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

[Mulligan]

Surely you have not forgotten DQUEK ?

I thought that one got called prior to ELUOP? Am I mistaken? They were pretty close though either way. And we were holding hands on that one too. That is when we developed theory that anything near. 6.5% perpetual was an extreme call danger. Those however both are the only calls I have had. But unlike BGLEP fiasco, I still made a tiny bit of money on those. Not so today!


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[Coolius]

I had HUSI-H, GUA, BOCA and now BGLEI called this year.

Yep, definitely no fun. Including dividends, I did OK on them, though not as well as I'd hoped.

 

[aja8888]

As you guys know, I own a few preferred stocks and read this thread regularly. My percentage of preferreds fits my risk tolerance as I need to be careful at my age (72) and not lose too much of my stash, which is not immensely large due to some bumps in the road (women, divorces, fast cars, etc).

I have a mix of dividend paying stocks which have treated me quite well over the long run. I also have some index funds and some bonds so I feel I am diversified. I still seek income as I am pulling RMDs (thanks to Sam).

So that's the reason I hang out here, but today's posts gave me a warning about call provisions. It's evident that one must not pay too much above par for these stocks in a low rate environment. You all know that. But it's easy to get glossy eyed over the dividend and not pay attention to the potential for a call or that you paid a large premium that can only be recouped with several dividend payments.

I wonder if it's prudent to place long term stop loss orders below your purchase price on these securities in the event that there is a run by holders to sell? Comments?

 

[MooreBonds]

This is the first one for me since our brief ownership of ELUOP (I think that was the ticker) Remember that one last summer?


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Yes, I was so happy to have picked up (I think) about $2,500 worth of ELUOP during the day....then later that same evening, they issued the release that they were calling it.

 

[Mulligan]

Yes, I was so happy to have picked up (I think) about $2,500 worth of ELUOP during the day....then later that same evening, they issued the release that they were calling it.

So you had a brief romance with her too, huh? She lead a bunch of us greedy safe yield chasing bozo's to the alter and dumped us!


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[Mulligan]

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

As you guys know, I own a few preferred stocks and read this thread regularly. My percentage of preferreds fits my risk tolerance as I need to be careful at my age (72) and not lose too much of my stash, which is not immensely large due to some bumps in the road (women, divorces, fast cars, etc).



I have a mix of dividend paying stocks which have treated me quite well over the long run. I also have some index funds and some bonds so I feel I am diversified. I still seek income as I am pulling RMDs (thanks to Sam).



So that's the reason I hang out here, but today's posts gave me a warning about call provisions. It's evident that one must not pay too much above par for these stocks in a low rate environment. You all know that. But it's easy to get glossy eyed over the dividend and not pay attention to the potential for a call or that you paid a large premium that can only be recouped with several dividend payments.



I wonder if it's prudent to place long term stop loss orders below your purchase price on these securities in the event that there is a run by holders to sell? Comments?

Women, divorces,and fast cars are enough options to be separated from ones money... Adding a fourth (way over par, past call issues) doesnt seem needed does it, ha!
I dont have a good answer, Aja. Like I mentioned ALL the BGE preferreds had massive sell dumps last summer/fall. One was 50,000. And dropped price around $101. In that scenario, you would have got scalped. As it was just a dump from some institution, and price recovered in a few days.
Its just getting harder....last year you could buy issues under a dividend past call, so the risk was zero as dividends were declared already. Now many are climbing 2-3 dividends past call price increasing the risk. You really have to go to the older 5% and under utility preferreds to get around call risk. I dont have an answer on how low I am willing to go. I really have to keep most of mine in 15% QDI, so that compounds the problem.


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[Golden sunsets]

I forgot to add, Golden, it is the size of the preferred issues that screams call. For example BGE, has only 4 preferred issues. They cumulatively yield close to 7% collectively, and are nearly 200 million dollars in total issue. Considerable savings could occur by simply calling and reissuing in low 5% range which is current rate for current utility preferreds of save investment grade ratings not yet callable. Sent from my iPad using Tapatalk

Sorry to hear about your loss Mul. When I read this I was reminded of this post from you that schooled me on the call danger. I diligently crossed it off my list at that time. Thanks for the warning.

 

[Mulligan]

Sorry to hear about your loss Mul. When I read this I was reminded of this post from you that schooled me on the call danger. I diligently crossed it off my list at that time. Thanks for the warning.

I am glad I helped you, Golden. I need to do a better job of listening to myself now! The first step in making money is to avoid losing it. Oh well, Ihave had such a good year this year, a few hundred wont ruin it... But it does cause one pause on the other above par past call issues though... Last year buying above par less than 1 dividend above par with dividend already declared was fairly common. Now most are 2-3 above... Not a lot of options now to enter that is above 5% and at par in utility area.


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[aja8888]

Yes, things are frothy. A while back I picked up 200 more shares of CHSCM for ~$25. Today they are ~$27.80. Nice gain, but if I sold, what would I buy?

 

[Mulligan]

Yes, things are frothy. A while back I picked up 200 more shares of CHSCM for ~$25. Today they are ~$27.80. Nice gain, but if I sold, what would I buy?

Yes sir, that is the problem. At least you are call protected there... All safe higher valued ones have been bid up... The only other option is gambling in the high yield section...But that is something I am not willing to do.


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[Running_Man]

I still am of the opinion that at 1252 and a yield of 6 percent that WFCPL is a nice way to get a 6 percent yield with a well financed company. CHSCM is also yielding 6 percent, when the outlook is for years of yields in the 2-3 percent range for long term government bonds these are a good instruments for the income investor as a portion of a portfolio. And even at 5 percent and after a rise of over 20 percent the BGEPF preferred is still a reasonable investment. There will no doubt come a time when the market falls precipitously and the decision to pick up good investments will be much easier, but the 1-5 year outlook for these securities still seems favorable to me and even at today’s prices a 33/33/33 slice of these yields 5.67 percent and the ability to hold these for a considerable period of time.

 

[Mulligan]

I still am of the opinion that at 1252 and a yield of 6 percent that WFCPL is a nice way to get a 6 percent yield with a well financed company. CHSCM is also yielding 6 percent, when the outlook is for years of yields in the 2-3 percent range for long term government bonds these are a good instruments for the income investor as a portion of a portfolio. And even at 5 percent and after a rise of over 20 percent the BGEPF preferred is still a reasonable investment. There will no doubt come a time when the market falls precipitously and the decision to pick up good investments will be much easier, but the 1-5 year outlook for these securities still seems favorable to me and even at today’s prices a 33/33/33 slice of these yields 5.67 percent and the ability to hold these for a considerable period of time.

We may not always be in the exact same positions, but I always agree
100% with your line of thinking on pretty much of everything involved with investing.


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[Texas Proud]

Sorry to hear of your losses, Texas & Mulligan.

But all of us knew the call risk going in, so it cannot said that was unforeseen. We were all just hoping it would not be called for a while more.

Yet another lesson to newbies that there is Risk in EVERYTHING, no matter how safe or solid a stock appears.

This call makes it 4 this year for me. I'm hoping no more get called, but I have several that are in that risk category, so understandably a little nervous.

I am OK with the risk.... I was just POed that I did not find out about it before I actually bought the shares.... I held them a whopping 2 hours!!!

I did sell them even though it was 'unsettled funds'.... as long as you wait until all the settling takes place I do not think they ding you.... as long as it does not happen on a regular basis...

I am happy I sold late yesterday as the price has now plunged... probably at the call price plus divis right now... if so, then waiting is not a big deal... it would have cost me more than $2 per share more on my loss than I actually had if I held it until today...

 

[Mulligan]

I am OK with the risk.... I was just POed that I did not find out about it before I actually bought the shares.... I held them a whopping 2 hours!!!

I did sell them even though it was 'unsettled funds'.... as long as you wait until all the settling takes place I do not think they ding you.... as long as it does not happen on a regular basis...

I am happy I sold late yesterday as the price has now plunged... probably at the call price plus divis right now... if so, then waiting is not a big deal... it would have cost me more than $2 per share more on my loss than I actually had if I held it until today...

Some of my unsettled funds freed up so I got out at I think $102.02. It took a couple small partial trades very weird for just 200 issues. Still sitting with a few shares, whatever, when they free up I worry about it then. Oh and thanks for telling us about the 8k filing. Just as a public service I passed it on to another forum whom I know had some of the shares...
And one poster, who apparently sits and reads too many Kennedy conspiracy books accuses ME of holding back info so somebody could dump...Despite my often warnings there of extreme call risk...Oh well, whatever there is always one of those. But I am going to use that line of thinking myself.......So it must have been YOU!!!! Why didnt you tell me you bought and sold 30,000 shares in one day? Gee, can I live in your house?


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[Mulligan]

Sorry to hear about your loss Mul. When I read this I was reminded of this post from you that schooled me on the call danger. I diligently crossed it off my list at that time. Thanks for the warning.

Golden, I took this personally so I am confessing...Not only did I not listen to my advise not to buy, I went and bought more today. That call really ticked me off. BGE took my money and now they are going to pay it right back to me with BGLEN dividends to replace my BGELP money they took. Since it goes exD tomm, I will only be out about 75 cents over par with BGLEN, about a quarter on the ones I bought yesterday. So following dividend gets me in the clear. I have never seen a utility call 2 issues then wait a month and call another. I need about what 45 days to be good? I usually dont trade this way, but they are paying me back... Seriously though...The sister "H" issue didnt even really act like anything is going on. They called the highest two leaving lowest 2 and "N" is lowest. I am betting these last a bit longer, and maybe sell when price creeps back up and then be done with them.
Making money in preferreds has been so easy lately its funny how less than $200 can tick me off. A drop in bucket of my earnings this year. And obviously I am not recommending anyone to do this. I am on my own personal vendetta mission.


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[Coolius]

I put in a bid to sell my BGLEI at just over the par+div+accrued interest, but no success today. Bid is now down to pretty much what one gets by waiting until July 3rd.

Guess I'll just wait for the call, and save the trading commission at least.

I still own BGE-B, which, going by Mulligan's logic, will probably NOT be called for a while more. I'll hang onto that.

 

[Mulligan]

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

I put in a bid to sell my BGLEI at just over the par+div+accrued interest, but no success today. Bid is now down to pretty much what one gets by waiting until July 3rd.

Guess I'll just wait for the call, and save the trading commission at least.

I still own BGE-B, which, going by Mulligan's logic, will probably NOT be called for a while more. I'll hang onto that.

Coolius, I dont know....We were PMing and throwing a few ideas around and maybe I didnt write it correctly but this thing climbed more today... Its almost 4.5 times dividends above call and hasnt even declared next dividend (at least Fidelity isnt showing it) Holding this makes me nervous... I havent done it but you may check previous SEC filings this year and see if they are coming up with or completed another bonding offering. This could be used to buy off the debt. It is very expensive debt. It is what about 15-20 years left on a 6.2% debt? I know of no utility with that high of credit rating having that yield still on the market. This was the same thing we mentioned about the preferreds and we know what happened with two of them...[emoji35] They could refi that issue depending on what level they wanted the debt to be classified as and length for 3-5.25%.
Lets say you held it for 15 more months and then they called it...You would be no better off then, than selling now... And basically was robbed of your years income... I dont have an answer because we always know the next question looms....What to do with the money?


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[Texas Proud]

Just sold half of my MNR-A.... got a small gain for the trouble.. holding the rest maybe for the next divi...

Still not sure what I want to buy... trying to find something that is not so far above call price... I want to keep it within 2 divis, but a good number are 4 or more...


Wow... just noticed that BGLEP is selling for $100.29.... less than what you will get next month!!! Might have to get some if it stay this low...

 

[Mulligan]

Just sold half of my MNR-A.... got a small gain for the trouble.. holding the rest maybe for the next divi...

Still not sure what I want to buy... trying to find something that is not so far above call price... I want to keep it within 2 divis, but a good number are 4 or more...


Wow... just noticed that BGLEP is selling for $100.29.... less than what you will get next month!!! Might have to get some if it stay this low...

NO NO NO!!!! It is already exD, and it has been CALLED!!! You are guaranteed to lose 29 cents and get your $100 par money back the first week in July...The play was BGLEN this morning...It hasnt been called. I got 100 more today...Somebody dumped 5,000 shares. I was looking for a way to buy more and then they were gone. I got 500 of them which is a WAY oversized position for me...But I only need 30 days of no call then it is pure gravy. Let the dust settle and dump them on someone at $104 in a few months. If not I will keep. These may be around another year since they made a strategic decision to only call the top 2 highest yielders...


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[Texas Proud]

NO NO NO!!!! It is already exD, and it has been CALLED!!! You are guaranteed to lose 29 cents and get your $100 par money back the first week in July...The play was BGLEN this morning...It hasnt been called. I got 100 more today...Somebody dumped 5,000 shares. I was looking for a way to buy more and then they were gone. I got 500 of them which is a WAY oversized position for me...But I only need 30 days of no call then it is pure gravy. Let the dust settle and dump them on someone at $104 in a few months. If not I will keep. These may be around another year since they made a strategic decision to only call the top 2 highest yielders...


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Are you sure it is ex dividend? I was a trustee for bonds and when a call was made the interest went to the final holder.... IOW, there was no comparable ex divi on the bonds...

But, I will let it go... put in a bid for BGLEN... but the price is already going back up...

 

[phil1ben]

I need to add to my preferred bucket. I was just called by my Schwab guy about a new Wells Fargo issue 5.5% Non-Cumulative Perpetual Class A Preferred Stock, Series X at $25.00 per share callable on September 15, 2021.

What are your thoughts?

Thank you.

 

[Mulligan]

Are you sure it is ex dividend? I was a trustee for bonds and when a call was made the interest went to the final holder.... IOW, there was no comparable ex divi on the bonds...

But, I will let it go... put in a bid for BGLEN... but the price is already going back up...

If there are any days left over from payment date in relation to the exD date of divi you would get that... But Im going from memory but they are only separated by a day or 2 tops on this specific call. You would still lose the difference. The divi is less than 2 cents a days so we are talking about maybe 2-6 cents tops.


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[Mulligan]

I need to add to my preferred bucket. I was just called by my Schwab guy about a new Wells Fargo issue 5.5% Non-Cumulative Perpetual Class A Preferred Stock, Series X at $25.00 per share callable on September 15, 2021.

What are your thoughts?

Thank you.

It depends on what you want. Something protected from call? A higher yielder? A specific industry? Or one to avoid? Investment grade? Knowing your expectations would help a bit. Personally I dont like bank non cum preferreds but that is me. I own some trust debt on a few which is on the other side of the ledger....Pay me or go into bankruptcy.


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[phil1ben]

For fixed income, I buy mostly individual municipal bonds but have a small percentage of my portfolio in preferreds both through individual issues and the PFF. The 5 year rate on muni bonds (equating to the 5 year call) is something near 1.3% tax free. Assuming a 43% tax rate (39.6% federal and 4.1% state for me) the 5.5% preferred (which is taxable) is akin to a tax free rate of 3.19% which I cannot approach on 5 year paper in the muni market. I am willing to gamble on Wells Fargo credit.

So my down side is increase in interest rates which risk I am used to given my exposure to muni bonds.

The only different issue for me is that muni bonds mature at a given date while these preferred are perpetual so it is somewhat like buying a bond fund with no maturity date which floats with interest rate fluctuations. The benefit of a muni bond is that you get principal back at maturity and the price approaches par as you get close to maturity. I am of the personal opinion that rates will one day rise........ but stay low for the next few years.

 

[Mulligan]

For fixed income, I buy mostly individual municipal bonds but have a small percentage of my portfolio in preferreds both through individual issues and the PFF. The 5 year rate on muni bonds (equating to the 5 year call) is something near 1.3% tax free. Assuming a 43% tax rate (39.6% federal and 4.1% state for me) the 5.5% preferred (which is taxable) is akin to a tax free rate of 3.19% which I cannot approach on 5 year paper in the muni market. I am willing to gamble on Wells Fargo credit.

So my down side is increase in interest rates which risk I am used to given my exposure to muni bonds.

The only different issue for me is that muni bonds mature at a given date while these preferred are perpetual so it is somewhat like buying a bond fund with no maturity date which floats with interest rate fluctuations. The benefit of a muni bond is that you get principal back at maturity and the price approaches par as you get close to maturity. I am of the personal opinion that rates will one day rise........ but stay low for the next few years.

So it appears to me you really need those 15% QDI preferreds and not the "baby bonds" or Reit preferreds as they are taxed as income also.
There are many 15% QDI issues out there with considerable yield...and
risk...I am assuming those are not what you are looking for... Since bank preferreds are in your comfort zone (and I may have to join at some point from lack of options) there are several bank issues that do offer the long term protection of adjustable rates after a designated period of time. Of course due to the nature of calls, they would probably call them if the adjustable was at a disadvantage to them. However, that does mean you would not get stranded with a low fixed perpetual that sags way under par on rate hikes.
I know Goldman Sachs has some and many other banks do also. Winemaker usually spies on this thread and maybe he can chime in as I know he has adjustable rate issues. GS-C and GS-D are examples that are adjustable and QDI.
I have been sticking to my plan of "reach for yield" with call risk, not safety risk. Its getting harder as last year I was buying a divi above par on past call issues yielding over 6% investment grade utilities. Now many are getting stretched to 3 and 4 divis...That is why I jumped in big on BGLEN last 2 days. Im getting 6.5% and bought under a dividend above call. If it gets called, I collect my nuggets and move on. I am not ready to be squeezed by watching a 5% issue become a 6% issue at my expense. I remember what fall of 2013 did to those 5% ers and it wasn't pretty. Though some do not care providing the income received is secure.


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