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

[Sunset]

I only took 100 shares of it, so somebody else is crossing their fingers too.

 

[Slow But Steady]

I also own a batch of AHT-D, which you will recall is the one that tanked from par value down to just over $16 when they were having a tiff with their investors. I bought mine at par, and it's almost back to par now. Unfortunately, I didn't have the guts to buy more when it was down around $16, which was just for a few hours.

In case anyone cares, this one is back over par today, even after going ex-div at the end of March. I think I may exit soon. I just don't trust the management of the company any more. They have split the enterprise up into three separate companies, which they said was to maximize shareholder value. In retrospect, it looks like they have jiggered the organization to their own benefit, at least in my eyes.

And they pay themselves too much.

 

[pb4uski]

So I just want to see if I'm thinking about the value proposition of these preferreds correctly. I'll use Sunset's purchase of CNTHP as an example.

Sunset paid $52.86. Ignoring credit risk, the worst thing that could happen is that CNTHP gets called on its next dividend date of 5/1/2016 so Sunset receives the $51.44 call price plus the 5/1/2016 dividend of $0.82 so a total of $52.26 and has a $0.60 loss.

On the other hand, let's say the issue is called in 3 years... on 5/1/2019. In that event, the return is ~5.36% (=RATE(3,3.28,-52.86,51.44)). If it is called in 5 years then the return is ~5.73% (=RATE(5,3.28,-52.86,51.44)). And the return gradually increases but can never be more than 6.21% (3.28 annual dividend dividend by 52.86 purchase price). I'm assuming a 5/1/2016 purchase for easy calculation.

Am I thinking about this correctly?

 

[Coolius]

So I just want to see if I'm thinking about the value proposition of these preferreds correctly. I'll use Sunset's purchase of CNTHP as an example.

Sunset paid $52.86. Ignoring credit risk, the worst thing that could happen is that CNTHP gets called on its next dividend date of 5/1/2016 so Sunset receives the $51.44 call price plus the 5/1/2016 dividend of $0.82 so a total of $52.26 and has a $0.60 loss.

On the other hand, let's say the issue is called in 3 years... on 5/1/2019. In that event, the return is ~5.36% (=RATE(3,3.28,-52.86,51.44)). If it is called in 5 years then the return is ~5.73% (=RATE(5,3.28,-52.86,51.44)). And the return gradually increases but can never be more than 6.21% (3.28 annual dividend dividend by 52.86 purchase price). I'm assuming a 5/1/2016 purchase for easy calculation.

Am I thinking about this correctly?

No, Sunset did not get the May 1st dividend, because he bought today, April 11. The ex-dividend date was April 6.

And since the issue is long past first call, it can theoretically be called anytime - even tomorrow. Unlikely, because the BOD meets on a fixed schedule and I think their next meeting is around late June.

IF CNTHP was called tomorrow, for a May 12th redemption date ( assuming the usual 30 day advance notice ), he gets redemption value plus 12 days accrued interest ( assumption is accrued interest begins the day after div payment ).

Total he would get is $51.44 + $0.11 = $51.55. A loss of $1.31. This is the worst possible case. But as each day passes, his accrued interest increase by about 1 cent.

Sunset would be at break even around mid/late Aug 2016, when the next dividend plus accrued interest equals $1.31.

Hope I'm correct in this, this is only a back of the envelope calculation and I don't guarantee it.

 

[Sunset]

No, Sunset did not get the May 1st dividend, because he bought today, April 11. The ex-dividend date was April 6.

..... But as each day passes, his accrued interest increase by about 1 cent.

Sunset would be at break even around mid/late Aug 2016, when the next dividend plus accrued interest equals $1.31.....

So why would this guy do such a stupid thing ?

Well being the optimist, I can think that since pretty much everyone feels the Feds will raise rates a bit in the next couple of years, that there will be less pressure for the board to call it.
Not that they feel any pressure now.
So hopefully I can earn some good dividends for a bunch of years in a low rate environment.

Also, its pretty thinly traded, so had I put in a price of $51.44 since I would possibly not get the dividend (order was put in prior), it would not have been accepted by anyone, my only evidence of this is that my gross overpayment took 2 weeks to be accepted with a delay even after the dividend declaration.

I think this over-pricing reflects a balance of a great rate countered by the possibility of being called.

The money I used was currently earning approximately 0% , and I could have easily made it earn 2% risk free in a 5 yr cd. So the possibility of earning 6.xx% seemed attractive enough.

My worst case is being called tomorrow, in which case I'll share the loss with the IRS to shave 15%-25% off the pain.

I'm totally open to advice.

 

[pb4uski]

Don't get me wrong... I think it is a good play as I think the likelihood of it being called is remote. I just wanted to make sure I understood it correctly before I started putting in buy orders. I wasn't aware that ex date was April 6 so the returns are slightly lower than what I outlined.

 

[Coolius]

So why would this guy do such a stupid thing ?

Well being the optimist, I can think that since pretty much everyone feels the Feds will raise rates a bit in the next couple of years, that there will be less pressure for the board to call it.
Not that they feel any pressure now.
So hopefully I can earn some good dividends for a bunch of years in a low rate environment.

Also, its pretty thinly traded, so had I put in a price of $51.44 since I would possibly not get the dividend (order was put in prior), it would not have been accepted by anyone, my only evidence of this is that my gross overpayment took 2 weeks to be accepted with a delay even after the dividend declaration.

I think this over-pricing reflects a balance of a great rate countered by the possibility of being called.

The money I used was currently earning approximately 0% , and I could have easily made it earn 2% risk free in a 5 yr cd. So the possibility of earning 6.xx% seemed attractive enough.

My worst case is being called tomorrow, in which case I'll share the loss with the IRS to shave 15%-25% off the pain.

I'm totally open to advice.

The likelihood of CNTHP being called is low. Very low.

My cost basis is not far from Sunset - it is $52.38. ( Of course, I have had a couple dividends since then ). But at the time I bought, my risk exposure was similar.

Review the posts where Mulligan describes how the Connecticut Light & Power preferreds are " ring fenced ". Furthermore, these old issues had special features, such as voting rights under certain circumstances, that make it difficult to retire them quickly and easily.

I think Sunsets has made a very reasonable buy, and should enjoy the income stream for quite a while yet. Risk of call has been often mentioned by Mulligan and me, it is a known risk which can be quantified accurately.

I think we'll still be enjoying the income at this time next year -- I hope!!

 

[Mulligan]

So why would this guy do such a stupid thing ?

Well being the optimist, I can think that since pretty much everyone feels the Feds will raise rates a bit in the next couple of years, that there will be less pressure for the board to call it.
Not that they feel any pressure now.
So hopefully I can earn some good dividends for a bunch of years in a low rate environment.

Also, its pretty thinly traded, so had I put in a price of $51.44 since I would possibly not get the dividend (order was put in prior), it would not have been accepted by anyone, my only evidence of this is that my gross overpayment took 2 weeks to be accepted with a delay even after the dividend declaration.

I think this over-pricing reflects a balance of a great rate countered by the possibility of being called.

The money I used was currently earning approximately 0% , and I could have easily made it earn 2% risk free in a 5 yr cd. So the possibility of earning 6.xx% seemed attractive enough.

My worst case is being called tomorrow, in which case I'll share the loss with the IRS to shave 15%-25% off the pain.

I'm totally open to advice.

Sunset, personally I would feel just fine with what you did...I have been buying pre exD , post exD for several years around your price.
Eversource (the parent) in their rate filing request lists all the issues together as a lump yield. Collectively as a group they are under 5%, and of such little value these would have been called a long time ago if they were going to be. Usually these old preferreds are only called on a company buyout. It didnt happen then, so I doubt it does.
Yes there are higher yielding preferreds out there, but show me one that covers the dividend by 50 times like CLP issues are, with a guaranteed monopoly and rate of return, yielding 6% plus percent. You wont find it.... For all this safe high yielding return your risk is maybe losing 60 cents tops... Common stocks drop that much in a day.... The Board doesnt meet again until probably June. Next divi is almost a guarantee for you...If you notice all of CLP's dozen or so issues are declared at once but spread out over the 3 month period...when these were issued 50-70 years ago it was set up for "the locals" to buy them and get monthly income each month from them.

 

[Sunset]

Don't get me wrong... I think it is a good play as I think the likelihood of it being called is remote. I just wanted to make sure I understood it correctly before I started putting in buy orders. I wasn't aware that ex date was April 6 so the returns are slightly lower than what I outlined.

Actually I welcomed your calculations and appraisal of the buy, as it really helps to have decisions dissected to see if they are worthy.

While Coolius and Mulligan may have gotten the shares a little cheaper, it's nice to hear that they got them a little cheaper , and not a lot cheaper.

 

[Mulligan]

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

Actually I welcomed your calculations and appraisal of the buy, as it really helps to have decisions dissected to see if they are worthy.

While Coolius and Mulligan may have gotten the shares a little cheaper, it's nice to hear that they got them a little cheaper , and not a lot cheaper.

CNLPL and CNTHP are essentially the exact same issue with one penny difference in dividend. I bought a 100 more of CNLPL at $53 after it went exD so you can say I paid more for my last 100 than you did. Sometimes I pay more, sometimes a little less. When you look at low purchase prices remember that is usually just one lucky person and then that price is not available. As long as you are comfortable with 6% plus yield it is good. Especially if you are just holding for income. CNTHP says low trade of year was $50... That was an off market purchase that none of us had a chance to buy at as it was sold $3 under bid price that day.
The value is good. The 6.5% yield when issued was when 10 year bond was 4%. You are buying it at 6.2% with a sub 2% 10 year treasury. Actually a better value purchase than when issued in late 60s. Its the same company, same monopoly, same T&D utility. For a safe income investment for yield, and not capital appreciation, its a good buy.

 

[Mulligan]

Sunsets post on buying CLP exD, Texas Proud made me remember a point in buying illiquid, past call preferreds....Have you noticed that MNR-A has been trickling up in price since you bought it? Here is the reason and its pretty standard.... When you bought MNR-A its next dividend had not been declared, so the constant specter of a call hangs over issue. When next dividend has been declared the immediate risk is off, so price gets a bump. Sometimes it overshoots the value of the dividend, and sometimes you can just sell with more gain, and then repurchase after going exD at even lower price if you are into that game.
Now on to my point....If you are interested in trying to take a position in AILLL, now would be the time. As it is in that window of already gone exD and next one not declared. Last sale was $26.30 and that was pre exD. Right now its a battle between buyer and seller. If sellers are out there and cave the price could drop to $25.80 or under. It did last cycle and I picked up 400 more in the $25.70 range. It may not happen, but it will be quick if it does so you need a bid in at a price you can accept. Typically I wont go above a 2 divi risk. But I did buy one $8 over par a while back and next divi will put me in the black. Of course I don't think it will ever be called and have been proven right so far.


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[Mulligan]

I allow myself a small percentage of more "aggressive" purchases in small amounts... Bought 300 shares of JBN today. These are trust debentures from JCPenny. It yields 10.3%...S&P upgraded their debt ratings 2 levels last week. Things have been getting better for them the past few years. They have always paid the interest on this issue since its inception about 10 years ago. Trades about $8 under par still. Waited a week as I knew a spike would occur and it is around $17 now. Actually is trading about what it was a year ago, and financial health has improved greatly since then. S&P said there was a 1 in 3 chance they may further upgrade the debt again this year. A small $5k position is the limit here, but it is tempting to buy more.


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[Texas Proud]

I allow myself a small percentage of more "aggressive" purchases in small amounts... Bought 300 shares of JBN today. These are trust debentures from JCPenny. It yields 10.3%...S&P upgraded their debt ratings 2 levels last week. Things have been getting better for them the past few years. They have always paid the interest on this issue since its inception about 10 years ago. Trades about $8 under par still. Waited a week as I knew a spike would occur and it is around $17 now. Actually is trading about what it was a year ago, and financial health has improved greatly since then. S&P said there was a 1 in 3 chance they may further upgrade the debt again this year. A small $5k position is the limit here, but it is tempting to buy more.


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I could not see what the rating is now... do you know?

I bought a bit today, but will probably not buy any more... I want to keep my avg rating up in the investment grade area or maybe one level below...

 

[Mulligan]

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

I could not see what the rating is now... do you know?

I bought a bit today, but will probably not buy any more... I want to keep my avg rating up in the investment grade area or maybe one level below...

My suggestion is dont dump all your money in this issue if staying investment grade rating is your goal, ha!
Here is a link that discusses it. I am sure they are referring to the parent total debt rating. Quantum hasnt updated from last fall. When parent rating goes up all issues should go up in unison though this article doesnt specifically mention the debentures. So this issue should be a CCC+ now (up from CCC-) since parent rating is now upgraded to B.

http://www.fool.com/investing/general/2016/04/07/jc-penney-snags-a-big-debt-upgrade.aspx

 

[Texas Proud]

My suggestion is dont dump all your money in this issue if staying investment grade rating is your goal, ha!
Here is a link that discusses it. I am sure they are referring to the parent total debt rating. Quantum hasnt updated from last fall. When parent rating goes up all issues should go up in unison though this article doesnt specifically mention the debentures. So this issue should be a CCC+ now (up from CCC-) since parent rating is now upgraded to B.

J.C. Penney Snags a Big Debt Upgrade -- The Motley Fool

LOL... not a chance of me buying a lot of this issue... this is part of my HY bond allocation and I want to lean more toward the low investment grade...

Funny thing is that a year or so ago I did buy some JCP common in my testosterone account and made a few bucks... but I was too scared to hold onto it and it has gone up even more since I sold...

 

[Mulligan]

LOL... not a chance of me buying a lot of this issue... this is part of my HY bond allocation and I want to lean more toward the low investment grade...

Funny thing is that a year or so ago I did buy some JCP common in my testosterone account and made a few bucks... but I was too scared to hold onto it and it has gone up even more since I sold...

If one is making a small flyer bet on debt this is the way you want to go in my opinion. Its debt ratings have been on the upswing for over a year now. So positive trends, and never missed a payment even at the bottom of the trough a couple years ago. But things change fast, in 5 years it went from investment grade to near bankruptcy because of their then new strategy plan that failed miserably.

 

[Coolius]

Southern Company has called one of its Preferred Issues; Gulf Power 5.75% notes, symbol GUA, has been called for redemption on May 18th 2016.

I own this, and it had been a good income producer for over 2 years. Oh well, another one bites the dust.

 

[Mulligan]

Southern Company has called one of its Preferred Issues; Gulf Power 5.75% notes, symbol GUA, has been called for redemption on May 18th 2016.

I own this, and it had been a good income producer for over 2 years. Oh well, another one bites the dust.

Not surprising considering its debt and its robust debt rating. Wonder if you will see a repackaged version of same issue slotted at 5 1/8% going forward. Its a race to 5% in safe issues... My theory has been hide in the tiny issues and hope the same fate does not await them. But even these are just too high for risk/reward except maybe the CLP issues but I have enough.
So I moved back up the risk curve a bit and bought 1000 shares of OSBCP again....Im not a fan of banks, but where do you go. Nothing short of bankruptcy it will pay since it is a trust issue, not a preferred bank issue. I am just going to be a big boy and hang on until call, which I do not think will happen for a while.

 

[Texas Proud]

Well, saw someone was selling CVB... so upped my bid 6 cents and it finally filled.... bought at 10.51...

 

[Mulligan]

Well, saw someone was selling CVB... so upped my bid 6 cents and it finally filled.... bought at 10.51...

That is so funny! I saw the selling going on...I actually put a 800 share bid for $10.51 myself....But pulled it quickly and went with OSBCP. I couldnt make up my mind which way I wanted to go. Ultimately I already own CVB and did not have any OSBCP so I went that direction....But it was that close.....

 

[Mulligan]

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

Texas I couldnt resist and made another small 200 share purchase of the Kinder Morgan bonds today at $10.46. That 7.41% yield is too juicy to resist. You may want to consider looking at OSBCP. They just held their conference call today. Things are definitely on the upswing there. Just reinstated a dividend at one cent per quarter. They said they had no plans to call OSBCP anytime soon. This is a trust preferred like CVB so it is debt not just a bank preferred. I would definitely buy under next dividend difference of 19 cents though. Yield is close to 7.7 at a 10.16-18 purchase.

Add note...Well I was 5 minutes too quick with the trigger as it dropped even more as a big dump was going on. So I did most logical thing and bought 300 more at $10.23. Closed at $10.31 so I think the selling pressure is over.

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[Texas Proud]

Texas I couldnt resist and made another small 200 share purchase of the Kinder Morgan bonds today at $10.46. That 7.41% yield is too juicy to resist. You may want to consider looking at OSBCP. They just held their conference call today. Things are definitely on the upswing there. Just reinstated a dividend at one cent per quarter. They said they had no plans to call OSBCP anytime soon. This is a trust preferred like CVB so it is debt not just a bank preferred. I would definitely buy under next dividend difference of 19 cents though. Yield is close to 7.7 at a 10.16-18 purchase.

Add note...Well I was 5 minutes too quick with the trigger as it dropped even more as a big dump was going on. So I did most logical thing and bought 300 more at $10.23. Closed at $10.31 so I think the selling pressure is over.

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Yea, I noticed way too late that a sale was going on.... and if I had waited I would have gotten my price...

I just moved some more money to my MM account so I can buy some if the sale is going on tomorrow...

I have been looking at the OSBCP..... might take a few shares tomorrow...

I believe you did not buy, but I decided to buy a small amount of Glacier Water as the yield seems pretty good... I have put together a worksheet of my holdings and have calculated a weighted avg of the ratings and was at BBB- before and went to BB+ now.... I plan to not dip below BB- and will probably go back up to BBB- when said and done...

 

[Mulligan]

Yea, I noticed way too late that a sale was going on.... and if I had waited I would have gotten my price...

I just moved some more money to my MM account so I can buy some if the sale is going on tomorrow...

I have been looking at the OSBCP..... might take a few shares tomorrow...

I believe you did not buy, but I decided to buy a small amount of Glacier Water as the yield seems pretty good... I have put together a worksheet of my holdings and have calculated a weighted avg of the ratings and was at BBB- before and went to BB+ now.... I plan to not dip below BB- and will probably go back up to BBB- when said and done...

I owned it for a few weeks sold for a nickel higher and got a big $37 dividend...Coolius and I chickened each other out on it. I packaged that money into buying more OSBCP. Glacier may be fine, but I know more about the espionage doings of the CIA, than I do about the company. I just cant get over the secrecy... There was a quiet seller of CNLPL at $52.90 today. Maybe out there still tomorrow. Cant go wrong with that and it will pull your collective bond rating higher!

 

[Mulligan]

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

Was out golfing all day today, but I was nervous what CVB would do after its drop yesterday. Nice to see its back in its trading range again quickly. Makes me pleased for the time being I bought 300 more at $10.23. The issues outside of my normal utility preferred I usually buy make me nervous and I try to stay around $5k unless its a Ute. so I have more than doubled down here with 1000 issues of it and 1000 of OSBCP. I hope this isnt a trend in my future!


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[Mulligan]

CNLPL still had some dribbling selling going on today so I bought 100 more shares of it at $52.82. I have a tendency to play around with higher yielders then quickly bail out. Sold out my modest JCPenny issue at a 50 cent profit per share and flipped the money into CNLPL. My only "yield flyer" that is not investment grade is OSBCP now and it has been doing well now for several years. So my list now is... AILLL/AILNP, CNLPL/CNTHP, DTZ, KTH, KCC, OSBCP, CVB,MNR-A, and UEPCO. Recently sold my BGEPF on the run up. I am buying an Ag mutual fund monthly so I don't need it as an individual issue anymore. Looking to buy a little bit more, but cant get what I want at price I want, so may change gears again....Or just buy more CNLPL since it has been the easiest to snag lately.


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