thousand shares.

If there was a way to anonymously know how many shares the members of this forum hold, we could get a rough idea of the tightness of the float.

Maybe someone knowledgeable can make a poll ? Any volunteers ?

 

[bobandsherry]

OK - I've been following PIY as I bought into FTRPR a couple months ago as part of a fishing expedition. So far it's been OK, so I started to watch PIY which is another Frontier preferred. FTRPR was up today 6.6%, Yet PIY cratered by over 7% today on heavier than normal volume. It closed at $13.73 with a $1.04 semi-annual dividend. That puts the dividend at over 15%. The day range was $12.03 - $14.888. It's past call and maturity isn't until 2046.

Yep aware that Frontier isn't the best company, but it doesn't seem to be on the bring of collapse, or is it? Market doesn't seem to feel that way as FTR was up nearly 5% today.

Something seems disconnected on this issue, so what am I overlooking? Seems like market is expecting FTR to suspend dividend on this.

 

[Mulligan]

OK - I've been following PIY as I bought into FTRPR a couple months ago as part of a fishing expedition. So far it's been OK, so I started to watch PIY which is another Frontier preferred. FTRPR was up today 6.6%, Yet PIY cratered by over 7% today on heavier than normal volume. It closed at $13.73 with a $1.04 semi-annual dividend. That puts the dividend at over 15%. The day range was $12.03 - $14.888. It's past call and maturity isn't until 2046.

Yep aware that Frontier isn't the best company, but it doesn't seem to be on the bring of collapse, or is it? Market doesn't seem to feel that way as FTR was up nearly 5% today.

Something seems disconnected on this issue, so what am I overlooking? Seems like market is expecting FTR to suspend dividend on this.

Bob the divi has already been suspended...Whenever bonds trade 50 cents on the dollar IRS can view this as actual equity not debt...And they have long dated bonds that are trading around there. But the leverage is so huge a slight improvement can give a ray of light to commons but not change material finances in a positive way for the bonds. Anything can happen here... Out of my personal comfort zone...A massive debt laden company with constant declining revenue and customers in a cut throat segment is just not my comfort zone.

 

[Mulligan]

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

It sure would be interesting to know how illiquid AILLL is.

From the internet, there are about 497,000 shares outstanding. I can't find any info about institutional holdings.
From Marketwatch, it would appear insiders hold a couple hundred thousand shares.

If there was a way to anonymously know how many shares the members of this forum hold, we could get a rough idea of the tightness of the float.

Maybe someone knowledgeable can make a poll ? Any volunteers ?

Coolius, those insider links you looked at are actual common stock issuances, not the preferreds. A few should prices which mirror what the common stock price was...They get common stock awarded to them. Much of those were gift issuances.
I have seen some various preferred funds own a few of these in their fund. But cant really offer a guess as to how much is owned by any of them.

 

[Coolius]

Mulligan, I'm pretty sure you're correct. the search hits showed these figures under AILLL, but I would bet that they are not correct.

So, it comes back to the original question - I wonder how big the float really is? Perhaps the majority of AILLL is in strong hands, and thus we can be even more assured that short of a call, the price is not likely to see big declines from its current level of around $26.60 $26.70?

 

[bobandsherry]

Bob the divi has already been suspended...Whenever bonds trade 50 cents on the dollar IRS can view this as actual equity not debt...And they have long dated bonds that are trading around there. But the leverage is so huge a slight improvement can give a ray of light to commons but not change material finances in a positive way for the bonds. Anything can happen here... Out of my personal comfort zone...A massive debt laden company with constant declining revenue and customers in a cut throat segment is just not my comfort zone.

FTR dividend suspended, but I was meaning that dividend suspended on PYI, I'm not seeing that dividend on PYI has been suspended, or has it?

I get what you are saying though, this wouldn't be something I'd usually consider.

 

[Mulligan]

FTR dividend suspended, but I was meaning that dividend suspended on PYI, I'm not seeing that dividend on PYI has been suspended, or has it?



I get what you are saying though, this wouldn't be something I'd usually consider.

Bob, they cant suspend the interest payment to PIY, without going into bankruptcy...PIY is for all purposes the 2045 maturity bond.. These subordinated bonds are held in trust...The certificates (PIY) lay claim to the 2045 bonds held in trust. So the worth of PIY is the actual bonds. Those bonds last I saw last week were trading 51 cents on the dollar. Dont know about today though. PIY only owns part of the total outstanding 2045 bonds. There are a bunch that trade on their own.

 

[Mulligan]

Mulligan, I'm pretty sure you're correct. the search hits showed these figures under AILLL, but I would bet that they are not correct.

So, it comes back to the original question - I wonder how big the float really is? Perhaps the majority of AILLL is in strong hands, and thus we can be even more assured that short of a call, the price is not likely to see big declines from its current level of around $26.60 $26.70?

It will drop again...It dropped 60 cents today...But to put in prospective I bought them less than a week ago at 26.69 and ALSO captured the 42 cent divi, too...It went exD Friday. It always seems to drop in $26.30-40 range. But the question is will you be one of the few that get any or get jumped a penny all the time.
It just gets harder to buy at a reasonable price more often. The float amount is roughly about the same as CNLPL, but has more shares due to its $25 par, as opposed to $50 par.

 

[bobandsherry]

Bob, they cant suspend the interest payment to PIY, without going into bankruptcy...PIY is for all purposes the 2045 maturity bond.. These subordinated bonds are held in trust...The certificates (PIY) lay claim to the 2045 bonds held in trust. So the worth of PIY is the actual bonds. Those bonds last I saw last week were trading 51 cents on the dollar. Dont know about today though. PIY only owns part of the total outstanding 2045 bonds. There are a bunch that trade on their own.

Got it, I saw that they were backed, but didn't know what the value of those securities were. There must have been some major drop in the value of those today. I'll keep watching this on the sideline. Thanks

 

[Mulligan]

Got it, I saw that they were backed, but didn't know what the value of those securities were. There must have been some major drop in the value of those today. I'll keep watching this on the sideline. Thanks

To compliment the matter, the bonds held in trust were not bought at par, but under par some time later after bonds issuance. Thus the higher yield for PIY is higher than the par yield of the actual bonds...So you need to account for that before determining whether PIY is trading under or over value of the actual bonds.

 

[brokrken]

SSW-E made another move up today to $25. I'm in at a shade over $24. I may make a Mulligan steak dinner trade today.

 

[Coolius]

Wonder if today's momentary dip in CNLPL was captured by one of our posters?

Went down to $54.26 on 400 shares, within 10 minutes it shot back up to $56.01.

If anyone from this board got them at $54.26, congratulations!

 

[Mulligan]

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

Not me, but I made a possible 17 cent loss trade....I went in on 600 shares of WFC-J at 25.67.... Will know in 2 weeks if it gets called at 25.50... Heck any of them could drop 17 cents in one day anyways... Worth a shot to see if that 8% stays outstanding a divi or two more.