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

[Coolius]

CNLPL seems to be the best issue to buy at this time. Trading range is small - between $51.85 - $52.25.

Current bid $51.90, ask $52.25. I have GTC bids in at $51.80.

Note that if the issue is called, it pays $51.84 + accrued dividends. It is callable now.

Yield is just about 6.1%, which is very good for a stable Preferred that has been around for close to 50 years now.

Thanks to Mulligan for suggesting it to me a while back. My cost basis is $51.96, but I have 2 dividends under the belt already.

 

[Mulligan]

CNLPL seems to be the best issue to buy at this time. Trading range is small - between $51.85 - $52.25.

Current bid $51.90, ask $52.25. I have GTC bids in at $51.80.

Note that if the issue is called, it pays $51.84 + accrued dividends. It is callable now.

Yield is just about 6.1%, which is very good for a stable Preferred that has been around for close to 50 years now.

Thanks to Mulligan for suggesting it to me a while back. My cost basis is $51.96, but I have 2 dividends under the belt already.

Thanks for rubbing it in Coolius. You have a calmer trigger finger than I do, so my basis is higher! But you know me...I will comment on 3-5 different issues I am going to buy and then turn around and tell you I just bought more CNLPL or AILLL.


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[Coolius]

Mulligan,

Buying CNLPL and AILLL at present price levels is not a risky move, IMO. I would do so if I didn't already have a full position.

One is assured a 6% yield, from a stable and long existing parent very unlikely to go out of business.

It's almost like an annuity...... ( in an annuity, the risk is of the insurance company going under ).

The biggest risk at this time is a call - which would bring our income stream to a screeching halt, and force us to search for viable alternatives in which to invest the proceeds.

 

[Golden sunsets]

Yes CMP is only T&D since 2000. Its parent company is a tangled web of all things power throughout the world though. Many Utes are running toward that model again to escape dangers of the unregulated power generation market. T&D Utes get rates based on costs to repair and distribute the power and are guaranteed a return on equity. The Feds have initiated a new program that allows them a 2-3% above state rates if they are plowing money back into upgrading systems. Many are taking advantage of that thus increasing the safety of dividends even more. Though that is being done for the benefit of the common stock as they can then increase dividend. Preferreds do not need that though as dividend is fixed and they get paid before the common holders get theirs. But anything that increases safety of my payment, I like!



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Oh I get it. Does it take a lot of digging to determine a ute's business model? Would I have to read an entire prospectus to figure this kind of thing out or is there a quick and dirty way of determining if a ute is T&D only?

 

[Mulligan]

Oh I get it. Does it take a lot of digging to determine a ute's business model? Would I have to read an entire prospectus to figure this kind of thing out or is there a quick and dirty way of determining if a ute is T&D only?

No the prospectus for most is dated. For example CNLPL's prospectus was from 1968. It may be only written on a stone tablet. I have quit reading the prospectus's except for the first few paragraphs. They are worded in such a way for legal purposes you would be convinced the company will become bankrupt in a week and accidentally blow up the entire planet.
I go to the company's website and look under investor relations section, articles and SEC filings under the stock in Marketwatch website.
Occasionally you will find some articles on them if you dig deep into the bowels of the web. There just isn't much coverage because they are delisted and really for small players, especially the smaller issued ones. Many are just 10-15 million dollar issues despite coming from a multi billion common equity company.
I set my criteria as over 6%, cumulative dividend, T&D only. There just are not that many in the universe of electrical preferreds that meet that criteria. SO (Southern Co) has a few but they are in the 5% plus range. SCE has some but they are down there also and some are not cummulative. I do have a small amount of EMQ and it yields about 5.8% and the issue is backed by all the plant assets plus is insured from 3rd party for payment so its darn near as safe as a CD.
For me really only BGE-B, CNLPL, CNTHP, and AILLL fit that criteria. If you go under the parent company's ticker in Quantum you will see other issues with different yields. Although they are all sister issues and have the same protections the ones like CNLPL will pay more because they were issued at higher rates thus more risk of a call since all are past call.
In CNLPL's case the ask price was $52.25 this morning. Call price is $51.84. But September dividend of .81 cents has already been declared. So even if they did call it on payment date you still would be 40 cents to the good so not any risk.
We have been in extra low rate environment for years. If they were gonna call it, one would think it would have happened by now. The issues are so small its not worth the cost to call them and reissue. Plus they get to bake the cost of dividends into their rates so in effect they get much of it back anyways.


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[Golden sunsets]

No the prospectus for most is dated. For example CNLPL's prospectus was from 1968. It may be only written on a stone tablet. I have quit reading the prospectus's except for the first few paragraphs. They are worded in such a way for legal purposes you would be convinced the company will become bankrupt in a week and accidentally blow up the entire planet.
I go to the company's website and look under investor relations section, articles and SEC filings under the stock in Marketwatch website.
Occasionally you will find some articles on them if you dig deep into the bowels of the web. There just isn't much coverage because they are delisted and really for small players, especially the smaller issued ones. Many are just 10-15 million dollar issues despite coming from a multi billion common equity company.
I set my criteria as over 6%, cumulative dividend, T&D only. There just are not that many in the universe of electrical preferreds that meet that criteria. SO (Southern Co) has a few but they are in the 5% plus range. SCE has some but they are down there also and some are not cummulative. I do have a small amount of EMQ and it yields about 5.8% and the issue is backed by all the plant assets plus is insured from 3rd party for payment so its darn near as safe as a CD.
For me really only BGE-B, CNLPL, CNTHP, and AILLL fit that criteria. If you go under the parent company's ticker in Quantum you will see other issues with different yields. Although they are all sister issues and have the same protections the ones like CNLPL will pay more because they were issued at higher rates thus more risk of a call since all are past call.
In CNLPL's case the ask price was $52.25 this morning. Call price is $51.84. But September dividend of .81 cents has already been declared. So even if they did call it on payment date you still would be 40 cents to the good so not any risk.
We have been in extra low rate environment for years. If they were gonna call it, one would think it would have happened by now. The issues are so small its not worth the cost to call them and reissue. Plus they get to bake the cost of dividends into their rates so in effect they get much of it back anyways.


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Once again - great info Mulligan.

 

[Mulligan]

Once again - great info Mulligan.

Golden, it is a very safe area for yield seeking investors, but a dying one. The last cumulative preferred electrical utility that issued one was 2013 with Interstate Power and Light (IPL-D). A very nice company and is not callable until 2018, and is under par (barely). But it yields a pitiful 5.1%. Though I would have no issue owning the company, I would rather take my chances on a call with higher yield. IPL-D will always be around and I doubt if its ever called, but it would drop hard if rates shoot up.
CNLPL gives a bit more cushion if rates rise. Just for comparison... June 30, 2006 when rates were "normalized" (whatever that means) the 10 year was trading at 5.15% and the 30 yr. 5.19%. CNLPL was trading at $52.15 that day. Right about where its at today.


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[Golden sunsets]

I presume that those of you who hold preferreds consider them as part of your fixed income portfolio??

 

[Coolius]

Golden Sunsets,

Yes, my Preferred holdings are considered as fixed income producing, along with individual corporate bonds, and ETD ( Exchange Traded Debt ). About 20% of portfolio is in Blue Chips, REIT, and MLPs ( GE, KO, PG, JNJ, LMT, O, VTR, EPD, MWE )


In addition, have a much smaller account at another brokerage which I use for speculative trades. It's not included in income expectations or planning.

 

[Mulligan]

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

I presume that those of you who hold preferreds consider them as part of your fixed income portfolio??

Seems like most respected financial pundits I read recommend 10% and up to no more than 20% for aggressive investors. I own no bonds or bond mutual funds. Just about 10 preferreds, Total Stock, and Total International. Along with an orphaned lot of Intel that I don't want to pay cap gains on.
Many people usually older people on other forums appear to have their entire stash in preferreds, ETD, REITs, and MLPs investing solely for income.
I would say Im about 75% -80% preferreds and growing, but I still contribute monthly to my index funds.
My caveat though is I don't have a portfolio, I just buy what I want as I live off my pension and do not withdraw anything and really don't plan on it ever I hope. Though down the road if health insurance keeps climbing out of control it may be a race to get the dividends deposited to pay off the monthly HI premium before they cancel me.


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[Golden sunsets]

Dipped my toe into the pool

Mulligan and Coolius; You will both be proud of me. I dipped my toe into the pond and bought CNLPL yesterday. Yield 6.248799. Bought at .01 above redeemable price. This is the first time I've bought by putting in a limit order. I checked yesterday and saw that the trade went through after languishing for a few days. Interesting experience.

 

[Coolius]

Congratulations!

I am sure you will not regret the purchase. Just regard it as a CD of indefinite duration, paying you over 6%.

Note that because CNLPL trading is so thin, most brokerage and financial websites rarely display the correct price. I used to get freaked out until I realized that.

Dividends are also QDI, meaning that if you are within the 15% tax bracket, they are exempt from Federal Tax. If you are in higher brackets, they are taxed at a lower rate.
So your effective yield is a little better than what you got.

I have a lowball bid in; hoping to get more to make it an even round number of shares.

 

[Mulligan]

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

Yes, Golden you got a keeper there IMHO. It is by far my second biggest holding and will remain that way. Take the 81 cents every 3 months and move on!
Coolius's comment about price discrepancies is correct. I bought a small preferred utility this week that showed 3 different prices (100,102, and 108) from three different sites. You want to talk about illiquid....It has traded only 5 times in 30 months for a grand total of 573 shares traded. I put in a bid for 100 shares, but only got 73. I love the 7.18% perpetual yield. My only worry on it is what you now do not have to at $51.85.....a call since I had to go over par to get it.


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[Golden sunsets]

Is your " full position" in any particular preferred based on a percentage of your portfolio or a dollar amount? I would subscribe to a no more than x% for total Preferred's in a portfolio and then another smaller % for individual holdings. I don't think I would go as high as 10% for total Preferred's, but I think a dollar limit of $5,000 per issue seems too small to make a dent.

 

[Mulligan]

Is your " full position" in any particular preferred based on a percentage of your portfolio or a dollar amount? I would subscribe to a no more than x% for total Preferred's in a portfolio and then another smaller % for individual holdings. I don't think I would go as high as 10% for total Preferred's, but I think a dollar limit of $5,000 per issue seems too small to make a dent.

Some people have a system and stick to it. Many income investors will buy dozens and dozens for diversity purposes. I live off my pension not my investments so I do not feel I have to be as disciplined. A "full position" to me is as transitory as being "full" is after dinner. I get hungry soon and usually buy more of the same thing!
I got about 10 issues but 4 of them probably represent 85% of my preferreds. One of them and its sister issue is around 40% of the entire pot.
So no rhyme or reason or consistency other than the fact I would rather go down swinging in what I know and want than to diversify just to diversify.
Preferreds in total are around 75% of my portfolio. I would say you are thinking correctly in keeping it around 10%. Like I said, I don't have to follow the rules because I assume my pension manager is!
You mentioned $5k as being small entry points and that is true. But be aware of liquidity issues if you ever plan to sell. 1000 shares of CHSCL would be fairly easy to be rid of. 1000 shares of CNLPL may be harder to sell at the exact price you wanted. But if you do not plan to sell which is mostly my plans, it doesn't really matter then.


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[Coolius]

My definition of a "full" position is 500 shares, regardless of price, I consider this as complete and will not seek to add more unless there is a real "back up the truck" opportunity.

Obviously, I have violated my own rule many times, and still do. At present 4 issues are above this figure, but they are strong companies and highly unlikely to cut the dividend, and I have no intention of selling.

Some issues, like WFC-L, which are very high priced ( WFC-L is $1,175 a share ), I have far less, but certainly would be nice to have a "full" position of it.

 

[Mulligan]

Golden Sunsets, I thought of you the other day while tracking my preferred stock list. The Central Maine Power issue (CTPPO) that you wanted to buy but couldn't get a buy finally traded a couple days ago. A whopping total of 22 shares at $101. The bid was 200 shares I believe but only 22 shares were released. This can happen frequently due to lack of share availability. If you don't want this to happen you have to put in an "all or nothing" bid. I have been trying to shake a few nuts out of a tree myself and got 73 shares one time and 40 another. Trying for more again. It increases your transaction costs, but that is the only way you can accumulate some of these issues. I still have not figured out who or why someone would sell 22 or 73 shares. It could just be the market makers selling them also I guess.


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[alaska55]

How's everyone's Perferred shares doing, my mostly investment grade shares are barely down, less than 1%. My portfolio 35% VTI, 65% perferred is doing good, it's down but all due to VTI.

 

[Winemaker]

Mine are holding fairly steady; it's the inflation protection part of the portfolio that's killing me softly....oil, precious metals, commodities and energy.

 

[Mulligan]

Except for a few very small but still dumb forays into preferred shipping stocks that I have sold, my preferreds have done excellent. Doing what they are supposed to do .....snore and pay nice dividends. Though CHSCL was a little frisky dropping 33 cents yesterday. Still I am way ahead on that one for the year, buying near $25.


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[Golden sunsets]

Golden Sunsets, I thought of you the other day while tracking my preferred stock list. The Central Maine Power issue (CTPPO) that you wanted to buy but couldn't get a buy finally traded a couple days ago. A whopping total of 22 shares at $101. The bid was 200 shares I believe but only 22 shares were released. This can happen frequently due to lack of share availability. If you don't want this to happen you have to put in an "all or nothing" bid. I have been trying to shake a few nuts out of a tree myself and got 73 shares one time and 40 another. Trying for more again. It increases your transaction costs, but that is the only way you can accumulate some of these issues. I still have not figured out who or why someone would sell 22 or 73 shares. It could just be the market makers selling them also I guess.


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Interesting Mulligan! I have not looked at the prices of our individual holdings for a bit and frankly have not even looked at the total drop in our investments. That's been my method of dealing with market drops over the years. So you actually own any CTTPO or are you just monitoring it. I agree that I don't want to buy such small amounts, so I will take your advice and limit any future orders to whole or none.

 

[Mulligan]

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

Interesting Mulligan! I have not looked at the prices of our individual holdings for a bit and frankly have not even looked at the total drop in our investments. That's been my method of dealing with market drops over the years. So you actually own any CTTPO or are you just monitoring it. I agree that I don't want to buy such small amounts, so I will take your advice and limit any future orders to whole or none.

Probably a smart thing not to look, unfortunately looking is a bad hobby for me! But the good thing about the preferreds I own is you get "nervous" when they drop a nickel!
I just have CTTPO on my watch screen. It only traded once and just those 22 shares. Though with only 2,000 shares left outstanding that was 1% of the total shares though. The thing is about low volume small lot issues is, if you want to acquire them you have to be willing to take what you can get whenever you can. I would not have 113 shares of my issue I bought if I had done "all or nothing". It only has 4500 shares left outstanding but its good as gold safe 7.18% yield (7.75% par). I shook 73 loose at $108 and 40 at $108.50. Tried to get more at $109 which is $9 over par and nothing shook lose for a month before I threw in the towel. I seen somebody else is trying now at same $109 and isn't getting anywhere either. So you do have to be patient or lucky to get these illiquid utility preferreds.


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[Coolius]

My main Portfolio, which is mostly Preferred Stock, plus some Corporate Bonds, went down less than 2% since last week when the carnage started.

And the income stream is not affected.

I also have a IRA portfolio of " Total return " with blue chips, growth, and a few speculative issues. Now, that one got slammed, and slammed good.
Fortunately, I'm several years away from RMD, so have the time to recover.

Along with Mulligan and the rest of you stalwarts, I'm a firm believer in income investing.

 

[capjak]

Bought OSBCP 500@ 9.84 not much $$ but its a start. I guess

 

[Mulligan]

Bought OSBCP 500@ 9.84 not much $$ but its a start. I guess

Several of us here have that one, so you are not alone my friend! I dont consider it one of my safe elite ones, but when your yield is almost 8% you have to suck it up a little bit. Its been acting goofy lately then rebounds. The common stock OSBC was actually up on fridays slaughter day and today also. OSBCP did rise today. Anytime it drifts into the 9.70's it gets bought back up. Bank been improving and bought out their TARP preferreds. Should be good I hope for a couple years until they can finally call it, and being under par you are fine. I usually try to buy these types in about 5k allotments like you did, but I felt frisky and bought 1100 of them. Its my biggest "risky play".


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