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

[Mulligan]

This is a very active thread, and it all sounds rather complicated to me.

I've just skimmed out of curiosity, so maybe I missed it, but how many of you are tracking your annual total return? I get the impression that these issues are to provide some downside protection, so is there a Total Market/Total Bond AA that would be close in terms of market swings? Do these preferred stock portfolios do that much better overall?

I'm guessing there's no simple answer - it depends on your picks, and buy/sell points. Any decent correlation between individuals doing this?

-ERD50

ERD, If your a total return person, these probably wouldnt be of too much interest to you, unless you just wanted a different subset class to invest in... Most people say no more than 5-10% of NW. FWIW, I returned 30% total the previous 2 years combined and maybe 11% this year. So this year is way under market returns. But I dont invest to beat the market....Year in year out over rising and declining interest rate cycles, 6% perferreds wont beat the market.
These are mostly for people who are investing for income streams.
Now I take it to a bit of extreme because I like to have fun, and my pension covers 150% of my monthly expenses and has a cola so I dont need any returns at all as it wont change my lifestyle either way..
Most buy a few issues and hold for the safe income stream.
Me, I kind of cover all angles... Term dated preferreds, meaning they mature at a predetermined date and you get your par money back...Examples I own...LANDP, RILYL, KYN-F, CNIGO.... Adjustables that yield more when Libor goes up and less when it goes down. Examples include ALLY-A, NSS, GJO... ....Perpetuals. These have no maturity dates and will trade in the wind to long end of yield curve. Examples I own are PPWLO, FIISO, AILLL..... Then there are subsets under the above that are higher yeilders and lower yielders based on financial strength of company...
Take the adjustables example above...RILYL and KYN-F are term dated issues that have to mature in 2-3 years...RILYL has a yield of 7% ish and is not QDI as it is a note. KYN-F is about a 3.3% yield, but is QDI and A+ “bond rated”, by Fitch. So the riskier issues will yield more.

 

[brokrken]

I'm guessing there's no simple answer - it depends on your picks, and buy/sell points. Any decent correlation between individuals doing this?
-ERD50

ERD, for me, preferreds only make up about 5% of my investable assets. I consider them part of my fixed income allocation and use them to reach for a little higher yield. Also, the topic is quite interesting as the characteristics of these issues, why they were issued and how they trade varies immensely from issue to issue.

 

[ERD50]

ERD, for me, preferreds only make up about 5% of my investable assets. I consider them part of my fixed income allocation and use them to reach for a little higher yield. Also, the topic is quite interesting as the characteristics of these issues, why they were issued and how they trade varies immensely from issue to issue.

.... Most people say no more than 5-10% of NW. ... ...Year in year out over rising and declining interest rate cycles, 6% perferreds wont beat the market.
These are mostly for people who are investing for income streams.

OK, thanks for those explanations. So really more of a fixed income alternative. Interesting. Still seems like a lot of work for a small part of your NW, but you find it interesting, so it seems to work out for you.

ERD, If your a total return person, ...

Well, the way I see it, everyone is a "total return person". Some just don't recognize it

But that's not directed to these preferred investments - fixed income makes sense in a portfolio, for diversification and smoothing, and this is another fixed income component.

Thanks again for the explanations. Have fun!

-ERD50

 

[Texas Proud]

This is a very active thread, and it all sounds rather complicated to me.

I've just skimmed out of curiosity, so maybe I missed it, but how many of you are tracking your annual total return? I get the impression that these issues are to provide some downside protection, so is there a Total Market/Total Bond AA that would be close in terms of market swings? Do these preferred stock portfolios do that much better overall?

I'm guessing there's no simple answer - it depends on your picks, and buy/sell points. Any decent correlation between individuals doing this?

-ERD50

As others have said, I use this as part of my bond allocation... and more specifically my HY part... I sold my HY fund and have bought some HY pref... right now my yield on invested money is 8.62% with a BB- weighted rating... OH, total invested is just above 4% of portfolio (does not include below)....

On my 'trading', I have been doing it for 465 days (yes, I track all of them) and my annualized total return is 19.6%.... if you look at just my last year it is 38.2%... I had a few of them go up on me before divis and I sold... some holding only 3 or so days... my weighted avg buy this past year is $12,300 so not a lot of money at stake... just checked and have made 22 buys in total... with 20 sales as I just had one just go ex and another in a week....

 

[Mulligan]

OK, thanks for those explanations. So really more of a fixed income alternative. Interesting. Still seems like a lot of work for a small part of your NW, but you find it interesting, so it seems to work out for you.



Well, the way I see it, everyone is a "total return person". Some just don't recognize it

But that's not directed to these preferred investments - fixed income makes sense in a portfolio, for diversification and smoothing, and this is another fixed income component.

Thanks again for the explanations. Have fun!

-ERD50

ERD, I dont view it as the secret in investing other people are missing. Like you said its more for an income component. But actually some preferreds are in fact real bonds. They are usually but not always subordinated debt though. Its a way to manage some risk too. Trading aside, When you buy a 6%, 5 year term dated issue at par, you know you are getting 6% the next five years provided the company you invest in stays solvent and then get your original investment back.

 

[Mulligan]

As others have said, I use this as part of my bond allocation... and more specifically my HY part... I sold my HY fund and have bought some HY pref... right now my yield on invested money is 8.62% with a BB- weighted rating... OH, total invested is just above 4% of portfolio (does not include below)....

On my 'trading', I have been doing it for 465 days (yes, I track all of them) and my annualized total return is 19.6%.... if you look at just my last year it is 38.2%... I had a few of them go up on me before divis and I sold... some holding only 3 or so days... my weighted avg buy this past year is $12,300 so not a lot of money at stake... just checked and have made 22 buys in total... with 20 sales as I just had one just go ex and another in a week....

Texas your post better explains why you find GJO of no value. No, it doesnt fit in on what you are trying to do. What do you buy that gets you to an average 8.62% yield? I think my AHT-D, GWSVP, and NSS are high risk issues and none of their yields are even up to your average yield, lol.

 

[Texas Proud]

Texas your post better explains why you find GJO of no value. No, it doesnt fit in on what you are trying to do. What do you buy that gets you to an average 8.62% yield? I think my AHT-D, GWSVP, and NSS are high risk issues and none of their yields are even up to your average yield, lol.

PIY, PFH and GWSVP get me up there... my other issues are mid to high 7s... and my yield is on my invested amount, both have lost some value since I purchased....

I will admit this is the highest yield I have had after buying the PIY and PFH... I used to be in the 7.6% range... rating was also better, but not by much.... also, some of these have gone up in value so I would not get the same yield if bought today...

I would have to look for all issues, but right now my current issue principal is down almost 3%.... but I had gains on some that I sold (not trading) or got called... might have to dive in one day and see what my total return has been since I started the process... I know if I added in the trading I would be doing better than a HY fund...



OK.....did a very quick and dirty estimate... but will have to refine it to get avg invested as I am using my max principal invested to calculate... but avg return for just under 2 years is 7.75%... total return... if I decide to do weighted avg invested I think it will go up as I know I did not have as much invested previously... but I should take out my trading to get a feel for my investment that was an alternative to the HY fund.... it returned 7.13% for the last year per Vanguard... not sure for the previous year as the 3 years is 5.58%...

 

[Mulligan]

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

PIY, PFH and GWSVP get me up there... my other issues are mid to high 7s... and my yield is on my invested amount, both have lost some value since I purchased....

I will admit this is the highest yield I have had after buying the PIY and PFH... I used to be in the 7.6% range... rating was also better, but not by much.... also, some of these have gone up in value so I would not get the same yield if bought today...

I would have to look for all issues, but right now my current issue principal is down almost 3%.... but I had gains on some that I sold (not trading) or got called... might have to dive in one day and see what my total return has been since I started the process... I know if I added in the trading I would be doing better than a HY fund...



OK.....did a very quick and dirty estimate... but will have to refine it to get avg invested as I am using my max principal invested to calculate... but avg return for just under 2 years is 7.75%... total return... if I decide to do weighted avg invested I think it will go up as I know I did not have as much invested previously... but I should take out my trading to get a feel for my investment that was an alternative to the HY fund.... it returned 7.13% for the last year per Vanguard... not sure for the previous year as the 3 years is 5.58%...

Ok, Texas, now Im really lost. I thought you said in last post is was like 19% return, and this one says 7.75%... So I am not interpreting something correctly. Maybe it was the wine tonight, lol...
GWSVP.....What a rock star...I have never understood that one either...My only regret was quit trying to understand it and just buy the hell out it. Quit reading the financials and just cash the monthly check.

 

[brokrken]

GWSVP for president!

 

[Texas Proud]

Ok, Texas, now Im really lost. I thought you said in last post is was like 19% return, and this one says 7.75%... So I am not interpreting something correctly. Maybe it was the wine tonight, lol...
GWSVP.....What a rock star...I have never understood that one either...My only regret was quit trying to understand it and just buy the hell out it. Quit reading the financials and just cash the monthly check.

You misunderstood... I do trading on buying divis... keep flipping over and over... that is the one that has the 19% return... but it is not a lot of money... the 7.75% is my investment account which is over 4% of portfolio....

 

[Mulligan]

You misunderstood... I do trading on buying divis... keep flipping over and over... that is the one that has the 19% return... but it is not a lot of money... the 7.75% is my investment account which is over 4% of portfolio....

Ok, I understand what you mean now. You have a subset of a subset category.

 

[Mulligan]

GWSVP for president!

Oddly enough this may be one of the most stablest high income issues since its inception 15 years ago. Even during the 08-09 crash it didnt fall nearly as much as most issues. I will look to buy 200 more in the future but not at its present price though.

 

[brokrken]

I'm thinking I may swap out of IPL.D and buy one of the prefs issued off closed end funds like ECF.A or GAB.J. A little better (or similar) yield and really no credit risk. Thoughts?

 

[bobandsherry]

Oddly enough this may be one of the most stablest high income issues since its inception 15 years ago. Even during the 08-09 crash it didnt fall nearly as much as most issues. I will look to buy 200 more in the future but not at its present price though.

I guess this one just confuses me. Guarantor (PRMW) has seen some really bad hits to earnings in 2017, falling short of expectations. This issue is about 25% of market cap of PRMW. Even at 8.5% div I don't see the return reflective of risk. But I'm sure there must be something more to this than I see.

BTW, I looked this issue compared to S&P 500, price took similar dive during 08-09 (40% drop from 1/1/08 price), so don't see downside protection in the price (but yield becomes much more attractive).

 

[Mulligan]

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

I guess this one just confuses me. Guarantor (PRMW) has seen some really bad hits to earnings in 2017, falling short of expectations. This issue is about 25% of market cap of PRMW. Even at 8.5% div I don't see the return reflective of risk. But I'm sure there must be something more to this than I see.



BTW, I looked this issue compared to S&P 500, price took similar dive during 08-09 (40% drop from 1/1/08 price), so don't see downside protection in the price (but yield becomes much more attractive).

Bob, by the numbers you are absolutely correct...But you should have seen Glacier Waters financials before Primo took it over...Book value was more negative than the temp in Alaska. But it was all in the depreciation, as cash flow was fine. This is in my “higher risk”allocation not widows funds... My comparison of GWSVP in 08-09 was to preferreds, not commons. Most preferreds went well under $10 and many under $5 during the depths, while Glacier stayed above $14.

 

[Mulligan]

I'm thinking I may swap out of IPL.D and buy one of the prefs issued off closed end funds like ECF.A or GAB.J. A little better (or similar) yield and really no credit risk. Thoughts?

I dont know if owning 5% issues now is a good investment capital wise...But basically I have come to the conclusion if a 5% issue is to be bought the leveraged preferreds such as GAB-J and TY- are the wiser play. At least you protect yourself from individual company risk one takes when buying an issue such as IPL-D.

 

[Texas Proud]

Well, another thread got me to look at my allocation... I am 86% equities... might have to move some more money into pref to get that number lower!!!

 

[Winemaker]

This is a very active thread, and it all sounds rather complicated to me.

I've just skimmed out of curiosity, so maybe I missed it, but how many of you are tracking your annual total return? I get the impression that these issues are to provide some downside protection, so is there a Total Market/Total Bond AA that would be close in terms of market swings? Do these preferred stock portfolios do that much better overall?

I'm guessing there's no simple answer - it depends on your picks, and buy/sell points. Any decent correlation between individuals doing this?

-ERD50

It can be complicated, or not. Several posters here arbitrage between interest rates and price, as well as dividend mining. For each his own, like you said, there is no simple answer.
I'm usually a buy and hold investor with preferreds, I purchase 200 share allotments for diversity's sake. I buy shares that are under par, but have dabbled with a few over that mark, then I sit back and collect the divvies.
But as brkrken suggested above, an issue I picked up a few weeks ago is up $1.33, to $26, and it wouldn't hurt to to pick up the gain, and get an issue by the same company for a few cents less every 3 months.

 

[MooreBonds]

This is a very active thread, and it all sounds rather complicated to me.

I've just skimmed out of curiosity, so maybe I missed it, but how many of you are tracking your annual total return? I get the impression that these issues are to provide some downside protection, so is there a Total Market/Total Bond AA that would be close in terms of market swings? Do these preferred stock portfolios do that much better overall?

I'm guessing there's no simple answer - it depends on your picks, and buy/sell points. Any decent correlation between individuals doing this?

-ERD50

Personally, I view it as a fixed income allocation. I'm not trying to give Mulligan a run for his money on being the Trade King of Preferreds ....I just buy issues that appear to have a good risk/reward proposition, and I hold them until maturity or forever, whichever comes first.

Yes, I realize that preferreds are at the absolute back of the line when it comes to the pecking order on rights to assets - that is why I try to pick companies that are in somewhat good financial footing (absent my occasional action of throwing caution to the wind and buying issues like Toys R US - although those lapses are becoming far less frequent these days).

However, I do also have a number of baby bonds, so not all of the entries in my portfolio spreadsheet in the "Preferreds" section are true preferreds.

It's also a function of the times - I first started buying preferreds probably back in maybe 2006 or thereabouts, as rates were falling. If I could get a 30 year T-bond at 6%-7%, and the preferred stock were only yielding 100-200 basis points more, I'd likely put the majority of my new cash into the T-bonds.

Also, since I've already "won the race" for the most part and just have to let the portfolio simmer on medium-low to have a very comfortable retirement. That, and my nature is to prefer the relatively low-volatility investments that have a relatively 'predictable' return of 7% +/- a year that I know will get me to a certain finish line at a certain time, rather than the vagaries of the market's gyrations. Which is also why, in the Great Debate of "Dividend Stocks vs Total Return", I typically join the ranks of those that prefer Dividend payers of 3% or so to give us that reliable WR, rather than selling shares every year to possibly fund retirement.

 

[Mulligan]

There has been a heck of a liquidity event for KTBA. I couldn't resist and bought 400 at 28.20...Non callable BBB+ AT&T paper...6.2% yield.

 

[Mulligan]

Personally, I view it as a fixed income allocation. I'm not trying to give Mulligan a run for his money on being the Trade King of Preferreds ....I just buy issues that appear to have a good risk/reward proposition, and I hold them until maturity or forever, whichever comes first.

Yes, I realize that preferreds are at the absolute back of the line when it comes to the pecking order on rights to assets - that is why I try to pick companies that are in somewhat good financial footing (absent my occasional action of throwing caution to the wind and buying issues like Toys R US - although those lapses are becoming far less frequent these days).

However, I do also have a number of baby bonds, so not all of the entries in my portfolio spreadsheet in the "Preferreds" section are true preferreds.

It's also a function of the times - I first started buying preferreds probably back in maybe 2006 or thereabouts, as rates were falling. If I could get a 30 year T-bond at 6%-7%, and the preferred stock were only yielding 100-200 basis points more, I'd likely put the majority of my new cash into the T-bonds.

Also, since I've already "won the race" for the most part and just have to let the portfolio simmer on medium-low to have a very comfortable retirement. That, and my nature is to prefer the relatively low-volatility investments that have a relatively 'predictable' return of 7% +/- a year that I know will get me to a certain finish line at a certain time, rather than the vagaries of the market's gyrations. Which is also why, in the Great Debate of "Dividend Stocks vs Total Return", I typically join the ranks of those that prefer Dividend payers of 3% or so to give us that reliable WR, rather than selling shares every year to possibly fund retirement.

Moorebonds, what has marriage done to you? I dont know you anymore. Talking widows and orphans yields. What happened to old Mr. 10% er?

 

[MooreBonds]

What happened to old Mr. 10% er?

Those were the "glory days of being single" lol...That, and I had many of those 10% investments turn into my ass being handed to me on a silver platter by the various management teams that were swindlers, incompetent, and/or snakeoil salesmen.

Plus, I'm getting my juice these days from private real estate transactions. That's where the 10%+ testosterone is flowing to/from now.

 

[Winemaker]

Brokrken, Got out at $25.98 today. Tried to get NS-B at $23.10, but FIDO required me to call the desk for this radical, way out issue. After waiting on the phone for 20 minutes, it was up to $23.49, and I hung up. You must have a great audience.

 

[brokrken]

Wine, who knew that I had enough clout to move the market? I see NS-B at 23.60 now! I should start talking about all the ones I own for whoever's listening! Still, nice little 5% or so return on that short term trade of yours.

 

[Mulligan]

There has been a heck of a liquidity event for KTBA. I couldn't resist and bought 400 at 28.20...Non callable BBB+ AT&T paper...6.2% yield.

Incredible dump...KTBA has daily volume of 900 shares and 22000 has been dumped. OFF 3% today...Its just a seller. Compare KTBA to Sister issue TBB which yields barely 5%. Ya it matures in 2066, compared to 2097, but I plan on being dead either way before. I will take 6.2% over 5.13% any day. Only real difference is KTBA is an old float the trades little.