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

[RE2Boys]

When I looked at placing an order for EYMXP I got a note something about "W/ A PERP CALL ON 3/7/16@25 MTY PERP" so I backed out. Could not find any news online about it being called in near term. Anyone have some idea what's going on?

 

[Mulligan]

When I looked at placing an order for EYMXP I got a note something about "W/ A PERP CALL ON 3/7/16@25 MTY PERP" so I backed out. Could not find any news online about it being called in near term. Anyone have some idea what's going on?

That is odd... Even when an issue has been called it is tradable until the day they yank it. I never have had a warning buying or selling an issue that has officially been called. Usually there is a press release about the call, but always an SEC filing on a call. I have found neither online or through Entergy's SEC filings. I do not quite understand all the abbreviations, but it already is past call and will be perpetually endanger now of a call.
You always take ones chances on past call issues, but in utility world there is only a tiny smattering of them not callable because they dont issue much of them anymore. And the few that are not yet callable are mostly around 5%. If there is a call date on March 7, you are risking buying at $25.30 and "selling" at $25.15 with accrued divi roughly.


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[RE2Boys]

That is odd... Even when an issue has been called it is tradable until the day they yank it. I never have had a warning buying or selling an issue that has officially been called. Usually there is a press release about the call, but always an SEC filing on a call. I have found neither online or through Entergy's SEC filings. I do not quite understand all the abbreviations, but it already is past call and will be perpetually endanger now of a call.



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It was just part of the description of the security that I was buying but the wording was unexpected, almost sounded like they were calling the perpetual preferred stock. I could not confirm anything online either. Puzzled for now! No restriction on trades.

 

[Mulligan]

It was just part of the description of the security that I was buying but the wording was unexpected, almost sounded like they were calling the perpetual preferred stock. I could not confirm anything online either. Puzzled for now! No restriction on trades.

I wonder what "MTY" means.... The perpetual call abbreviation makes no sense. They are always addressed as a "mandatory call" "voluntary
call" or "partial call". Im assuming "MTY" doesnt mean mandatory, but in the context you said it was written in, that did not make any sense.


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[Coolius]

Checked with both brokerage account I have - no call notice. Looked at description, no similar words.

I then tried to buy some in a Vanguard account, and got a message that it could not be traded unless through their broker desk. This is the usual response trying to trade what they consider " surrogate bonds ", and one has to sit through several warning clauses and disclaimers before they allow the trade to go thru, if the client still wishes it.

I also checked every site which might have a possibility ( QOL, company website ), and found nothing.

 

[Mulligan]

Well that promise didnt last long....Got some fresh capital to employ and bought 200 more of my new best friend KTH at $31.20. Hit the sleep button and wake me up in 2028 when it matures. Another good thing about holding high quality illiquids, you bypass all the forced and panic selling. This was something I researched and it has very much proven true. I am still a few bucks above 0% despite a small position in Total Stock Index, that never tires of beating me with my pants pulled down on a daily basis. Not surprisingly my 2 liquid preferreds have not held up as well either. All electrical preferreds I own are holding strong.


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[Slow But Steady]

I bought half a batch of EYMXP today. I would have bought more, but I didn't feel like tying up any more of the money in my after-tax accounts.

I'm planning to retire soon, and I may need to spend some of that money to live on, if I want to avoid selling low.

 

[Mulligan]

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

I bought half a batch of EYMXP today. I would have bought more, but I didn't feel like tying up any more of the money in my after-tax accounts.



I'm planning to retire soon, and I may need to spend some of that money to live on, if I want to avoid selling low.

I think you are ok here. Coolius and I have been digging, in fact I just checked, and there is no notice of call for redemption anywhere. I think RE's brokerage has something messed up on it. This wouldnt surprise me as sometimes I have had to call in orders. The prospectus says a 30 day minimum notice and March 7 is definitely inside 30. I remember my dad buying WFC-L last year and that brokerage had a tag that warned my dad of a call. It didnt say it, but Wells common had to reach $200 a share before a call. I told him don't worry he will be long dead before that ever happened.
Buying these for income and disregarding their price movement is really what they are best suited for. I reinvest mine, but at some point I will turn on the income spigot and spend...Maybe in 10 years or so.


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[Slow But Steady]

Thanks, Mulligan, for your comment. It looks like I didn't make it quite clear what I was talking about, though.

I bought the EYMXP in my separate property account. The plan for that account is never to sell, and instead ultimately to pass it along to heirs/charity/etc. (That money was a gift from my dad, and any money I may inherit upon his passing will go into the same account.)

In the taxable joint accounts I own with my wife, we only have about 9 months living expenses in cash. That's the cash I don't want to tie up more of. In case we get hungry, we don't want to be forced to sell either the EYMXP or some other appreciated equities in order to buy groceries.

Neither do we want to withdraw from and IRAs or 401Ks just now, since sometime shortly after I retire we want to have a low income year in which we can get the company stock out of my wife's 401k and take advantage of the NUA rules.

Does that make more sense?

 

[Mulligan]

Thanks, Mulligan, for your comment. It looks like I didn't make it quite clear what I was talking about, though.

I bought the EYMXP in my separate property account. The plan for that account is never to sell, and instead ultimately to pass it along to heirs/charity/etc. (That money was a gift from my dad, and any money I may inherit upon his passing will go into the same account.)

In the taxable joint accounts I own with my wife, we only have about 9 months living expenses in cash. That's the cash I don't want to tie up more of. In case we get hungry, we don't want to be forced to sell either the EYMXP or some other appreciated equities in order to buy groceries.

Neither do we want to withdraw from and IRAs or 401Ks just now, since sometime shortly after I retire we want to have a low income year in which we can get the company stock out of my wife's 401k and take advantage of the NUA rules.

Does that make more sense?

Gotcha now, Slow... Yes we all have our different money, buckets, and tax situations. Mine is a bit different. Due to my relatively high retirement tax bracket of 25% fed and 6% state, I try to keep all my 15% qualified preferreds in my "taxable account" and all my baby bond preferreds in my Roth and HSA. Your "taxable account" has a different meaning from mine. I don't have one because I have a monthly pension that shows up monthly in my checking account each month, so I really don't have any extra cash besides what is not spent at the end of the month.
I might not have, in fact I wouldnt have said this 10 years ago, but times change.... "I love 6% plus safe dividends".


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[Mulligan]

Well I decided to take my skirt off and buy common stocks with the big boys and hope I dont get bullied and have my lunch money stolen from me. Sold out all my CHSCL position this morning and bought Bunge (BG) . Bought some more of their preferred BGEPF and 500 shares of the common. They just got beat like a red headed step child after missing earnings forecast. An Ag commodity company missing their earnings in this commodity environment economy? What a shock!! After 20% down, I had to go head first in... Looking at a PE of around 9 this coming year on a still down earnings cycle. A little more excitement in the ol portfolio now.


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[capjak]

Well I decided to take my skirt off and buy common stocks with the big boys and hope I dont get bullied and have my lunch money stolen from me. Sold out all my CHSCL position this morning and bought Bunge (BG) . Bought some more of their preferred BGEPF and 500 shares of the common. They just got beat like a red headed step child after missing earnings forecast. An Ag commodity company missing their earnings in this commodity environment economy? What a shock!! After 20% down, I had to go head first in... Looking at a PE of around 9 this coming year on a still down earnings cycle. A little more excitement in the ol portfolio now.


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my common stock portfolio has been getting slaughtered,hope the bottom is coming soon.

 

[jim584672]

The liquid preferreds are getting crushed. Either a great time to buy or we are entering a global collapse. I am only missing a few fingers now.

 

[Running_Man]

Well I decided to take my skirt off and buy common stocks with the big boys and hope I dont get bullied and have my lunch money stolen from me. Sold out all my CHSCL position this morning and bought Bunge (BG) . Bought some more of their preferred BGEPF and 500 shares of the common. They just got beat like a red headed step child after missing earnings forecast. An Ag commodity company missing their earnings in this commodity environment economy? What a shock!! After 20% down, I had to go head first in... Looking at a PE of around 9 this coming year on a still down earnings cycle. A little more excitement in the ol portfolio now.


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The good for this company (based on a limited review on this company so far this year):
1) Unlike many other commodity companies Bunge has not gone on a debt spree, therefore their long term interest and any debt coming due or not going to put them out of business even in a prolonged negative cycle.

2) The dividend appears very safe and slightly above market @ 3.2 percent assuming you bought around 47, dividend increase for the near term I would expect at 3-4 percent range. The dividend is well over the historical average for this company, but they have doubled the payout ratio from 15 to about 30 percent over the last 10 years.

3) Bunge is positioned to make acquisitions if any meet their criteria

The negatives:

Heavily reliant on Brazil and South America, which is heavily reliant on oil and suffering mightily in earnings because of this, if the global decline worsens, Bunge earnings will continue to slide.

Safety ratings in Value Line is a "3", which means they are only average in corporate ratings, they are a B++ in Financial Strength which is a ver solid above average rating.

Interesting move, as a very long term play it could be a good time to buy, it also could become a favorite to dump by investors as well in the short term so you may need to steel yourself against a possible drop to $30 or below.

 

[Mulligan]

The good for this company (based on a limited review on this company so far this year):

1) Unlike many other commodity companies Bunge has not gone on a debt spree, therefore their long term interest and any debt coming due or not going to put them out of business even in a prolonged negative cycle.



2) The dividend appears very safe and slightly above market @ 3.2 percent assuming you bought around 47, dividend increase for the near term I would expect at 3-4 percent range. The dividend is well over the historical average for this company, but they have doubled the payout ratio from 15 to about 30 percent over the last 10 years.



3) Bunge is positioned to make acquisitions if any meet their criteria



The negatives:



Heavily reliant on Brazil and South America, which is heavily reliant on oil and suffering mightily in earnings because of this, if the global decline worsens, Bunge earnings will continue to slide.



Safety ratings in Value Line is a "3", which means they are only average in corporate ratings, they are a B++ in Financial Strength which is a ver solid above average rating.



Interesting move, as a very long term play it could be a good time to buy, it also could become a favorite to dump by investors as well in the short term so you may need to steel yourself against a possible drop to $30 or below.

Pretty much the way I saw it. I have been following them for several months. Started nibbling a little on the preferred a bit too early and then doubled down today and added common. Got most of mine in $46.25 range on common. I read their conference call today. I was less scared of their Argentina and Brazil holdings after reading it. Some things are turning around there.
They are financially strong like you said, so if it does drop down there I can emotionally hang on as they are not a belly up company. But you know how these Ag stocks can go in crapper for a while. Its already down 50% for the past year and traded higher in 2006 than today. I had to hold my nose and jump! Calling for higher earnings this year than last year. They hinting at earnings in the $5-$5.50 range this year and out years getting to $8.50. They said it wasnt out of range of possibility they could increase earnings double digits this fiscal year.
Who knows..Fortunately I don't need the money, so hopefully I can stay solvent longer than the market can stay irrational! But if it goes to $30, I sure hope I have the courage to by 500 more.


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[Mulligan]

The liquid preferreds are getting crushed. Either a great time to buy or we are entering a global collapse. I am only missing a few fingers now.

Yes, the illiquids have been a good place to hide. 80% of the float of these types are probably held by grandma who doesn't even remember she has them.


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[audreyh1]

So how are the preferred stocks holding up now?

 

[Mulligan]

So how are the preferred stocks holding up now?

Eyeballing a YTD chart the high quality investment grade ones appear to me to be down around 1% or so not counting dividends. My Big 3 which constitute my biggest amount are slightly up. However, they just dont trade much. None did today... Utility preferreds have held up extremely well overall. Solid Reit preferreds I think have done very well too. But when you get into the speculative or lower level higher yielding issues you would be getting smoked... Mreits, BDC's, shippers, hospitality reits, etc.... Kind of like junk bonds...High yields that have gotten even higher! I got kicked in the britches getting a bit to eager buying early on a convertible preferred. But the convertibles, unlike utility preferreds, track the common stock and that wasnt such a good thing for me on that issue..


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[Mulligan]

Oh ya, baby....
In addition, the board of directors of Ameren Illinois Company declared regular quarterly cash dividends on all classes of Ameren Illinois Company's preferred stock. These preferred stock dividends are payable May 2, 2016, to shareholders of record at the close of business on April 11, 2016.




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[Coolius]

Oh ya, baby....
In addition, the board of directors of Ameren Illinois Company declared regular quarterly cash dividends on all classes of Ameren Illinois Company's preferred stock. These preferred stock dividends are payable May 2, 2016, to shareholders of record at the close of business on April 11, 2016.




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[Mulligan]

Went out of my comfort zone and gambling a bit here. Bought 300 shares of SSW-C (Seaspan containership company) at $23.75. The 10% yield and 25% penalty next January were too compelling to pass up.
Holdings are AILLL/AILNP (Ameren),CNLPL/CNTHP (Connecticut Light and Power), KTH (PECO energy), KCC (Unum insurance), GJP (Dominion Resources), CVB (Kinder Morgan), BGEPF (Bunge perpetual convertible)


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[Coolius]

AILLL jumped today, but on only 200 shares. Fully expect it to settle back in the $26 area before too long.

As discussed before, this is a Trapped Ute Preferred, trading is usually very thin, so stability of this issue has been calming in a time of high volatility for the market.

AILLL has already declared its next dividend, exdiv April 8, pay date May 2.

 

[alaska55]

How is AILLL a trapped preferred. Its can be called at anytime,right?

 

[Mulligan]

How is AILLL a trapped preferred. Its can be called at anytime,right?

Its callable, but as long as it is not it is considered "yield trapped" in relation to its initial par yield rate. In other words the few utility companies that continue to issue "new" preferreds are able to issue at
between 5% - 5.5% due to their relative safety. Since above issue was issued in a higher rate environment of early 1990s its issued yield was 6.625%. It cant trade at a 5.5% yield because that would mean it would have to trade north of $30. That wont happen because of call risk. So therefore its yield is trapped over 6%. That is why on some unique opportunities you get an above market yield price that does not reflect the inherent relative safety of issue. For example some other Ameren issues are in 4% plus range but are no more safer in terms of safety of payment because they are all on equal standing. Its just the 4% issue ones were issued in 1940s when preferreds paid even less. They are past call too, but are "yield trapped" the opposite way. They cant drop enough to reach 5.5% yield because they would be so far below par a big cap gain would be in order if they were all called in unison which does happen.


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[jim584672]

WFC-L 6.4% current yield, goes ex-dividend next week, a juicy $18.75 of qualified goodness.