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

[Mulligan]

My thinking also.... which is why I am reducing my 7.5% BB- for this...

I am keeping the SPLP-A as my largest holding.... I actually think that when it comes time for them to pay for the call in 20 that we will be able to put more in if others do not put theirs.... IOW, from what I read they are going to allow up to 525000 shares... if some people do not put theirs we can get a higher pct. of ours in that put... so, YTC (or put) is pretty high on this one... like 15%.... heck, even without the call it is around 11% YTM.... pretty good for what I consider a BB to BB- security...

Im still out of SPLP-A, but watching. I need to study and see what is up their sleeve. I love that put, but there is some screwy things in that prospectus that give me some pause until I know they dont plan on making this issue their piggy bank for acquisitions and get the float as big as their common float is. So I am still interested.

 

[brokrken]

Dont feel bad paying a few cents more.....My first 200 shares I bought at 25.80. Wouldnt trade for a few days and when it did I got jumped. Its way more liquid now...I got lucky buying the 1000
at 25.41. I was on treadmill at workout facility and saw it in a momentary dump and jumped in while on treadmill. The most you are out is a dime or whatever if you bought today. This issue will have a stiff backbone in price support. The call risk will minimize any cap gains most likely, but I will gladly clip 8% BBB- indefinitely if it continues to trade.

I finally got mine at 25.64

 

[brokrken]

Im still out of SPLP-A, but watching. I need to study and see what is up their sleeve. I love that put, but there is some screwy things in that prospectus that give me some pause until I know they dont plan on making this issue their piggy bank for acquisitions and get the float as big as their common float is. So I am still interested.

I'm still in on SPLP-A, but this move below $20 has me a bit nervous. What screwy things in the prospectus are you referring to?

 

[Mulligan]

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

I'm still in on SPLP-A, but this move below $20 has me a bit nervous. What screwy things in the prospectus are you referring to?

Richard Lejuene who writes for SA is a pretty smart guy....Usually though buys stuff too aggressive for me. But he deciphered this which would not be cool if he is correct and they start issuing payments in kind (stock) instead of cash. The fact they are using the preferred to fully acquire companies gives one a bit of caution if the cash drain becomes too much. Of course I dont have the answer to that part...So in other words even if preferred is trading at $20, you would get common stock based off of $25.

Richard Lejeune, Marketplace Contributor
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I appreciate the efforts of the author, but some other very complex and unusual (and not in a good way) covenants were also glossed over. It is very critical to know that the company can choose to pay distributions in kind (preferred stock instead of cash) anytime it wants. Par value would be used. So if the preferred declines in price you will in effect receive less money by having the dividend paid in kind with an issue trading at a discount.

 

[Mulligan]

I finally got mine at 25.64

It was trading pretty stiff today.

 

[brokrken]

Richard Lejuene who writes for SA is a pretty smart guy....Usually though buys stuff too aggressive for me. But he deciphered this which would not be cool if he is correct and they start issuing payments in kind (stock) instead of cash. The fact they are using the preferred to fully acquire companies gives one a bit of caution if the cash drain becomes too much. Of course I dont have the answer to that part...So in other words even if preferred is trading at $20, you would get common stock based off of $25.

Richard Lejeune, Marketplace Contributor
Comments (4007) |+ Follow |Send Message |
I appreciate the efforts of the author, but some other very complex and unusual (and not in a good way) covenants were also glossed over. It is very critical to know that the company can choose to pay distributions in kind (preferred stock instead of cash) anytime it wants. Par value would be used. So if the preferred declines in price you will in effect receive less money by having the dividend paid in kind with an issue trading at a discount.

I'm really confused now. You say "So in other words even if preferred is trading at $20, you would get common stock based off of $25." And the author says "Par value would be used. So if the preferred declines in price you will in effect receive less money by having the dividend paid in kind with an issue trading at a discount." These two comments seem contradictory. Also, could be that I'm just slow.

 

[Mulligan]

I'm really confused now. You say "So in other words even if preferred is trading at $20, you would get common stock based off of $25." And the author says "Par value would be used. So if the preferred declines in price you will in effect receive less money by having the dividend paid in kind with an issue trading at a discount." These two comments seem contradictory. Also, could be that I'm just slow.

SPLP-A has a current 7.5% yield even though its a 6% par. You will get 6% worth of common in dividends instead of 7.5% worth... So you get less... They do this because I assume it is to be redeemed at $25 , 8 years from now so it is worth $25...Even though it doesnt trade at $25.

 

[brokrken]

SPLP-A has a current 7.5% yield even though its a 6% par. You will get 6% worth of common in dividends instead of 7.5% worth... So you get less... They do this because I assume it is to be redeemed at $25 , 8 years from now so it is worth $25...Even though it doesnt trade at $25.

Ahh, clear now. Thanks.

 

[Texas Proud]

SPLP-A has a current 7.5% yield even though its a 6% par. You will get 6% worth of common in dividends instead of 7.5% worth... So you get less... They do this because I assume it is to be redeemed at $25 , 8 years from now so it is worth $25...Even though it doesnt trade at $25.

I am not sure if what you wrote down is correct....

The issue pays $1.50 per year in divis.... they have the option of paying that divi with more pref shares instead of with cash.... but it is on face the value of that $1.50 face share is not $1.50 in cash.... (rereading your, you might have been meaning this)...

When I was a trustee doing bonds I saw this a number of times.... it was boilerplate for some issues... I have never seen it happen, but I think I remember reading about it once...


When it matures they give you cash (well, unless there is something that allows them to give common stock, but I think that would be out in the open and not hidden)....

 

[Mulligan]

I am not sure if what you wrote down is correct....

The issue pays $1.50 per year in divis.... they have the option of paying that divi with more pref shares instead of with cash.... but it is on face the value of that $1.50 face share is not $1.50 in cash.... (rereading your, you might have been meaning this)...

When I was a trustee doing bonds I saw this a number of times.... it was boilerplate for some issues... I have never seen it happen, but I think I remember reading about it once...


When it matures they give you cash (well, unless there is something that allows them to give common stock, but I think that would be out in the open and not hidden)....

There is a lot of complicated stuff with this issue, beyond me. The only cash one is certain of is the 10% put in 2 years. Everything else could be stock. Considering the preferred float is growing in relation to common float, serious dilution could occur if given in common. Originally it was issued and put on liability ledger. But it could easily be flipped and capitalized.

 

[bobandsherry]

I finally got mine at 25.64

Not wanting to be left behind I dipped in and grabbed some at 25.63 yesterday too.

 

[bobandsherry]

There is a lot of complicated stuff with this issue, beyond me. The only cash one is certain of is the 10% put in 2 years. Everything else could be stock. Considering the preferred float is growing in relation to common float, serious dilution could occur if given in common. Originally it was issued and put on liability ledger. But it could easily be flipped and capitalized.

Feeling good that I stayed clear of the issue. Strange how they had the offer structured. If I can't quickly understand it, I don't invest in it.

 

[brokrken]

Feeling good that I stayed clear of the issue. Strange how they had the offer structured. If I can't quickly understand it, I don't invest in it.

This is why I typically stick with 200 shares per issue (although there are some exceptions). I can take some risk on these type issues and if it goes south I won't be hurt too bad.

I am currently sitting on BGCA, GWSVP, IPL-D, LANDP, MAA-I, NSS, SPLP-A, SSW-E.

Also looking at HSEA. Nice 7.8% current yield for a Baa1/BBB rated issue that's QDI and 5 years past call date.

 

[bobandsherry]

This is why I typically stick with 200 shares per issue (although there are some exceptions). I can take some risk on these type issues and if it goes south I won't be hurt too bad.

I am currently sitting on BGCA, GWSVP, IPL-D, LANDP, MAA-I, NSS, SPLP-A, SSW-E.

Also looking at HSEA. Nice 7.8% current yield for a Baa1/BBB rated issue that's QDI and 5 years past call date.

Thanks for sharing....

I take a similar approach, but usually target 300 shares but have dipped in for 1,000 on a couple that seemed really good.

I'm sitting on AILLL, ALLY-A (lowered pressure in tires recently), BGCA, FTRPR (got in after drop as a play), GNL-A, NSS, RILYZ

RLGT-A has recently caught my eye and doing some due diligence as a guilty pleasure holding (9.75 coupon / 9.45% CY that goes ExD on 4/26). Callable on 12/20 so may be short term play.

 

[Mulligan]

Ahh, clear now. Thanks.

Ken and Texas... Just a random thought. I suspect issuing shares would not be a goal considering the dilution of shares and being company is tightly held by insiders.

 

[brokrken]

RLGT-A has recently caught my eye and doing some due diligence as a guilty pleasure holding (9.75 coupon / 9.45% CY that goes ExD on 4/26). Redeemable on 12/20 so may be short term play.

That's not a bad play. 3 divies in 6 months and then its redeemed a month and a half later.

 

[brokrken]

That's not a bad play. 3 divies in 6 months and then its redeemed a month and a half later.

Sorry, just noted that it's callable 12/20, not redeemed.

 

[brokrken]

Ken and Texas... Just a random thought. I suspect issuing shares would not be a goal considering the dilution of shares and being company is tightly held by insiders.

Mully, I had a similar thought. I would expect they would want to keep the float as small as possible.

 

[bobandsherry]

Sorry, just noted that it's callable 12/20, not redeemed.

Doh! Yep, callable... but if they don't call, 9.75% coupon still seems to makes this attractive.

 

[bobandsherry]

Ken and Texas... Just a random thought. I suspect issuing shares would not be a goal considering the dilution of shares and being company is tightly held by insiders.

I haven't looked at their balance sheet or cash flow, but does it look like they'll be in position to redeem in cash?

 

[brokrken]

Doh! Yep, callable... but if they don't call, 9.75% coupon still seems to makes this attractive.

Definitely, but I think I remember Mully had dug into this some and found that they set up a revolver a year or so ago for the sole purpose of calling it. So, probably really a short term play. In any case, of course I put in a bid.

 

[bobandsherry]

Definitely, but I think I remember Mully had dug into this some and found that they set up a revolver a year or so ago for the sole purpose of calling it. So, probably really a short term play. In any case, of course I put in a bid.

Yep, I just looked back and saw he mentioned that (he's always on his game). A return of 8% (QDI) if it does get called, so OK with that for short term funds.

 

[Mulligan]

Definitely, but I think I remember Mully had dug into this some and found that they set up a revolver a year or so ago for the sole purpose of calling it. So, probably really a short term play. In any case, of course I put in a bid.

It definitely is a meat on the bone play. I flipped out at 25.92 or something. I bought at 25.58. It ran up too quick. I dont know present YTC yield, but at right price its a play that can be used as a term dated issue or maybe get lucky and have a high coupon for a bit. But yes they created revolver space and mentioned a year ago it could be used to redeem it.

 

[brokrken]

It definitely is a meat on the bone play. I flipped out at 25.92 or something. I bought at 25.58. It ran up too quick. I dont know present YTC yield, but at right price its a play that can be used as a term dated issue or maybe get lucky and have a high coupon for a bit. But yes they created revolver space and mentioned a year ago it could be used to redeem it.

Just got in at $25.87. YTC is about 5.5% at that price. A little higher if they give you some accrued interest between the last divi (10/31) and the call (12/20).

 

[bobandsherry]

Just got in at $25.87. YTC is about 5.5% at that price. A little higher if they give you some accrued interest between the last divi (10/31) and the call (12/20).

Shows callable at $25 plus accrued and unpaid dividend. That additional 34 cents pumps your YTC to 7.3% (XIRR of 7.7%).

I used proceeds from ALLY-A and jumped in at $25.82 for 7.6% return (XIRR of 8.0%). And it's QDI which makes this significantly richer than the return I was getting with ALLY-A.