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

[Mulligan]

Latest was with CTW. I have this one for over 4 years now. It has been through 2 partial calls and there is about $163,500,000 outstanding. The coupon is 7.5% or $0.46875 but $0.4375 was paid for the first time on on 3/15/18. The 0.5% difference may seem small but over the outstanding balance, investors are being shorted $8175000 per year just with this small issue. Previously I had similar issues with Bank of America 2019 notes, GE 2022 notes, and Seagate technology 2025 notes. In all cases it was a small amount that could easily be overlooked.

Freedom, I just checked my latest payment which happened to be MER-P on March 15 payment. Seems like Scottrade is a generous organization. They gave me 400ths of a penny more than I should have got. They rounded up my payment for me on the last decimal penny amount.

 

[Freedom56]

Well, since you brought this up, let me throw my question out there, because it has been bothering me for a while now.

When you are paid a dividend, or interest on a bond or CD, on the payment date (or maturity date for a bond or CD) are your cash funds supposed to be available in your account on the morning of payment/maturity date, or at the end of the day?

Here's the "issue". I have accounts with Fidelity and Etrade (well, until a week ago). In my Fidelity account, interest, dividends, and funds from maturities/redemptions are all available first thing the morning of the payment/maturity/redemption date. However, with Etrade, it is the morning of the following day. Now, it may seem like a technicality, but either Fidelity is being generous or Etrade is skimming cash daily from their account holders having free use of their money for the day on all interest/dividends/payouts. Something tells me that a broker would not be generous in this regard, so I have to believe Etrade is not on the up and up. I've thought about floating an email to one of the class action attorneys to see what they think.

Any thoughts?

I see the same thing. With Fidelity and TD Ameritade, interest from bonds, preferreds, and notes appear in my account on the day they are due before start of trading. With Schwab, they appear about 6 -8 hours after the close of trading and sometimes the next day. My view is Schwab is using the cash for an extra day. Given that the are holding about $2.5 trillion in assets, every day counts.

 

[Freedom56]

Freedom, I just checked my latest payment which happened to be MER-P on March 15 payment. Seems like Scottrade is a generous organization. They gave me 400ths of a penny more than I should have got. They rounded up my payment for me on the last decimal penny amount.

Mulligan you lucked out. This is the response I received on the latest saga:


Thank you for calling this to our attention. We checked our records and the correct payment was made by CenturyLink to the Trustee. So, there appears to be an issue on the part of DTC. We will work with them to have this remedied.

Kind regards,
Kristie

That was enough to set me off, since it was the fourth time in 12 months with four different companies. It took 2 - 3 weeks to recover the shorted payments the last three times from DTC. The question one has to ask is what if I did not complain? Would I eventually get the money? I doubt it. Someone I know alerted me to the problem with CTW a few days before the interest was paid as the declared ex-div amount was lower that the past quarters.

 

[Mulligan]

Mulligan you lucked out. This is the response I received on the latest saga:


Thank you for calling this to our attention. We checked our records and the correct payment was made by CenturyLink to the Trustee. So, there appears to be an issue on the part of DTC. We will work with them to have this remedied.

Kind regards,
Kristie

That was enough to set me off, since it was the fourth time in 12 months with four different companies. It took 2 - 3 weeks to recover the shorted payments the last three times from DTC. The question one has to ask is what if I did not complain? Would I eventually get the money? I doubt it. Someone I know alerted me to the problem with CTW a few days before the interest was paid as the declared ex-div amount was lower that the past quarters.

I will watch the rest as they trickle in over time. I need to watch my senility, also... I mentioned above my Scottrade account....I have never ever owned a Scottrade account...Meant TD Ameritrade... Sheesh.

 

[MooreBonds]

I agree. But between stock holders, bond holders, and preferred holders, the preferreds are the bastard childs of "company ownership".

Bastards or not...there are reasons lawyers are involved in drafting a 50 page prospectus for a preferred share issuance. There are laws for a reason. If the judge in the UK allows this, then how could any company NOT redeem....errr, sorry, I mean "cancel" not just any preferred stock, but even any debenture whenever it suits them? How can all of that legalese be just thrown out the window on a whim when one party feels like it? That would rewrite the very essence of contract law and the structure of corporations!

 

[Mulligan]

Bastards or not...there are reasons lawyers are involved in drafting a 50 page prospectus for a preferred share issuance. There are laws for a reason. If the judge in the UK allows this, then how could any company NOT redeem....errr, sorry, I mean "cancel" not just any preferred stock, but even any debenture whenever it suits them? How can all of that legalese be just thrown out the window on a whim when one party feels like it? That would rewrite the very essence of contract law and the structure of corporations!

Im not disagreeing. I was just merely saying preferred stock holders are the ones most likely to be picked on or set up to be abused. Fortunately UK laws have no bearing here. But it could embolden poking at the perimeter walls of a prospectus here also.

 

[pb4uski]

Bastards or not...there are reasons lawyers are involved in drafting a 50 page prospectus for a preferred share issuance. There are laws for a reason. If the judge in the UK allows this, then how could any company NOT redeem....errr, sorry, I mean "cancel" not just any preferred stock, but even any debenture whenever it suits them? How can all of that legalese be just thrown out the window on a whim when one party feels like it? That would rewrite the very essence of contract law and the structure of corporations!

+1 If they want to get rid of the preferred then buy it back on the open market at market prices.

 

[njhowie]

My view is Schwab is using the cash for an extra day. Given that the are holding about $2.5 trillion in assets, every day counts.

Exactly - someone is making money at someone elses expense. In a financial transaction, when settlements occur at specific times, mandated by regulations, I have to believe that something is not kosher with what those lagging by a day are doing.

 

[cooch96]

Exactly - someone is making money at someone elses expense. In a financial transaction, when settlements occur at specific times, mandated by regulations, I have to believe that something is not kosher with what those lagging by a day are doing.

This smells like a scandal. Someone should call Michael Lewis.

 

[Mulligan]

I checked almost all of my issues this morning. The dividends are coming out perfectly in line with my calculations. So I cant cash in on any litigation suite.

 

[brokrken]

I checked almost all of my issues this morning. The dividends are coming out perfectly in line with my calculations. So I cant cash in on any litigation suite.

This also prompted me to check all my payouts and they are also all perfectly in line. The only strange thing I see is that for the most recent quarterly payment on SPLP-A, which should be $0.375 per share was paid out in two separate payments. One for $0.309 and one for $0.066. Have any of you seen the same, and know why?

 

[Sunset]

I will watch the rest as they trickle in over time. I need to watch my senility, also... I mentioned above my Scottrade account....I have never ever owned a Scottrade account...Meant TD Ameritrade... Sheesh.

TD Ameritrade bought and took over Scottrade, so they are the same now.....

 

[Mulligan]

TD Ameritrade bought and took over Scottrade, so they are the same now.....

I knew that, but I cant use that as an excuse....As much as I would like too! Next thing you know, I will be finding my car keys in the fridge.

 

[Texas Proud]

Well, since you brought this up, let me throw my question out there, because it has been bothering me for a while now.

When you are paid a dividend, or interest on a bond or CD, on the payment date (or maturity date for a bond or CD) are your cash funds supposed to be available in your account on the morning of payment/maturity date, or at the end of the day?

Here's the "issue". I have accounts with Fidelity and Etrade (well, until a week ago). In my Fidelity account, interest, dividends, and funds from maturities/redemptions are all available first thing the morning of the payment/maturity/redemption date. However, with Etrade, it is the morning of the following day. Now, it may seem like a technicality, but either Fidelity is being generous or Etrade is skimming cash daily from their account holders having free use of their money for the day on all interest/dividends/payouts. Something tells me that a broker would not be generous in this regard, so I have to believe Etrade is not on the up and up. I've thought about floating an email to one of the class action attorneys to see what they think.

Any thoughts?

From someone who was a trustee on various bonds....

Many brokers will fund their accounts knowing that they are going to get the money eventually.... but they do NOT get it in the morning unless that is stated in the trust agreement...

I had some issues that did not require the company to give me money until the day of payment, so I would not send the money to DTC until I got it in house.... I had sent money as late as 4PM to DTC...


As for the question of if there is an error will it be fixed... I will say that depends.... I would think that it would be fixed, but it does depend on who created it and if everything balances... I had one issue that had different traunches and some were subordinate.... well, a previous trustee had paid to the sub bonds when they should not have.... I had to calculate out the overpayment and request this money be given back... DTC took it back from all brokers who took it back from the people who thought they had received it (at least I think they did, I did not know what the brokers did nor did I care).... for the people who held physical bonds, we kept track of what was due back and withheld future payments until we got all the money back....

So, there are checks out there.... plus, as you have shown there are people who notice an error and report it... I would say for anything that is a fixed amount I am surprised there would be any error....

 

[Freedom56]

From someone who was a trustee on various bonds....

Many brokers will fund their accounts knowing that they are going to get the money eventually.... but they do NOT get it in the morning unless that is stated in the trust agreement...

I had some issues that did not require the company to give me money until the day of payment, so I would not send the money to DTC until I got it in house.... I had sent money as late as 4PM to DTC...


As for the question of if there is an error will it be fixed... I will say that depends.... I would think that it would be fixed, but it does depend on who created it and if everything balances... I had one issue that had different traunches and some were subordinate.... well, a previous trustee had paid to the sub bonds when they should not have.... I had to calculate out the overpayment and request this money be given back... DTC took it back from all brokers who took it back from the people who thought they had received it (at least I think they did, I did not know what the brokers did nor did I care).... for the people who held physical bonds, we kept track of what was due back and withheld future payments until we got all the money back....

So, there are checks out there.... plus, as you have shown there are people who notice an error and report it... I would say for anything that is a fixed amount I am surprised there would be any error....

In my four cases, I just wanted what is/was due to me. Skimming $23 to $306 from a semi-annual or quarterly payment may not seem like much to many people, but when you take into consideration the amount outstanding to all bond holders, the amounts becomes more significant. The company has acknowledged and error (just like the previous cases) and blamed it on the Trustee DTC. There is so much money flowing through these trustees that it wouldn't surprise me if someone in the organization was tempted into skimming fractions. I believe I did the right thing filing a complaint with the SEC.

 

[njhowie]

I believe I did the right thing filing a complaint with the SEC.

You absolutely did the right thing. I don't care if it's 50 cents, $50, or $500 - it's a big deal, because what isn't going to you, is being "stolen" from you. It's not an honest mistake, whether it's a bug in a computer program, or a human that's made a manual error. When the money doesn't find its way to you, someone else is profiting at your expense.

You might also want to file a complaint with CFPB...while it still exists.

https://www.consumerfinance.gov/complaint/

 

[Texas Proud]

In my four cases, I just wanted what is/was due to me. Skimming $23 to $306 from a semi-annual or quarterly payment may not seem like much to many people, but when you take into consideration the amount outstanding to all bond holders, the amounts becomes more significant. The company has acknowledged and error (just like the previous cases) and blamed it on the Trustee DTC. There is so much money flowing through these trustees that it wouldn't surprise me if someone in the organization was tempted into skimming fractions. I believe I did the right thing filing a complaint with the SEC.

You would be surprised, but it is not easy to skim on payments.... the separation of duties makes it hard to do...

Who knows where the problem occurred.... it could be any of the major players... the trustee, DTC or the broker... since you can talk to the broker easily they will blame someone else... the trustee is a bit harder, but you can find them... so they will blame someone else.... getting in touch with DTC is hard, so I can see them being blamed no matter who made the mistake...

 

[MRG]

I see the same thing. With Fidelity and TD Ameritade, interest from bonds, preferreds, and notes appear in my account on the day they are due before start of trading. With Schwab, they appear about 6 -8 hours after the close of trading and sometimes the next day. My view is Schwab is using the cash for an extra day. Given that the are holding about $2.5 trillion in assets, every day counts.

I've told this story before but it's appropriate here.

I w*rked in IT in financial services. Much of what I did was around system's and performance. My VP called me in one day and asked me to look at a particular system running our application and another groups cash available system. The cash available system was to determine how much money they were required to deposit(money market fund) that day. It was supposed to be using discretionary cycles.

When I was looking at the system, cash available was using most all the cycles. Nothing else was getting dispatched. My VP had already told me to de-prioritize that workload by any means I felt appropriate. I changed some tuning parameters, there wasn't much for change control in those days. The operations staff knew what I'd done.

Next morning there's an angry VP from the cash available system's groups yelling I cost them 150k last night. I'm not sure if it was the right number but I never saw a machine of that size land in a datacenter that fast.

Rates are lower today but floats still worth a little on a lot.

 

[Freedom56]

You would be surprised, but it is not easy to skim on payments.... the separation of duties makes it hard to do...

Who knows where the problem occurred.... it could be any of the major players... the trustee, DTC or the broker... since you can talk to the broker easily they will blame someone else... the trustee is a bit harder, but you can find them... so they will blame someone else.... getting in touch with DTC is hard, so I can see them being blamed no matter who made the mistake...

I'm holding the security in question, at TD Ameritrade and Fidelity. The last three times that was also the case. In all cases the, the amount credited was short at both brokerages. In this case I was short by the same amount at both brokerage accounts. So I can say it's not the broker. The company says it's not them and pointed the finger at DTC and is working with them to resolve the problem. In the last three cases, it wasn't the company either, but it was DTC. I just want to be paid what I'm owed. This type of thing can escape the broker's control when the trustee sends this information to the brokers:

Upcoming Events

Ex-dividend date Amount Record date Pay date
March 13, 2018 $0.4375 March 14, 2018 March 15, 2018
December 13, 2017 $0.4688 December 14, 2017 December 15, 2017
September 13, 2017 $0.4688 September 14, 2017 September 15, 2017
June 12, 2017 $0.4688 June 14, 2017 June 15, 2017

The company in question, Centurylink, wasn't even aware of this notification and reduction in payment by the trustee. This security has been around since 2011. I have had it in my accounts since the end of 2013. The quarterly payments have always been $0.4688. The question is why was it reduced after all the quarterly payments since 2011? An investigation is warranted.

 

[Freedom56]

You absolutely did the right thing. I don't care if it's 50 cents, $50, or $500 - it's a big deal, because what isn't going to you, is being "stolen" from you. It's not an honest mistake, whether it's a bug in a computer program, or a human that's made a manual error. When the money doesn't find its way to you, someone else is profiting at your expense.

You might also want to file a complaint with CFPB...while it still exists.

https://www.consumerfinance.gov/complaint/

Thanks for the link. If I don't get what I'm owed or hear back from the SEC I'll try them. I just hope my complaint to the SEC doesn't end up on the desk of an SEC employee that gobbles down a dozen Krispy Kreme donuts daily and is stuck to his/her chair waiting for the clock to strike 5:00 P.M.

 

[Dan32]

Freedom56 - My father passed away in 2003. Last year we discovered (my sister and I) that the state had a few hundred dollars in unclaimed cash which consisted of a few shares of CTL and CTL dividend payments over the years. Anyway when I saw this post I looked as those dividend payments and the stated amounts on TDAmeritrade. Payments were in agreement with the amounts listed on the company website and at TD - $0.54/share? If your stock is CTL, I think you should check not only your $0.4375 payments but also the $0.4688 amounts??

 

[Freedom56]

Freedom56 - My father passed away in 2003. Last year we discovered (my sister and I) that the state had a few hundred dollars in unclaimed cash which consisted of a few shares of CTL and CTL dividend payments over the years. Anyway when I saw this post I looked as those dividend payments and the stated amounts on TDAmeritrade. Payments were in agreement with the amounts listed on the company website and at TD - $0.54/share? If your stock is CTL, I think you should check not only your $0.4375 payments but also the $0.4688 amounts??

No I do not own any Centurylink (CTL) common stock. What I referred to was CTW which are Qwest 7.5% notes that pay $0.4688 per quarter and a par value of $25. These notes are part of Centurylink's capital structure. Qwest is a subsidiary of Centurylink along with Level 3 and Embarq. The common stock pays $0.54 per quarter. I don't own any common stock of any company. My portfolio consists of corporate bonds, notes, money market funds.

 

[Freedom56]

DTC coughed up the money today at both Fidelity and TD Ameritrade for CTW. This was much faster than before.

 

[Mulligan]

DTC coughed up the money today at both Fidelity and TD Ameritrade for CTW. This was much faster than before.

Good for you, Freedom...Persistence pays off!

 

[Mulligan]

Well Freedom, I caved. Sold my Exxon for a quick almost $300 for holding a couple weeks and punching a couple buttons.
Got a potential windfall coming. I own 10% of CTWSO tiny float, and the company is merging with San Jose Water if approved. If it goes through my shares I bought at $14.50 and $15.50a couple years ago will be redeemed per merger agreement. Call price is $21. That will be a sweet little bonus from this little 1500 share honey hole.