Wells Fargo Preferred

[ruby]

I have "WSF". I like the dividend BUT .... is this a good investment for a retiree who can't afford to loose it all?

[LARS]

Given the governments "too big to fail" approach which clearly Wells Fargo falls under there is some "air cover" to your investment. That having been said, Wells Fargo is not out of the woods by any means given the Wachovia issues they inherited along with their own problems they created in the CA mortgage market.

So if you were higher up the capital structure at Wells I would say you have very little risk, preferred on the other hand has more exposure. To best understand your risk if the crap hits the fan at Wells is to look at how the preferred at Citibank has performed.

Obviously the above is free advice and worth what you pay for it (ie- nothing). YMMV.

[clifp]

I think the short answer is it is recently safe investment the longer answer is what LARS said.
Wells is in the too big to fail category and in addition by lots of smart people's analysis Warren Buffett, top stock analyst Wells Fargo is a very well run bank. Still it is a bank with lots of real estate loans, and it has inherited a mess with Wachovia.

In general common stock holders of bailed out companies "too big fail" have taken significant losses 50-100% (AIG, GM). By and a large bond holders and preferred stock holders have suffered relatively little losses, but who knows what will happen in the future.

Finally even if things work out fine for Wells Fargo, preferred shares will perform horribly in a high interest rate/high inflation environment. If we see double digit interests rates the value of your preferred shares can easily be cut in half. Unlike a CD or Bond, Preferred shares have very long maturities 2050 in the case of WSF so you will likely be dead before you can redeem them.

[FIRE'd@51]

IMO, the dividend is safe. I think clifp has indicated where the major risk potentially lies - rising interest rates. Of course, that risk is faced by any long-term "fixed income" investment. I purchased some Wells Fargo preferred stock back in early March (I bought the J series which was originally Wachovia preferred) when it was yielding over 18%. The price has more than doubled since then, so it's currently yielding about 8%. A negative of WSF is that it doesn't qualify for the preferential 15% maximum tax rate (which the J-series does qualify for), although we don't know how long the favorable tax rate will be around - in any case, it's good through 2010, and maybe longer if your joint income is below 250K.