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

[Mulligan]

Remember I was one of the few people predicting that rates would invert and the 10 year would break through the 2016 low and the 30 year would break 2%. People like Jamie Dimon told investors to prepare themselves for a 10 year yield of 4.75% by then end of 2019. I still believe rates are going to go lower which will put a lot of strain on banks, especially the regional banks. Look what's going on with European banks. They are breaching their 2008 lows and the one's that haven't are about to.



Recall back about 3 years ago that I posted on this thread that something is going on this this retail sector and things are not as healthy as Wall Street believes. Shops were empty but retail stocks were rallying. That sector 3 years later has caused so much pain and is about to cause even more of a bruising.



The bottom line is that there is too much consumer debt out there for rates to move higher. People on this board are by nature more financially responsible and assume subconsciously that the rest of the world is like them. But the vast majority are clueless when it comes to personal finances and are under severe financial stress due to excessive debt. You have to ask yourself who is going to fuel consumption going forward, the savers or the people drowning in debt.

That is why I roughly stay between 50-100% ute preferreds. But then again I always have. I dont allocate much to the higher risk. Still rates are going to stay historically low, but I think we can see some leveling off here. Wage increases starting to pick up, fully employed, economy is still chugging along.

 

[Mulligan]

Another US currency based issue trading on TSX through OTC is ALTGF (Altagas Series C). It is a naked reset 3.58% adjustment plus 5 yr USD Tbilll. Resets in 2022.

For each five&year period after the Initial Fixed Rate Period (each a “Subsequent Fixed Rate Period”), the holders of Series C Shares shall be entitled to receive, as and when declared by the Board of Directors, fixed cumulative preferential cash dividends, payable quarterly on the last day of March, June, September and December in each year, in the amount per share determined by multiplying one&quarter of the Annual Fixed Dividend Rate (as hereinafter defined) for such Subsequent Fixed Rate Period by US$25.00. The Annual Fixed Dividend Rate for the ensuing Subsequent Fixed Rate Period will be determined by AltaGas on the applicable Fixed Rate Calculation Date (as hereinafter defined) and will be equal to the sum of the United States Government Bond Yield (as hereinafter defined) on the applicable Fixed Rate Calculation Date plus 3.58%. See “Details of the Offering”.
Price to the Public
Per Series C Share ...........................................................................................U...S..$25.00
T o t a l . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . U. . . S . . $ . . 2 . . 0 . . 0 , 0 0 0 , 0 0 0
Underwriters’ Fee(1) US$0.75
U S $ 6 , 0 0 0 , 0 0 0
Net Proceeds to AltaGas(2) US$24.25
U S $ 1 9 4 , 0 0 0 , 0 0 0
2
The Series C Shares shall not be redeemable prior to September 30, 2017. On September 30, 2017, and on September 30 in every fifth year thereafter, AltaGas may, at its option, upon not less than 30 days and not more than 60 days prior written notice, redeem for cash all or any part of the outstanding Series C Shares by the payment of US$25.00 per Series C Share plus all accrued and unpaid dividends (less any tax required to be deducted or withheld by AltaGas). See “Details of the Offering”.
https://www.altagas.ca/sites/default/files/Series-C.pdf
Last trade on TSX was $17.95 and the Altagas preferreds go exD 9/13.

 

[bobandsherry]

I'm not sure if I got steered wrong or not but the commission was a lot higher... $90 vs $4.95 that I normally pay but it only reduces the yield by about 5 bps.

Doesn't sound right. I can buy right on ETrade as regular OTC limit order transaction. Deed is done, but something to keep in mind next time.

 

[pb4uski]

Yeah.... I wonder if it is Fidelity or perhaps the guy who answered the phone at Fidelity was uninformed.

Are those of you who use Fido for your preferred portfolio easily able to do OTC transactions? Just checking in case I do something similar I can push the rep harder.

 

[aja8888]

RE: EBBNF - having been charged 15% foreign tax on the dividend at Schwab in my IRA.

I spoke to Schwab's Global Trading Desk today and the agent told me that the agreed upon tax exemption in an IRA is a function of the stock prospectus published by the company. The agent seemed very clear on that ruling and even looked it up.

 

[Mulligan]

RE: EBBNF - having been charged 15% foreign tax on the dividend at Schwab in my IRA.



I spoke to Schwab's Global Trading Desk today and the agent told me that the agreed upon tax exemption in an IRA is a function of the stock prospectus published by the company. The agent seemed very clear on that ruling and even looked it up.

So has issue been resolved yet Aja? This is an international treaty...The trouble is brokerage blames intermediary who takes it out at the source before brokerage receives money. Its a blame game...A few people stated they had to fill out a Canadian form to get it resolved...ERRAF had same issue with me and another guy. I wasnt as persistant as they said it wasnt their fault. Another guy made repeated calls until they fixed the issue. And that mixed my problem also.

 

[aja8888]

So has issue been resolved yet Aja? This is an international treaty...The trouble is brokerage blames intermediary who takes it out at the source before brokerage receives money. Its a blame game...A few people stated they had to fill out a Canadian form to get it resolved...ERRAF had same issue with me and another guy. I wasnt as persistant as they said it wasnt their fault. Another guy made repeated calls until they fixed the issue. And that mixed my problem also.

Schwab thinks the issue (my call) is resolved. I mentioned the treaty, etc...go nowhere. For the small amount involved, I'm not going to spend time trying to get resolution in my favor. If they are actually going to pay the tax for me, I'll just deduct it on my tax return.

 

[Mulligan]

Schwab thinks the issue (my call) is resolved. I mentioned the treaty, etc...go nowhere. For the small amount involved, I'm not going to spend time trying to get resolution in my favor. If they are actually going to pay the tax for me, I'll just deduct it on my tax return.

You could deduct it because of your mandatory IRA withdrawal I assume?

 

[aja8888]

You could deduct it because of your mandatory IRA withdrawal I assume?

I would guess? I have never owned foreign stocks before. Schwab is paying it out of my IRA and Canada is receiving it so I can assume it's at least reportable as being paid? Whether or not it's a "deduction"....I don't know at this point.

 

[Sunset]

I would guess? I have never owned foreign stocks before. Schwab is paying it out of my IRA and Canada is receiving it so I can assume it's at least reportable as being paid? Whether or not it's a "deduction"....I don't know at this point.

My opinion (worth zip) is that it's not deductible, just as a stock loss is not within an IRA

 

[Texas Proud]

Wow, very active lately...


As to negative interest rates and a reset... I would bet that there is a floor of zero, so if 5 year goes negative more than the plus amount you get nothing... and do not have to pay anything...


I just do not see a negative 3% on the 5 year... heck, even on the 1 year...



BTW, someone said that if rates do go negative then gold will be an investment of choice... I would prefer a regular bank account... unless they start charging fees to make up the difference...

 

[Mulligan]

I would guess? I have never owned foreign stocks before. Schwab is paying it out of my IRA and Canada is receiving it so I can assume it's at least reportable as being paid? Whether or not it's a "deduction"....I don't know at this point.

Aja, Im not familiar with IRA withdrawals. I was just assuming you knew something pertaining to this. Im with Sunset here. Everything I have read is you cant get it back if withheld from taxable. And Im not sure if Schwab is doing this. It could be the “go between” (cant remember formal name) that has it withheld already.

 

[Mulligan]

Wow, very active lately...


As to negative interest rates and a reset... I would bet that there is a floor of zero, so if 5 year goes negative more than the plus amount you get nothing... and do not have to pay anything...


I just do not see a negative 3% on the 5 year... heck, even on the 1 year...



BTW, someone said that if rates do go negative then gold will be an investment of choice... I would prefer a regular bank account... unless they start charging fees to make up the difference...

Texas I got confirmation from Enbridge stating it would be deducted from adjustment. The prospectus has no mention of zero as limit. It is simply 5 yr yield added to adjustment. And a negative can be added to a spread in a bad way. This is why newer issues have “fixed minimum floors” that it cant go below.

 

[Mulligan]

Wow, very active lately...


As to negative interest rates and a reset... I would bet that there is a floor of zero, so if 5 year goes negative more than the plus amount you get nothing... and do not have to pay anything...


I just do not see a negative 3% on the 5 year... heck, even on the 1 year...



BTW, someone said that if rates do go negative then gold will be an investment of choice... I would prefer a regular bank account... unless they start charging fees to make up the difference...

I forgot to add, I agree, I am not worried about negative yields myself. For now anyways, lol.

 

[aja8888]

Aja, Im not familiar with IRA withdrawals. I was just assuming you knew something pertaining to this. Im with Sunset here. Everything I have read is you cant get it back if withheld from taxable. And Im not sure if Schwab is doing this. It could be the “go between” (cant remember formal name) that has it withheld already.

The tax was shown as a deduction when the dividend was paid to my account. Conceivably, the tax was never actually taken from my account and may have been kept back by Enbridge who paid the dividend. That's my guess now that I think about it. No big deal.

 

[Winemaker]

Yeah.... I wonder if it is Fidelity or perhaps the guy who answered the phone at Fidelity was uninformed.

Are those of you who use Fido for your preferred portfolio easily able to do OTC transactions? Just checking in case I do something similar I can push the rep harder.

I have been forced to call the desk for "prohibited" preferred stocks, but they have always given me the internet price of $4.95.

 

[Mulligan]

The tax was shown as a deduction when the dividend was paid to my account. Conceivably, the tax was never actually taken from my account and may have been kept back by Enbridge who paid the dividend. That's my guess now that I think about it. No big deal.

Its not Enbridge....There are intermediaries between actual brokerage and the money. Plus investment banks serve as a conduit to get the Canadian shares through to US on OTC. And they dont want to get caught owing the tax also. That is why the finger pointing goes on. But amazingly some brokerages and some issues dont have the problem.

 

[pb4uski]

Another US currency based issue trading on TSX through OTC is ALTGF (Altagas Series C). It is a naked reset 3.58% adjustment plus 5 yr USD Tbilll. Resets in 2022. ....
https://www.altagas.ca/sites/default/files/Series-C.pdf
Last trade on TSX was $17.95 and the Altagas preferreds go exD 9/13.

I did pick up some of these so my play money is tapped out for now... but I have a call coming up soon so that will refill the money pot.... so the search goes on.

 

[pb4uski]

... But amazingly some brokerages and some issues dont have the problem.

+1 that is really odd.... I have confirmed that there will be no withholding because it is in a IRA with Fidelity two separate times... my first divvie will be the test to see if they are right... but two separate reps from their international desk confirmed it without blinking an eye.

 

[bobandsherry]

Interesting, discussion just a couple days ago about the "risk" of going to negative rates, and now we see preferred's taking a bit of a hit due to concerns over rising rates. 10 yr moved from 1.47% to 1.90% over past 2 weeks. Inversion gone too. Just like the weather when I used to live in Chicago, if you don't like what you have now just wait a bit, it will change.

 

[Mulligan]

Yes sir, Bob. Smarter men than me have been humbled on rate predictions. That is why I have perpetuals, term dated, resets, uncallables, and past call par anchored issues. They typjcally all dont move in same manner at same time.

 

[bobandsherry]

Yes sir, Bob. Smarter men than me have been humbled on rate predictions. That is why I have perpetuals, term dated, resets, uncallables, and past call par anchored issues. They typjcally all dont move in same manner at same time.

Yeah, I get your approach. But I'll take a bit more risk and for higher yield and liquidity, at least with my "fun fund"... Hopefully [emoji39].

 

[pb4uski]

Another call. That makes three in the last month and a half.

This notification is to inform you that a security in your above-referenced portfolio is expected to be called shortly. Please refer to the information below for more details.
CUSIP 74460W602
Security Description PUBLIC STORAGE 5.625 DPRP PFD U ...
Call Type FULL CALL
Call Date 10/14/2019

 

[bobandsherry]

Another call. That makes three in the last month and a half.

Shouldn't have been a surprise. PSA just issued new security on 9/5, rate of 4.875%. In the prospectus under use of proceeds it said "including the redemption of our preferred shares." PSA-U was their highest rate preferred (5.625%) that could be called. So PSA gave an indication as to what they would be doing.

 

[pb4uski]

Yeah, I had heard recently that a call of PSA-U would be likely.... but I bought it back in April.