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

[Mulligan]

Well it has been a few days so I had to trade something... Sold off my ALLY-A and replaced back with AES-C. Since interest divi goes exD next week the $50.88 purchase today is basically buying it at par. Dont worry, BrianB, its in my HSA account so no crazy tax stuff like you had to deal with. I dont trust ALLY and the big car loan problems brewing. And I dont like falling in love with banks as it is always an easy purchase. Bought back a bunch of CFC-B last week so I have too much anyways. AES says they should be investment grade by 2020. Talk is cheap but they already lowered holding company debt by 20% last (this is where AES-C resides at, holding company debt) year so the trend is my friend which is more important.

 

[RicDee]

Best of luck, Ric. My only advise is be patient and dont chase. Next divi is still a ways away.

Mulligan,
I am taking your advice and being patient
I the meantime, could you recommend one other preferred that I could add to my buy and hold for the long term list
Ric

 

[Coolius]

Mulligan,
I am taking your advice and being patient
I the meantime, could you recommend one other preferred that I could add to my buy and hold for the long term list
Ric

I'm just the Jedi Knight Trainee under Lord Darth Mulligan, learning as much as I can from his great knowledge & power in the Ute Preferred Galaxy.

My humble recommendation would be AILLL, a very dependable income generator that has very low risk of call.

But Lord Mulligan will advise you better, as he has many of them in his fold already.

 

[Mulligan]

I'm just the Jedi Knight Trainee under Lord Darth Mulligan, learning as much as I can from his great knowledge & power in the Ute Preferred Galaxy.

My humble recommendation would be AILLL, a very dependable income generator that has very low risk of call.

But Lord Mulligan will advise you better, as he has many of them in his fold already.

Coolius, you, Aja, and Freedom need to step up. I have looked at all of my 16 issues and I just dont know outside of CLP and AILLL would suit specifically what he wants. Almost all of my issues are one of two types... Past call over par and I use to move in and out of them very frequently to juice returns and minimize the smack of a call. I would also hate to walk a newbee right into a call. The other half I own, are for all practical matters unbuyable. A person could spend years trying to get into the other half of my positions at a reasonably fair price. And some have bids, but no offers to sell.
Even AILLL is trading a years worth of dividends above par. There hasnt been an indication of a call but that is 6% smackdown if it happened.

 

[Coolius]

Coolius, you, Aja, and Freedom need to step up. I have looked at all of my 16 issues and I just dont know outside of CLP and AILLL would suit specifically what he wants. Almost all of my issues are one of two types... Past call over par and I use to move in and out of them very frequently to juice returns and minimize the smack of a call. I would also hate to walk a newbee right into a call. The other half I own, are for all practical matters unbuyable. A person could spend years trying to get into the other half of my positions at a reasonably fair price. And some have bids, but no offers to sell.
Even AILLL is trading a years worth of dividends above par. There hasnt been an indication of a call but that is 6% smackdown if it happened.

unfortunately, safety and security, along with a reasonable yield, are not mutually exclusive. the risk of call for issues like AILLL and the CLP sisters is most definitely there.

but other factors like their longevity through periods where the rate spread was even larger, and they didn't call at that time; plus ring fenced structure which provides incentive for the parent to continue to keep them outstanding -- these may mitigate the call risk a little.

in the financial sector, however, I suggest looking at WFC-PL or BAC-PL. Still sporting 6% yield, QDI, no call risk, but a conversion feature ( cannot be exercised unless common is far higher than currently ).

risks here is that they are looked upon as perpetual bond proxies, so can be sensitive to rate hikes. But if one is content with a 6% yield indefinitely, and does not anticipate selling shares under duress........could be good candidates for consideration.

do your own DD.

 

[Mulligan]

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

Ric, I would only recommend what I own as it would seem odd to recommend something I dont have. Let me go through the list of mine... 1) AILLL... 6.7% above par now. I wouldnt enter unless its $26.20 and next divi declared...It can get there with patience. 2) FBPRO and FCH-A- Too risky for entry position. 3) HAWLM, CTWSP - yields are both too low 4) FIISO, CTWSO, AILNP, CNIGO, CNIGP.... basically unbuyable at any price. I worked my rear off to find and acquire these. 5) SPLP-A - very promising issue but involves K-1 and company does have option to issue common shares instead of cash if it would ever desire too. 6) CFC-B absolutely love this position but use it frequently as a trading vehicle to juice returns. Cant see it being around in 2 years when Dodd/Frank is fully implemented. 7) CNTHP - Goes exD in 2 days. Sellers may come out after dividend. Might get lucky and get it under $52.90 then if patient 8) CNLPL, we talked about... 9) AES - C... Been in and out of this one for several years. If you can tolerate a bit of risk (this pays interest not divi) this one may be the best value. Company is deleveraging and is financially safer than its ever been. And it has never missed a divi since its 1999 issue. Has a very nice 2029 maturity date which backstops the price down the road as it is not a perpetual. With no real values I plan on hunkering down and owning this one. Its price has stayed very strong outside of a few times when huge sell order imbalances occur...See this is an over half billion dollar issue. But it trades like a small issue because most of their shares have been institutionalized over the years.
So that is in a nutshell why I really cant pound the table on anything. CNIGO is the perfect issue for you but nobody will sell their shares as it was a private placement to existing shareholders and I got lucky and snagged me a chunk of them.
So as you can see, I dont have anything to pound the table with.

 

[Mulligan]

I wasnt even going to bother checking as I really was assuming this year to just be break even with all the interest rate hike yacking going on by everybody. But for the quarter I was up 6.2% just in lowly preferreds. Did a bit more successful flipping than I thought, or maybe my memory is just bad. Of course it is easier to juice returns when you are NOT navigating a 7 figure portfolio, lol.
I really need prices to go down, so I can juice returns by reinvesting with higher yields going forward without moving up risk ladder.

 

[RicDee]

Thanks for the input
I have buy orders in for
WFC-L
BAC-L
CNLPL
And I am watching
CFC-B which Mulligan might be having second thoughts about
MTB that Coolius suggested I keep an eye on
AILLL that Coolius recommends and Mulligan wouldn’t enter unless its $26.20 and next divi declared
AES–C to see if I could tolerate the risk for 6.6%

If you feel strongly about any of these either way, let me know

 

[Mulligan]

Its not usually the issue I worry about with those its the price point. Take Coolius for example...He recommends WFC-L (which I agree it is a nice safe issue). But he squeals like a pig in a slaughterhouse when it drops a few bucks, lol....So my point is ya gotta stand the potential for price movement in a bad way... Btw-Was just teasing Coolius...
Its hard for me to be sure I am giving you correct advise for you because I keep an active trigger finger. I try to keep a core segregated from trading, but I am almost a dirty preferred day trader with some...For example today... The other day I sold off some of my AILLL at $26.74... As I mentioned...That is just too high (yes I have a lot left though). I also flipped out my FCH-A today. Pretty much snagged an entire divi holding 2 weeks so Im out... Today I bought back into ALLY-A... I sold it off last week or so 15 cents higher so getting in back cheaper at $25.32 and still in line for the divi...Bought 300 shares of MHO-A again. Same scenario rebuying 20 cents cheaper and under next divi if called and did not miss the divi... Bought 100 more AES-C at $50.96 (goes exD next week) just because basically... Reentered an old friend today GJP 500 shares at $21.29. Near its 52 week low. It is an entirely different animal though the trade it similar to Ally-A. Adjustable yield that rises with higher rates, though it is still below its floor. However it always has the 2034 bond maturity from a Dominion senior note that boosts YTM if ever held for that period of time.
CFC-B is my favorite issue that I own outside of my complete illiquids. Its just for you Ric can you stomach a 45 cent call loss if they called. Its divi is kicked out in a month...So if you survive 4 months you are in the clear then. That is something you have to determine and whether you trust BAC not to go bankrupt. It is "safer" than BAC-L just because it sits above BAC-L in capital structure and the interest ultimately has to be paid unlike a non cum preferred. But that is really only a technicality reason, not a real reason. I like it more simply because it yields more and has better price support...Albeit at call risk.

 

[Mulligan]

Ric one of Aja's ideas moved closer to my interest level...CHSCO had a nice selloff today to $28.96. If it can get closer to $28, I will sell something and reenter that position...

 

[Coolius]

Lord Darth Mulligan doth mistake the Jedi War Cry for the squealing of a pig, methinks........

Couple of comments below:


BAC-L vs CFC-B. True that CFC-B is higher on the totem pole. But chances of BAC-L being called close to zero and not imminent, whereas CFC-B can be called with just 30 days notice.

I have both, so am covering both bases.


CHSCO. Today's drop could be because recently there was a secondary issue of CHSCO to convert over "patrons equity". Only "active patrons" are eligible for this offer. Suspect some who received shares are selling to realize profit.

Agree that if it can go down to the $28 level, a good buying opportunity exists.

I own CHSCO and CHSCL.

 

[Texas Proud]

Wonder if RicDee got my CNTHP... I had a standing sell order at $54.38 and got taken out a few days before divi.... not a big deal since I only sold half of my holdings and at a pretty good price over what I paid...


I will wait for it to drop and buy back in...


I am sitting on some cash now... I have my experiment money as the pref I want to get in ran up the past few days and is not worth buying for the divi right now... almost sure to get a loss...

I still have my money from the call of CVB.... have not reinvested that yet... and now my money from this sell....


Soooo, have to invest for 3 positions... two for longer term and one flip...

 

[Mulligan]

That was a good comeback Coolius! Your reason for CHSCO would appear to be very sound... I will monitor closer now.
Texas, we need to get you to pretend your a shopaholic and you just got dumped off at the mall.... Let the spending begin!

 

[Mulligan]

Oh, I thought something was a bit strange about my 6.2% return past quarter....Some of that was just bogus juiced returns from an illiquid I have to buy and sell to myself to flush out those shares hidden by market maker. It would have only traded once in past several years if it wasn't me forcing their hand to give me some. That distorted my return some as it is a big issue of mine.

 

[aja8888]

Late in the day news may bring a quick drop in preferreds:

Mortgages and other rates could go up even faster than markets thought

Thoughts?

 

[Mulligan]

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

Aja, that was a bit of my reasoning with my 3 purchases today entering GJP and holding my nose with ALLY-A... MHO-A yield so high it will not trade too much off that, as it will trade off company's finances more. We need some fear in the preferreds to get them bouncing. That is where you make the good bucks flipping. If you own one that drops a dime and another similar catches a big sell order and drops a buck, you take the dime hit and sell and load up on the one that got hit with a sell imbalance. I have two that are rate adjustable and 4 term dated, so that mitigates stress on those issues. Some others may not even trade for a year or two going forward.
I will be ready if it happens. As its always panic, overshoot, then modest recovery. People have been clinging to their "safe preferreds" a bit too long and we need a "Taper Tantrum" again to scare them out of their pants and dump!

 

[Running_Man]

Late in the day news may bring a quick drop in preferreds:

Mortgages and other rates could go up even faster than markets thought

Thoughts?

The 5 year bond actually dropped from 1.88 to 1.85 after that was announced. Until rates are actually able to break out of this 1.7 to 2.2 range I am not going to be very concerned about this. At the same time there was news that the Fed also stated that they did not believe new economic policies will be very helpful to the economy.

I continue to be unconcerned over a rise in rates, will deal with it if time proves me wrong

 

[Mulligan]

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

The 5 year bond actually dropped from 1.88 to 1.85 after that was announced. Until rates are actually able to break out of this 1.7 to 2.2 range I am not going to be very concerned about this. At the same time there was news that the Fed also stated that they did not believe new economic policies will be very helpful to the economy.



I continue to be unconcerned over a rise in rates, will deal with it if time proves me wrong

Im not really wanting rates to move, or expecting substantial changes soon. But, I am wanting people to think they are moving and start selling pressure instead of just bidding them up. Nothing like a little fear in the air to create more flipping opportunities.
Running Man how about stepping up to the plate and giving Ric a little advise? Your knowledge is always useful and pragmatic.

 

[Running_Man]

I do not know the purpose of Ric’s need for preferred, but I will state what benefits a preferred stock issue offers me and why I use them. Preferred stocks for the companies I hold provide a higher rate of return than one can find on other financial instruments at an advantageous tax rate presently in many cases if they are held in after tax accounts. I believe in holding no more than 10 percent of a portfolio in them because one is never able to accurately predict what markets will bring to bear on your portfolio and having divergent assets makes adjusting to market forces less painful than making a big bet on a single sector.

So presently I have a big percentage of my bonds in a 5 year ladder and then add preferreds on top of them. If the ladder pays 2 percent and is 40% of a million dollar portfolio that is $8,000 per year from the bonds and 10% in preferred yielding 6 percent or so adds another $6,000 in interest income. Now if interest rates rise in a significant manner and a rung comes due I would split the 5 year ladder 66.66/33.34 into 5 yr and 10 year issues. This should increase the income faster than inflation and in order to keep the 40/10 balance of ladder/preferred I would use the extra income from bonds to purchase additional preferred if the prices have fallen. That is how I would avoid the urge to sell myself and actual use the rising rates to increase income.

As for issues, you have given good examples Mully and if Ric is willing to learn to hide out in the woods and shoot out the issues as you do he will do very well, I cannot do that due to the way I view the investments and the need to be able to hold without a traders mindset which I am afraid would soon consume me if I acted as you are able, I think WFC-L is a great choice, but again there are risks if there is another bank problem these are non-cumulative and so you have that risk on top of long term interest rate risk. But to me this is a 6 percent perpetual bond that will pay for a very long time with a great predictable cash flow for me. As I have stated I think a risk of very low interest rates for a very long time - think decades - is not beyond the realm of possibility at least as equally likely as a runup in yields. This security is good protection against such a scenario and allows for only 15% tax rate. Up to $1300 it is a good value, under $1200 in the present interest rate climate I think it is very good. As such this is my top pick.

I think it is imperative even if I hold the preferred portfolio to 10% that I avoid the trap of falling for all financial preferred. As such I like the CHSCM, but not as much as WFC-L. For the REIT area I like PSA-D while only yielding 5.4 percent I would add a half position at this price and buy more if prices fell if rates were to rise, now these are not eligible for the 15% tax rate so that needs to be kept in mind. Another good issue to own to protect my preferred portfolio if rates were to go up soon is ALBMP, now this is callable come October so there are only 2 more dividends guaranteed and is also non-cumulative but is a highly rated investment grade company so that if rates were to rise very soon 25.80 is as much as one should be willing to pay as call risk is high, this issue would not fall much in price should long term rates shoot up a percent or so and you would have the ability to hold on to this with it’s 6.45% payout.

I also have recently liked a preferred which by the dividend hunter website which is far more speculative and holds much more risk than anything mentioned so far and that is the Sparks Energy 8.75% Fixed/Float cummulative Redeem Perpetual Preferred. Fixed for 5 years and then callable while rate floats at 6.578 plus three month libor. Sparks is in the business of buying and selling of energy and benefits from deregulation and lower energy prices. It is a smaller energy company that is growing quickly through acquisitions and I like the cash flow generation that I see coming at least for the next two years. There are risks if the price of acquiring energy goes up for them they may not be properly hedged and the price guarantees they give customers could bit them in the pocketbook, but I like this because the company is profitable, publicly trades common and so I get 8K’s and 10K’s to analyze going forward and to me worth the risk. I had a tough time determining if I wanted to own the common or the preferred as a small position and ultimately decided I like the preferred myself.

I do not like Bank of America as a company, their products when they worked for me as an accountant were always the worst and I am not a fan of the Bank of America Management and so I stay away from them.

I follow the companies, listen to the management on quarterly calls and look at quarterly reports for signs of distress that imperil the preferred dividends. For now I like where the companies mentioned are and continue to hold in the manner described.

 

[Texas Proud]

Interesting... Sparks sells electricity where I live...

It is a bit high, so I will not be a customer....

 

[Coolius]

Another preferred stock could be mentioned for consideration - Monmouth preferred B and C series.

From other websites, investors evaluating MNR tend to be wary and shy away because of it's disproportionate reliance on a single customer, FEDEX. Over 50% of MNR revenues come from FEDEX and affiliates, which makes it too risky for many.

However, the way MNR structures its loans is according to each piece of real estate, when a lease ends the mortgage has been either paid off completely or to some significant degree. I'll ask Mulligan to explain as he really understands it ( that's why he is Lord Darth Mulligan, and I'm but a lowly Jedi intern ).

other than high reliance on one customer, their financial picture is reasonable.

The CEO has indicated MNR-B will be redeemed this June, so there is not much value left in buying that at this time.

MNR-C, however, is trading just under par, with couple years call protection left. And if rates are higher by then, the incentive to call will be way lower, and one could conceivably enjoy a 6.1% yield for a long time after.

But please do your own DD. I own MNR-C, bought above par, so am under water on my investment.

 

[Running_Man]

Ric,
I think the most important point this thread can make is even though there is a general agreement on many of the preferred that make a suitable investment, how those ideas are utilized are unique based on the personality and strengths and weaknesses of the individual investor and the best investors I think have a good grasp of their strengths, weaknesses and the amount of pain they can take if they are proven wrong. One can even do well thinking that this is not a good time at all to be invested in this type of security and be very happy when proven right when prices fall while another investor who is solidly in preferred would be happy at the opportunity to add at higher rates.

It is important to not take on an investing philosophy just because it works for someone else, it is important it works for you.

 

[Freedom56]

I dont consider myself an investor. I am very studious in a select few and know the rate curves and trading yields through most I buy and their credit quality. But it mostly is to baton down the hatches. Mostly jostle around a few ute preferreds and a few others that catch my fancy off and on. Not a lot for me to do...CNIGO (term dated) CNIGP (term dated convertible with cash put) SPLP-A (term dated and cash put) FIISO (a lifetime 8.4% perpetual annuity) The Ameren ,CLP , and Connecticut Water preferreds will never be sold ever either. CFC-B is a yield steal so no hurry there. So only the others not mentioned are in play to trade.
But the vast chunk of my money is permanently tied up in the above, so no real investing plan is needed....That is the job of my pension fund manager, lol.

Hello Mulligan,

Sorry for the delayed response. I have been busy with our house. We have been doing some major landscaping and need to complete it before our next trip in a few weeks. My income from bonds, preferred, notes, and REITS from our taxable account pays our bills. The IRA continues to grow and I will begin withdrawing in about 13 years. I am a pretty conservative investor. I was burned badly in the early to mid 80's with IPOs from full service brokers. I took matters into my own hands and dumped the full service broker and opened an account with a discount broker and took a more active role in investment decisions. I took some accounting and finance courses at University to better understand financial reporting. I started and owned a small business in engineering design and consulting in the 80's which I later sold. I was actively involved in the financial management and reporting with this small business. This at least gave me some ability to understand financial statements reported by publicly traded companies. My objectives in investing is preservation of capital and reliable income. Therefore I buy bonds and preferred stocks mostly with companies with solid earnings with mid to large market capitalization. So far it has been working well. I see storm clouds in the horizon. The equity market is expensive. Even the federal reserve thinks so. The jobs report was unimpressive. The retail sector is getting weaker. Banks are starting charge off more loan losses. I don't see interest rates going too much higher this year. I expect the markets to correct by late summer. The fact that there is so much buying of 10 year notes at 2.38% just confirms this. I see two bubbles that are about to pop - the consumer debt and the retail/commercial real estate loan bubbles.

 

[Slow But Steady]

My wife and have been busy taking care of both sets of parents, so I haven't posted here much lately.

Like Running Man, I have a bit less than 10% of our portfolio in preferreds. (Shown as percentage of total portfolio.)

Seems like, as Mulligan said, the prices just go up lately. These are the issues I hold. I probably don't have the diversity I think I have.

AILLL	0.27%
ALBMP	0.42%
AHT-D	0.38%
AHT-A	0.94%
CIM-B	0.94%
CHSCO	0.53%
C-N	0.49%
DX-A	0.47%
GWSVP	0.58%
IPWLK	0.37%
MDLQ	0.47%
NGHCO	0.47%
OSBCP	0.57%
PVTBP	0.50%
SIVBO	0.49%
TNP-B	0.24%

(Don't copy me! However, comments or suggestions are welcome.)

 

[Coolius]

My wife and have been busy taking care of both sets of parents, so I haven't posted here much lately.

Like Running Man, I have a bit less than 10% of our portfolio in preferreds. (Shown as percentage of total portfolio.)

Seems like, as Mulligan said, the prices just go up lately. These are the issues I hold. I probably don't have the diversity I think I have.

AILLL 0.27%

ALBMP 0.42%

AHT-D 0.38%

AHT-A 0.94%

CIM-B 0.94%

CHSCO 0.53%

C-N 0.49%

DX-A 0.47%

GWSVP 0.58%

IPWLK 0.37%

MDLQ 0.47%

NGHCO 0.47%

OSBCP 0.57%

PVTBP 0.50%

SIVBO 0.49%

TNP-B 0.24%

(Don't copy me! However, comments or suggestions are welcome.)

Slow, I have 7 of your holdings - may we prosper! . As you have said, most preferred/ETD issues are at too high levels now. I'm waiting for pullback to add, but it's been, and could still be, a long wait.