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

[Mulligan]

I'm getting my shopping list ready. PFF and PGX have been selling off which means that many of their holdings will be sold in the coming days. I sold my preferred stocks last April and am sitting on a lot of cash in money market funds (27% cash/MM). So far there is nothing worth buying. Many of the higher yielding investment grade preferred stocks are still trading above par for now and many will be called later this year.

Freedom, you may wanna check again. A lot are sniffing at par now. I respect anyones perspective of value as its personal. But Im up close to 10% all preferreds since last April. Gave some back few days, but bottom line is I have more money now than I did end of last month, so its all good. But I have been trading to make it work. But its fun to me.
Any conservative investor should love EP-C under par which I loaded up on. KMI guarantees it and its quality has risen so much in past couple years it has dragged this paper up to BBB- in itself. Plus that 2028 maturity is precious. Allowing for interest payment which goes exD, you basically are almost getting 400 bps IG spread from 10 year. There isnt much of that out there on the bond market especially with the shorter duration play. I dont know where that $50.98 close price came from. I bought 90 more shares a minute before market close to add at $49.89. And that was next to last trade which the last trade was the $50.98 crazyiness.

 

[Mulligan]

I'm buying some IPLDP today.

Editing: Picked up 400 @ $25.10.

Things may go to hell, but through it all, the divi will show up matter what from this oufit, no problemo.

 

[aja8888]

Things may go to hell, but through it all, the divi will show up matter what from this oufit, no problemo.

Yeah, that's why I buy these things. I want no problemo with div's! LOL

 

[aja8888]

Any conservative investor should love EP-C under par which I loaded up on. KMI guarantees it and its quality has risen so much in past couple years it has dragged this paper up to BBB- in itself. Plus that 2028 maturity is precious. Allowing for interest payment which goes exD, you basically are almost getting 400 bps IG spread from 10 year.

So KMI bought El Paso and these trust convertibles are now under the control of KMI? Is that why you say they are conservative (safe?). Weren't these convertible into El Paso stock at any time by the company back when issued?

 

[Freedom56]

Freedom, you may wanna check again. A lot are sniffing at par now. I respect anyones perspective of value as its personal. But Im up close to 10% all preferreds since last April. Gave some back few days, but bottom line is I have more money now than I did end of last month, so its all good. But I have been trading to make it work. But its fun to me.
Any conservative investor should love EP-C under par which I loaded up on. KMI guarantees it and its quality has risen so much in past couple years it has dragged this paper up to BBB- in itself. Plus that 2028 maturity is precious. Allowing for interest payment which goes exD, you basically are almost getting 400 bps IG spread from 10 year. There isnt much of that out there on the bond market especially with the shorter duration play. I dont know where that $50.98 close price came from. I bought 90 more shares a minute before market close to add at $49.89. And that was next to last trade which the last trade was the $50.98 crazyiness.

Hi Mulligan,

My 2019 return was 20.5% driven by early flipping of preferred stocks in April after buying them well below par in late 2018 and appreciation of bonds/notes from Ares Capital, Seagate Technology, Centurylink, and Capital One Financial that I purchased well below par. So I just sat on the sidelines collecting interest and waiting for another selloff. I found that regular corporate bond/notes are often offer better value and lower volatility than exchange traded baby bonds/notes. I always like timing by bond and preferred share purchases since I have seen so many of these repeat events of sell off and bid up over the past decade. As I have previously stated, interest rates are going to stay low for a long time. However, the market behaves irrationally during these sell-offs driven by passive bond and preferred funds. I will be looking at all investment grade preferred stocks form large financials and some utilities. I don't like energy, retail, REITs and MLPs which are all in a deep bear market. I wouldn't touch bonds or preferred stocks from those sectors.

At first I rolled my eyes when news broke about the Coronavirus. What has many people spooked is the fact that young adults are dying from this illness. The travel industry is going to be dealing with a shock like never before if this continues. So I don't think the sell-off is anywhere near done and oddly enough we are nearing the 20th anniversary of the dot com bubble popping. We all witnessed what happened then and how the markets unraveled. I don't think this time it will be any different.

 

[capjak]

I really have not seen a decline in the preferred I own.
AILLL, WFC-L,CHSCM,CNLPL,CNTHP,NIPRB,

I really have not seen a fire sale for these and I have been looking......currently portfolio is 7% preferred

The morbidity is MUCH LOWER in young adults. It is the elderly that have the most vulnerability.

 

[bobandsherry]

I really have not seen a decline in the preferred I own.
AILLL, WFC-L,CHSCM,CNLPL,CNTHP,NIPRB,

I really have not seen a fire sale for these and I have been looking......currently portfolio is 7% preferred

The morbidity is MUCH LOWER in young adults. It is the elderly that have the most vulnerability.

You've had some significant movement in a couple of those, especially for preferred issues.

	2/21	2/28	Change	% Change
AILLL	28.24	28.50	0.26	0.92%
WFC-L	1560.00	1505.00	-55.00	-3.53%
CHSCM	27.76	26.04	-1.72	-6.20%
CNLPL	60.00	60.50	0.50	0.83%
CNTHP**	59.90	59.90	0.00	0.00%
NIPRB	27.76	26.29	-1.47	-5.30%

**CNTHP hasn't had any trade since 2/21

 

[bobandsherry]

I've put some cash back into the market, jumped back into ALLY-A when I saw it at $25.31, missed that bottom but got in for just a few cents more.

 

[Mulligan]

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

Hi Mulligan,

My 2019 return was 20.5% driven by early flipping of preferred stocks in April after buying them well below par in late 2018 and appreciation of bonds/notes from Ares Capital, Seagate Technology, Centurylink, and Capital One Financial that I purchased well below par. So I just sat on the sidelines collecting interest and waiting for another selloff. I found that regular corporate bond/notes are often offer better value and lower volatility than exchange traded baby bonds/notes. I always like timing by bond and preferred share purchases since I have seen so many of these repeat events of sell off and bid up over the past decade. As I have previously stated, interest rates are going to stay low for a long time. However, the market behaves irrationally during these sell-offs driven by passive bond and preferred funds. I will be looking at all investment grade preferred stocks form large financials and some utilities. I don't like energy, retail, REITs and MLPs which are all in a deep bear market. I wouldn't touch bonds or preferred stocks from those sectors.

At first I rolled my eyes when news broke about the Coronavirus. What has many people spooked is the fact that young adults are dying from this illness. The travel industry is going to be dealing with a shock like never before if this continues. So I don't think the sell-off is anywhere near done and oddly enough we are nearing the 20th anniversary of the dot com bubble popping. We all witnessed what happened then and how the markets unraveled. I don't think this time it will be any different.

Freedom, I look at my post and it doesnt represent the fun or lightness as it was intended, but you saw through it somehow anyways, ha. Yes, patience can certainly be rewarded as you well know and have experienced!
Also unfortunately I share your assessment of where not to buy preferred. Why is it unfortunate? Because those are the ones that have dropped a lot. Im not smart enough in those sectors to recognize value from more trouble and pain ahead. I suspect there are trading gains in there somewhere if things dont get too bad, but I am not optimistic I would find it, ha.

 

[Mulligan]

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

So KMI bought El Paso and these trust convertibles are now under the control of KMI? Is that why you say they are conservative (safe?). Weren't these convertible into El Paso stock at any time by the company back when issued?

Yes, KMI SEC filings specifically state “unconditional guarantee payment of debt”. So KMI the parent is the backstop, essentially I guess since they bought them out. So the key in ratings upgrade has been KMI’s improved balance sheet past several years. EP-C may just be subordinated debt but it still has Baa3 rating.
Technically the convertible provisions exist but have been altered to KMI stock. It is owner optional to convert anytime but there is no present (or likely ever before 2028 maturity) value in doing so. Your conversion would be about $25.18 in cash and off memory something like .73 KMI share per share tender. So KMI common really needs to get to $35 or so to make the convertible provision worth anything...So really this is now just a debt that can be redeemed by KMI at anytime for $50 cash, or by mandate at 2028 maturity.

 

[aja8888]

Yes, KMI SEC filings specifically state “unconditional guarantee payment of debt”. So KMI the parent is the backstop, essentially I guess since they bought them out. So the key in ratings upgrade has been KMI’s improved balance sheet past several years. EP-C may just be subordinated debt but it still has Baa3 rating.
Technically the convertible provisions exist but have been altered to KMI stock. It is owner optional to convert anytime but there is no present (or likely ever before 2028 maturity) value in doing so. Your conversion would be about $25.18 in cash and off memory something like .73 KMI share per share tender. So KMI common really needs to get to $35 or so to make the convertible provision worth anything...So really this is now just a debt that can be redeemed by KMI at anytime for $50 cash, or by mandate at 2028 maturity.

Thanks, looks like I'll add it to my preferred portfolio this week.

 

[Mulligan]

Thanks, looks like I'll add it to my preferred portfolio this week.

My guess on conversion features was a bit off...Here is the official terms now KMI is obligator.

Capital Trust I (Trust I), is a 100%-owned business trust that as of December 31, 2019, had 4.4 million of 4.75% trust convertible preferred securities outstanding (referred to as the Trust I Preferred Securities). Trust I exists for the sole purpose of issuing preferred securities and investing the proceeds in 4.75% convertible subordinated debentures, which are due 2028. Trust I’s sole source of income is interest earned on these debentures. This interest income is used to pay distributions on the preferred securities. We provide a full and unconditional guarantee of the Trust I Preferred Securities. There are no significant restrictions from these securities on our ability to obtain funds from our subsidiaries by distribution, dividend or loan. The Trust I Preferred Securities are non-voting (except in limited circumstances), pay quarterly distributions at an annual rate of 4.75% and carry a liquidation value of $50 per security plus accrued and unpaid distributions. The Trust I Preferred Securities outstanding as of December 31, 2019 are convertible at any time prior to the close of business on March 31, 2028, at the option of the holder, into the following mixed consideration: (i) 0.7197 of a share of our Class P common stock; and (ii) $25.18 in cash without interest. We have the right to redeem these Trust I Preferred Securities at any time.
(f)
As of Dece

 

[Mulligan]

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

Thanks, looks like I'll add it to my preferred portfolio this week.

If there is a wide bid ask, be patient and watch. I dont know how $50.98 became last trade of day..The previous next to last trade was mine.. I added 90 to get to my 1000 shares by sending off a market order bid and it hit at $49.89. I think you should easily get it at par of lower, but who knows.
Now keep in mind the bid was $49.88 and ask was $50.00.. So I knew the range. I do this quite often but one has to know the situation...For example when I was unloading KMI a month or so ago over $51 after just buying at $49 a few weeks prior...I noticed nothing was going on with my lead ask price...So I just closed my ask price and quietly started sending market sell orders in 50 share lots. All were hitting over 25 cents HIGHER than my standing ask price with no takers...The market tries to screw you and there are ways to screw it back if the situation is right.

 

[capjak]

You've had some significant movement in a couple of those, especially for preferred issues.

	2/21	2/28	Change	% Change
AILLL	28.24	28.50	0.26	0.92%
WFC-L	1560.00	1505.00	-55.00	-3.53%
CHSCM	27.76	26.04	-1.72	-6.20%
CNLPL	60.00	60.50	0.50	0.83%
CNTHP**	59.90	59.90	0.00	0.00%
NIPRB	27.76	26.29	-1.47	-5.30%

**CNTHP hasn't had any trade since 2/21

Thanks, I guess my price targets are what I originally paid XX vs now XX:
AILLL $26.25.
WFC-L. $1222.
CHSCM. $25.54
CNLPL. $52.84
CNTHP. $52.44
NIPRB $24.90

Maybe I should sell and buy back.....

 

[Freedom56]

Freedom, I look at my post and it doesnt represent the fun or lightness as it was intended, but you saw through it somehow anyways, ha. Yes, patience can certainly be rewarded as you well know and have experienced!
Also unfortunately I share your assessment of where not to buy preferred. Why is it unfortunate? Because those are the ones that have dropped a lot. Im not smart enough in those sectors to recognize value from more trouble and pain ahead. I suspect there are trading gains in there somewhere if things dont get too bad, but I am not optimistic I would find it, ha.

It's easier just to avoid troubled sectors that are in a downward spiral than trying to find value in them. Given that passive fund trading is software driven based on in-flows and out-flows, their reactions in a downturn become more and more predictable. They always dump the lowest coupon preferred stocks first followed by the mid-tier coupons.

Below are some of the preferred stocks and CEFs I'm looking at below par for over a 6% yield. Note that some will likely be called towards the end of the year.

COF-F 6.2% Call 12/20 (Bought and sold multiple times since 2015)
COF-H 6% Call 12/21
C-S 5.3% Call 2/21 (Bought and sold multiple times since 2016)
JPM-H 6.15% Call 9/20 (Bought and sold multiple times since 2015)
JPM-G 6.1% Call 9/20
JPM-C 6% Call 3/24

BAC-C 6.2% Call 1/21(Bought and sold multiple times since 2016)
BAC-A 6% Call 4/21
BAC-B 6% Call 5/23

Baby bonds:

EBAYL 6% (Bought and sold multiple times)
AFC 6.875% (I'm holding 4000 shares of this since 2013 at an average of $24.20)

CEFs

IHIT $10 or better (Term fund)
JPC $8-$8.5 range
JPS $8-$8.5 range
JTP $22-$22.5 range (Term fund)

 

[Mulligan]

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

Freedom, IPLDP is my biggest hold and its low coupon but its holding up like a rock star...I need to find some deals tomm though!

 

[Running_Man]

I think the need to jump into preferreds is not right now. To buy tomorrow or next week means you believe the Fed and low interest rates can fix the economic impact the economic slowing of the market. With rates dropping, almost none of my preferreds have dropped, I had already sold 25% of my holdings last week, all of the preferreds with profits and several quarters of dividends but I am selling while long term rates are going to 1% because there is implied economic turmoil that will down the road leave I believe some true bargains and I'd just as soon earn 7-10% under par than 5% at par.

 

[Mulligan]

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

I think the need to jump into preferreds is not right now. To buy tomorrow or next week means you believe the Fed and low interest rates can fix the economic impact the economic slowing of the market. With rates dropping, almost none of my preferreds have dropped, I had already sold 25% of my holdings last week, all of the preferreds with profits and several quarters of dividends but I am selling while long term rates are going to 1% because there is implied economic turmoil that will down the road leave I believe some true bargains and I'd just as soon earn 7-10% under par than 5% at par.

Your going to need credit spread blow outs ala Dec. 2018 to get that chance. Nothing is as obvious as it seems. 2013 Taper Tantrum IG preferreds blew up while high yield preferreds barely moved...2016 the opposite occurred, high yield blew out and IG preferreds rose...It all depended where the credit spread blow out was. 12/2018 the whole curve blew out. Not all preferreds are just going to move off stock market movement. This last week proved it. Only crap issues or debt stressed suffered materially last week... People were complaining last summer on All State issuing a 5.1% par issue as pitiful. Its still trading higher now than when it was issued.
Maybe getting in now with fresh capital is not wise, I have no problem with that assessment. But I have been 100% preferreds since 2013, and been plus 10% or more every year. If I got out on every worry I wouldnt have made any money. If an IG ute like IPLDP blew out to 6% with a 1% 10 year, margin here I come. 500 bps on an IG QDI preferred spread would be a deal of a lifetime. Not in absolute yield but in relative yield without question.

 

[Texas Proud]

WOW, just WOW....


I have opened a Fidelity account as I was getting tired of problems at Vanguard... going to try them and Merrill Edge to see what I like best..


Well, Fidelity got a bad mark now... it will NOT let me trade some (most?) preferred shares... says

This security is restricted from online opening trades or restricted to closing trades only.
​

Well, it is NOT an opening trade and there is no way I would buy as a closing trade... the two I tried were Ally-A and NSS... Ally has already had 57K shares traded today...



Been on hold for 12 mins waiting to find out why?

 

[Winemaker]

Fidelity sometimes requires you to use the call desk for preferreds that are less than investment grade. I would still get the online commission back then, but everything is zero now. I think they're just being cautious as to you buying shares as a mistake or typo.

 

[RE2Boys]

WOW, just WOW....


I have opened a Fidelity account as I was getting tired of problems at Vanguard... going to try them and Merrill Edge to see what I like best..


Well, Fidelity got a bad mark now... it will NOT let me trade some (most?) preferred shares... says

This security is restricted from online opening trades or restricted to closing trades only.
​

Well, it is NOT an opening trade and there is no way I would buy as a closing trade... the two I tried were Ally-A and NSS... Ally has already had 57K shares traded today...



Been on hold for 12 mins waiting to find out why?

I've seem the same message in my Fidelity account, though it may have been under different circumstances.

No brokerage house is free from technical glitches. I'm still waiting for Fidelity to complete my tax package for 2019!

 

[Mulligan]

WOW, just WOW....


I have opened a Fidelity account as I was getting tired of problems at Vanguard... going to try them and Merrill Edge to see what I like best..


Well, Fidelity got a bad mark now... it will NOT let me trade some (most?) preferred shares... says

This security is restricted from online opening trades or restricted to closing trades only.
​

Well, it is NOT an opening trade and there is no way I would buy as a closing trade... the two I tried were Ally-A and NSS... Ally has already had 57K shares traded today...



Been on hold for 12 mins waiting to find out why?

Fidelity has a reputation for not allowing online trading of fixed to float issues...They think you are dumb but they will let you buy CBL preferreds though, lol...
You have to call those buys in on F/F from what everyone complains about.

 

[bobandsherry]

WOW, just WOW....


I have opened a Fidelity account as I was getting tired of problems at Vanguard... going to try them and Merrill Edge to see what I like best..


Well, Fidelity got a bad mark now... it will NOT let me trade some (most?) preferred shares... says

This security is restricted from online opening trades or restricted to closing trades only.
​

Well, it is NOT an opening trade and there is no way I would buy as a closing trade... the two I tried were Ally-A and NSS... Ally has already had 57K shares traded today...



Been on hold for 12 mins waiting to find out why?

I'd suggest E-Trade. Haven't had problems buying issues there, have noticed Fido wouldn't allow.

 

[Running_Man]

Your going to need credit spread blow outs ala Dec. 2018 to get that chance. Nothing is as obvious as it seems. 2013 Taper Tantrum IG preferreds blew up while high yield preferreds barely moved...2016 the opposite occurred, high yield blew out and IG preferreds rose...It all depended where the credit spread blow out was. 12/2018 the whole curve blew out. Not all preferreds are just going to move off stock market movement. This last week proved it. Only crap issues or debt stressed suffered materially last week... People were complaining last summer on All State issuing a 5.1% par issue as pitiful. Its still trading higher now than when it was issued.
Maybe getting in now with fresh capital is not wise, I have no problem with that assessment. But I have been 100% preferreds since 2013, and been plus 10% or more every year. If I got out on every worry I wouldnt have made any money. If an IG ute like IPLDP blew out to 6% with a 1% 10 year, margin here I come. 500 bps on an IG QDI preferred spread would be a deal of a lifetime. Not in absolute yield but in relative yield without question.

I understand that, I have a theory that when a market goes to a historic high in this case dropping 33% of the yield of a 10 year note in one week, something in the plumbing is wrong. Market cooperated and I am out of 75% of my preferred position now, which previously I had driven up to 10% of my portfolio, my maximum position, when FED reversed course last December, so it was a very profitable ride averaging 5% dividends and 13% capital gains in about a year. Keeping 2.5% of my portfolio in individual issues, but have sold the entirety of the WELLS FARGO WFC.PL.

I have been looking over the past week at several BB- companies and the levels of debt are astronomical. Debt to EBITDA in the space in general, not individual issues is just too too high, and the fact they can't afford high rates is a poor excuse to expect low rates to continue, I am getting out of the way for a time.

 

[Mulligan]

I understand that, I have a theory that when a market goes to a historic high in this case dropping 33% of the yield of a 10 year note in one week, something in the plumbing is wrong. Market cooperated and I am out of 75% of my preferred position now, which previously I had driven up to 10% of my portfolio, my maximum position, when FED reversed course last December, so it was a very profitable ride averaging 5% dividends and 13% capital gains in about a year. Keeping 2.5% of my portfolio in individual issues, but have sold the entirety of the WELLS FARGO WFC.PL.



I have been looking over the past week at several BB- companies and the levels of debt are astronomical. Debt to EBITDA in the space in general, not individual issues is just too too high, and the fact they can't afford high rates is a poor excuse to expect low rates to continue, I am getting out of the way for a time.

That is a good point some people are in trash issues, but dont understand the risk it entails. Cap stack is a bit!h if caught on the low rung of a distressed company..
I dont go there too often. Meanwhile I sold some winners to buy losers late last week and then bought more when they dropped more. Now they have plumb bobbed back up already. Its like last week never happened plus some more money. Crazy days...Here is crazy
Yes I dabbled 200 shares back into RPT-D yesterday as I sold it after it got too high. Anyhow ask was $53.89 and I had lead bid $53.85. Ask dropped to 53.86 so I change bid to buy at 53.86...Except the transaction went off at 53.51. Volume sold was unchanged except for my 200 shares. That was weird but I aint complaining.