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

[jim584672]

And just like that WFC.PL is at a 6% yield down 200+ points today..............
PFF ETF is now a couple points below the low of the Sep-Dec 2018 route in interest rates and stock market. Lowest level since May 2009 Next stop 22...............

I have some from years ago at about $1180. Seeing it drop $200 is very unsettling. Just gonna hold it and hope WFC doesn't BK.

 

[Freedom56]

I am not directly trying to change your strategy and it can make great sense so I understand. Keep some powder and it sounds like you will and you will have opportunities to do very well.

The damage to my portfolio was not as bad as I thought. YTD (including coupon payments and yesterdays purchases), I am down 0.6%. At the peak I was up 4.8%.

I sold 2000 of my COF-F for $25.09 for a quick profit.

My view is this is just a reflex rally in a bear market.

 

[Born2Fish]

The damage to my portfolio was not as bad as I thought. YTD (including coupon payments and yesterdays purchases), I am down 0.6%. At the peak I was up 4.8%.

I sold 2000 of my COF-F for $25.09 for a quick profit.

My view is this is just a reflex rally in a bear market.

Agree. Today's great start looks like it may already be selling off.

 

[pb4uski]

Wow! I'm not used to seeing red when I open up my preferred stock portfolio, but as of right now 17 of my 20 positions are trading below my cost... but only 3.63% below cost in aggregate. I have a couple Canadian energy related preferreds that have been hammered down bad. I'm hanging tough though... I keep telling myself that this too shall pass and my main objective is collecting the dividends so market price fluctuations don't bother me too much. Unlike some, I'm not striving to make short-term gains from price flutuations but more buy and hold.

Interestingly, the 80% partial call of WFC-PRT that have been frozen for almost a month that I'll receive $25.38 on Monday... the unfrozen shares are trading at $24.98... so perhaps WFC did me a favor.

I'll have some dry powder from that partial call proceeds to redeploy on Monday. I've been thinking of just buying more of the uncalled shares or perhaps another WFC preferred. Any other suggestions? I prefer investment-grade preferreds that yield at last 5%... though that 5% might well be a bit higher given the current rout.

 

[Freedom56]

Wow! I'm not used to seeing red when I open up my preferred stock portfolio, but as of right now 17 of my 20 positions are trading below my cost... but only 3.63% below cost in aggregate. I have a couple Canadian energy related preferreds that have been hammered down bad. I'm hanging tough though... I keep telling myself that this too shall pass and my main objective is collecting the dividends so market price fluctuations don't bother me too much. Unlike some, I'm not striving to make short-term gains from price flutuations but more buy and hold.

Interestingly, the 80% partial call of WFC-PRT that have been frozen for almost a month that I'll receive $25.38 on Monday... the unfrozen shares are trading at $24.98... so perhaps WFC did me a favor.

I'll have some dry powder from that partial call proceeds to redeploy on Monday. I've been thinking of just buying more of the uncalled shares or perhaps another WFC preferred. Any other suggestions? I prefer investment-grade preferreds that yield at last 5%... though that 5% might well be a bit higher given the current rout.

For Starters buy these below par:

JPM-PH
COF-PH
BAC-PC
C-PS

I would stay away from anything connected to energy, retail, or REITs.

 

[pb4uski]

For Starters buy these below par:

JPM-PH
COF-PH
BAC-PC
C-PS ....

Thanks. I aready own JPM-PH and a different series of BAC (M series)... but will look into Capital One and Citigroup.

... I would stay away from anything connected to energy, retail, or REITs.

I wish that you had mentioned that a week ago.

 

[Freedom56]

My sell order for the other 2000 COF-PF filled at $25.09. So that's a $2.09 pop from my entry point 24 hours ago. I will get back into COF-F at the next sell-off. AFC is up nicely from my entry point also and I'm keeping that for income for now. I missed getting into EBAYL as it did not hit my limit price of 24 and it popped up today.

 

[Mulligan]

I bought an ass load of SR-A between 24.25-50 two days ago. I bet I have made over $8 a share in returns since it IPO’d last year. $2 right out of gate, and buying at $26.25 to .50 and selling over $27.50-$28 multiple times. But at this entry point it may have to be a long term hold...I love utes..I love utes over 6% even more! And Laclede isnt going anywhere in fact Laclede just raised common divi 5% last quarter.
All in all thanks to a fair rebound yesterday I am only down like 3% from my all time highs. Quality over all didnt get pounded like the others. And of course it helps that a certain segment of mine dont even trade because there are never any sellers.
I manned up and also bought more EP-C at $41. Put that to the calculator as a YTM and being its from KMI that has IG debt, Im not overly worried about receivership before 2028 maturity.

 

[thepalmersinking]

Congrats on the assload. Quick question, why would a highly capitalized bank or utility issue preferred stock when they can issue a callable bond while paying far less interest than the dividend payment. With interest rates going down to 0, why would not they just buy up the preferreds.

 

[Freedom56]

Congrats on the assload. Quick question, why would a highly capitalized bank or utility issue preferred stock when they can issue a callable bond while paying far less interest than the dividend payment. With interest rates going down to 0, why would not they just buy up the preferreds.

Issuing preferred shares is normally cheaper than issuing common shares and avoids common ownership dilution, banks issue preferred shares to meet the required capital ratio set by regulators. They do call the higher coupon preferred stocks after their call date.

 

[Freedom56]

I bought an ass load of SR-A between 24.25-50 two days ago. I bet I have made over $8 a share in returns since it IPO’d last year. $2 right out of gate, and buying at $26.25 to .50 and selling over $27.50-$28 multiple times. But at this entry point it may have to be a long term hold...I love utes..I love utes over 6% even more! And Laclede isnt going anywhere in fact Laclede just raised common divi 5% last quarter.
All in all thanks to a fair rebound yesterday I am only down like 3% from my all time highs. Quality over all didnt get pounded like the others. And of course it helps that a certain segment of mine dont even trade because there are never any sellers.
I manned up and also bought more EP-C at $41. Put that to the calculator as a YTM and being its from KMI that has IG debt, Im not overly worried about receivership before 2028 maturity.

Mulligan,

Going forward, it will be all about doing tactical trades with liquid investment preferred stocks as the market whipsaws down and up.

 

[Mulligan]

Congrats on the assload. Quick question, why would a highly capitalized bank or utility issue preferred stock when they can issue a callable bond while paying far less interest than the dividend payment. With interest rates going down to 0, why would not they just buy up the preferreds.

Palmer its about a way a company has to or desires to capitalize themselves. Banks are not allowed to use debt for Tier 1 capital any more. 2008-09 took care of that problem, ha.
Preferreds are capital not debt. On utility side there are many reasons why companies choose to. Remember the regulators approve their capital plans and then allow a rate of return off that. Once they are imbedded into capital plan it really doesnt matter as the customer pays for it anyways. Utilities are slow to redeem issues because any savings goes back to customer on next rate request. But they arent allowed to leave onerous high yields outstanding either as that is viewed as wasteful by regulators. Over a 20 years the preferred will be infinitely cheaper for company than a common stock share as dividends usually keep growing. Spire just raised common 5% last quarter as an example.

 

[Mulligan]

Mulligan,



Going forward, it will be all about doing tactical trades with liquid investment preferred stocks as the market whipsaws down and up.

Freedom, I hate to say this but if it gets worse, tactically it may be best to sell off losers that went down less and buy ones that dropped even more..Of course keeping in same credit quality in doing so though. That way you will achieve a better snap back when things normalize. Because in the end, when things settle down, people are going to need income and yield worse and Cds and govt bonds will be nothing..

 

[Freedom56]

Freedom, I hate to say this but if it gets worse, tactically it may be best to sell off losers that went down less and buy ones that dropped even more..Of course keeping in same credit quality in doing so though. That way you will achieve a better snap back when things normalize. Because in the end, when things settle down, people are going to need income and yield worse and Cds and govt bonds will be nothing..

Eventually the strong investment grade preferred stocks fall, not because of their inability to pay dividends, but the selling pressures from those ETFs such as PFF and PGX. I count on it as part of my preferred stock strategy. Since 2015 I have made six buy /sell round trips with COF-F and without considering the dividends received, the capital gains alone significantly boosted my returns. I sold out all my preferred stocks that I bought November/December 2018 in April 2019 and waited for this sell-off to happen again. I was actually surprised how well they held up, relative to the past, until this past Thursday. Equally surprising was how quickly they recovered on Friday. I suppose some investors looking at near zero interest rates didn't have issues buying investment grade preferred stocks with coupons over 6% trading below par.

 

[Mulligan]

As you know in times of volatility throw the playbook out the window. But historically speaking IG preferreds trade in a “normal band” of between 200-400 bps above 10 year. At 6% you are getting 500 bps.

 

[Texas Proud]

Congrats on the assload. Quick question, why would a highly capitalized bank or utility issue preferred stock when they can issue a callable bond while paying far less interest than the dividend payment. With interest rates going down to 0, why would not they just buy up the preferreds.

Another reason is some utes have bonds issued which limit the amount of debt they can take on... these do not count as debt...


Companies also like their financial ratios... debt to equity etc... one number goes on top and the other on the bottom...


You can have covenants about not paying divis on preferred, not so on debt... so if you did get into a financial crisis the amount owed piles up on debt...

 

[pb4uski]

^^^ That said, have we seen any difference in pricing of cumulative vs non-cumulative preferreds in recent days?

If there is fear of a recession and pressure on companies finances one would think that the value of cumulative preferreds would be better than non-cumulatives, right?

 

[copyright1997reloaded]

Here we are, another boring day in the market.

Assuming one has some cash with the intent of getting some preferreds on the cheap - but only of companies likely to survive, what should I be watching? (In the 2008/9 financial crisis I made some $ on Ford prefereds selling at 20 cents on the dollar and on BAC prefereds, but I have been out of the loop on these for a long time.)

 

[Freedom56]

Picked up 2000 C-PS at $23.15
2500 COF-PH at $23.10


These are the best times to buy investment grade preferred stocks. This is not a high interest rate shock sell-off but more to do with emotions. The yield curve has normalized and rates are going to be low for a long time.

 

[Freedom56]

Dumped 2000 C-PS at 24.50
2500 COF-PH at 24

Set up bids to reload both. PFF and PGX will have to keep dumping preferred stocks given the outflows.

 

[Winemaker]

Just picked up some SLMNP at $990/share.

 

[Texas Proud]

Wow, I thought Fidelity limited my pref shares to lower rated... but no... I cannot enter an order for even C-PJ.....


I guess Fidelity is not going to be the place where my money ends up... I do not want them to restrict my purchase of any security that is on a major market... I am not trading options or doing straddles etc.... just want to buy some shares...

 

[Freedom56]

Many funds are in liquidation just to raise cash. I'm seeing one AA rated bonds dropping 4-5%. Watch out for the trades near the close. Funds like PFF and PGX tend to drop large lots towards the end of the day overwhelming the bids. I'm putting in some low ball bids at $21 for many of these investment grade preferred stocks like COF-PH that I just bought and sold today.

 

[aja8888]

CHSCM got down to $13+ very early. I got some at $17. Now it's back up to near $24+.

WTF is going on?

 

[Freedom56]

CHSCM got down to $13+ very early. I got some at $17. Now it's back up to near $24+.

WTF is going on?

It's called fund selling. The are liquidating to raise cash and are overwhelming bids.