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

[Mulligan]

As the sabre rattling of rate hikes continues, I thought it a good time to do some comparisons of some of my preferreds I own pricing today versus the trough of the "Taper Tantrum" when 10 year treasury went to 3% a little over 2 years ago. The bottoming out largely occurred in January 2014. Pricing in parenthesis is the Taper price of these select issues I own... AILLL $26.30 ($24.75) AILNP $104 ($101.60) UBP-F $26.22 ($23.00) CHSCO $28.95 ($27.60) AHT-A $25.15 ($25.40) AES-C $51.06 ($50.25) Since AES-C goes exD tomm of 84 cents it is essentially unchanged from taper tantrum. As one can see above, that in the right issues, little price degradation will occur from a 10 year going from 1.6% to 3%... Not enough for me to worry about as the stream of divis will continue to flow and I will reinvest at higher yields.
The trouble one may have is owning ones with lower yields in 5% range. They may feel more pressure on pricing since they are closer in yield to safe treasuries. I do know as an example IPL-D which is a par 5.1% yield currently trading over $26. It went down to near $21 during TT. So one must be cognizant of this if capital loss is a concern. Many newer issued 5% plus and even high 4% perpetuals have went to market since TT. They have not been tested yet, and I suspect it may not be pretty if 10 year would return to 3%.

 

[Running_Man]

On CHS, the only relevant information is potential issues with China and perhaps there were some losses suffered in regards to the flooding from Hurricane Mathew, which would seem unlikely to me but I do not know of all of CHS facilities and storage locations, I know there is a major plant in Trinidad and Tobago for the new partnership they are in. CHS is in the first year of a new partnership in nitrogen fertilizers or Urea resulting in a doubling of long term debt to over 2 billion and about equal to the amount of preferred shares issued. i. This new segment has not been performing particularly well and perhaps there is some inside info that sales were less than anticipated. The overall financial position of CHS, while in no difficulty that I can see has deteriorated in the past year. Yet I am still confident in ongoing ability to maintain preferred dividends for years to come. There is also a nervousness in the preferred market overall concerning interest rates as the 5 year treasury has increased to 1.3% and that combined with financial may be enough to push nervous investors out.

In deciding which CHS issue to purchase the “M” issue does convert to variable rate up to 8 percent after 2024, depending on the 3 month Libor at the time plus 4.155 percent and at current price it’s Yield to Call is 5.21. So this issue is somewhat protected by interest rates beginning in 2024 and the variable factor of the security lowers the likelihood of a call in 2024 and so to me increases the true dividend yield.

Currently the O issue has a yield to call of 5.13 and the L is at 5.57 at closing price today. Targeting 27.4 on the L issue for a yield of 6 percent would be a good target for anticipation of future market weakness. For some reason their was concerted buying in the O issue which has made it the least attractive of the issues based on closing prices today.

Wells Fargo has continued to scare the bejesus out of preferred investors and at 1277 offers 5.87% interest, at 1250 you are back in the 6 percent range on this security and it seems doubtful to me that the government would want to take down the largest bank in the USA when it is supported by Warren Buffet, though nervousness will probably continue to grow up until the elections are held.

I am not capable of the catch and release nature of the more accomplished members of this esteemed group, am I happy to catch and put in the freezer to provide nutrition for the future but greatly admire the insights shared here.

Personally I continue to be unconcerned by interest rates and have more concern on a potential financial panic that could be initiated by a rise in interest rates by the Federal Reserve. Deutsche Bank is bankrupt, Japan as a country is bankrupt, but for now I am comfortable in holding what I own, if a panic were to evolve I know I will be looking to add preferred shares and not to sell the issues I hold. I found it interesting that in Theranos the only investors likely to see money are the individual investors who bought preferred shares in the company as the common is worthless.

 

[Mulligan]

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

RM, yes for me YTC is a meaningless number. I am usually long gone before that would ever occur. I look for current yield now which CHSCO offers the most now, but I hesitated buying the other 200 at $28.80 and price went back up to $28.95 so I bought sagging CHSCL.
Another reason why YTC means nothing to me is my biggest issue I own which is over a quarter of my stash is a NEGATIVE 60% annualized YTC. Yawn.... Its been that for three years running now.

Im thinking the CHS issues will stabilize soon. Im expecting most of my preferreds to drop a buck if rates rise some. I have avoided the losses so far and have inched forward even the past month by staying ahead of the posse with flips and holding issues that never trade. That helps alot too.

 

[Coolius]

An excellent summary of CHS and the risks facing it, RM.

I would add that the Fertilizer Joint Venture was done after initial plans to build its own plant was scuttled by CHS Management; in fact one of the preferred issues - I believe it was CHSCL - was to finance this plant.

IMO, this was a wise decision, they were experiencing cost overruns even at the planning stage, with unexpected costs coming from railroad access, environmental studies, etc. Add to that, a decline in the price of Fertilizer and the entire agriculture sector softening, and they decided to bite the bullet, write off whatever they had spent, and go into the Joint Venture instead.


It remains to be seen whether the JV will make money, hopefully we will see improvement in the agriculture sector soon, and a brightening of the revenue picture for CHS.


I own the CHSCO & CHSCL series, and have no intention to sell. they are stable and sustainable income streams, and at over 6% yield, difficult to replace.

My own take, FWIW, is that Fed rate hike fears are behind much of the weakness in all Preferred stock at this time.

 

[Texas Proud]

Running Man...

Wells is not the largest bank.... banks ranked by total assets...

Rank
Bank nameTotal assets1JPMorgan Chase & Co.$2.42 trillion2Bank of America Corp.$2.15 trillion3Citigroup Inc.$1.77 trillion4Wells Fargo & Co.$1.75 trillion5U.S. Bancorp$415.94 billion6Bank of New York Mellon Corp.$377.37 billion7PNC Financial Services Group Inc.$362.13 billion8Capital One Financial Corp.$313.7 billion9HSBC North American Holdings Inc.$291.61 billion10TD Bank U.S. Holding Co.$253.2 billion


Now, it used to be able to say it was largest by market cap, but not anymore... JPM passed it by... I also think the market cap is going to continue to go down since there are a lot of local gvmts saying they are going to stop doing business with them... but this will not show up for a year or two...

 

[Running_Man]

Running Man...

Wells is not the largest bank.... banks ranked by total assets...

Rank
Bank nameTotal assets1JPMorgan Chase & Co.$2.42 trillion2Bank of America Corp.$2.15 trillion3Citigroup Inc.$1.77 trillion4Wells Fargo & Co.$1.75 trillion5U.S. Bancorp$415.94 billion6Bank of New York Mellon Corp.$377.37 billion7PNC Financial Services Group Inc.$362.13 billion8Capital One Financial Corp.$313.7 billion9HSBC North American Holdings Inc.$291.61 billion10TD Bank U.S. Holding Co.$253.2 billion


Now, it used to be able to say it was largest by market cap, but not anymore... JPM passed it by... I also think the market cap is going to continue to go down since there are a lot of local gvmts saying they are going to stop doing business with them... but this will not show up for a year or two...

You are correct they fell to #2 with their September swoon

 

[Mulligan]

I will worry about CHS being able to pay when CHSCP trades under $24.25. That was the low point of stock price in 08-09 great recession. The recent price drops needed to happen, it was trading too high. Its reasonable now (not CHSCP though), though it could drop some more and be under no undue pressure. They just gave 3.5 million donation to U of Minn. They damn well wouldnt be doing that if they owned by butt some dividends, lol.

 

[Mulligan]

Slow, I forgot to mention, ya better sit down when I say this....I bought 400 shares today of AHT-A, at $25.12 and $25.16.... After I heard the debt load has been rolled over and some cash raised from a couple properties sold, I went in. I think it will be called soon, and I will collect money until it does. AHT preferreds I grudgingly admit performed like rock stars during Taper Tantrum. It also fits close to my strategy of owning issues that should be called but havent yet.

 

[Texas Proud]

Well, crap....

Bought AES-C for a flip... I sold today thinking I was doing good... but NO... forgot what I had paid a few days ago... when I looked I saw what I had paid for my permanent holdings which was a lot less....

SOOO, instead of making $200 ish, I will be walking away with only $50...


Well, at least I will have money to buy something that pays at the end of the month...

 

[Mulligan]

Texas, you know you scalped the dividend today, correct? You got 84 cents coming in 5 days if you sold today.... I sold my last 200 today at $50.62... I traded this issue way too much the past couple of months. I was getting a bit too comfortable owning it as I had over 500 shares at one time. Some good easy money...Will keep my eye on it..

 

[Texas Proud]

Texas, you know you scalped the dividend today, correct? You got 84 cents coming in 5 days if you sold today.... I sold my last 200 today at $50.62... I traded this issue way too much the past couple of months. I was getting a bit too comfortable owning it as I had over 500 shares at one time. Some good easy money...Will keep my eye on it..

Yes, I knew I got the divi, but I 'lost' 65 cents per share on the sale... so, I only made .19 per share... when I looked I saw my original purchase which was 50.15 per share... thought I was doing good selling if for $50.55....

So, now I know I only made $38....


Now, my previous flip I made $185 holding for 12 days... this is what I am hoping to do...

I bet that in a few days AES-C will be closer to $51 or even over...

To me, it is a good lesson... I will have to keep track more... and I am thinking about only buying shares I do not have in my permanent portfolio....

 

[Mulligan]

I love learning lessons the hard way that still puts money in my wallet, lol.
I just got way out of hand with this issue the past couple months. I was getting to treat it like an Ally online savings account. I need to step away from it for a bit and respect the risk a bit more. And now I got 400 shares of AHT-A ( I swore I would never do it but I did) I need to tighten up my flips a bit. Runningman is giving me buyers remorse on CHS. I will keep CHSCO, as it is a stronger trader ( CHSCP is just outrageous, only the old senile farmers must own and never sell that one) than CHSCL. But I may shed CHSCL quickly and see if more drop-age occurs.

 

[Mulligan]

Well this week was a good one. Not only did I snag a 100 more shares of the near mythical AILNP, I avoided egg on my face as the next divi was declared today for the January cycle... I also bought 400 more shares of AHT-A yesterday at $25.09 to bring total to 800. It is being called soon per prospectus of new issue they are floating now. Its already an in the black trade. Just going to see how many days it takes to call.Each day it drags out is .57 cents per share in my pocket. Bought 200 more UBP-F today at $26.15 that hit while golfing. It has a nice juicy divi going exD next week. It appears I got lucky with CHSCO and CHSCL buying at a near term low as they have jumped nicely past 2-3 days. If they were in my Roth or HSA I would have flipped out. But a 31% tax cools my heels to do this, so I will hold for now.

 

[Coolius]

Way to go, Mulligan. Glad you had a good week in the markets.

For me, good weeks have been few & far between, since beginning of September, and this week was no exception, more declines for the most part.

I sold a few positions of Preferreds that had low 5.2%-5.5% yields, anticipating that over the next few weeks there will be opportunity to buy them back somewhat lower.

Had an order for 400 shares AHT-A that filled when I was away from the computer, at $25.11. Not as good as your price, but like you, i will be in the black with the usual 30 day accrued interest, when it is called.

Anticipate more nervous selling of interest sensitive stocks as the November FOMC meeting approaches - simply amazing how investors slice off 2%-4% of an entire company's value because they may have to borrow money at 25 bps more than in the past.

Indeed these are, like Confucius says, " interesting times ".

 

[Mulligan]

Ooops, Reading your purchase post made realize, I didnt write mine correctly. I bought yesterday 400 shares at 25.09, but two days before I bought 200 at $25.12 and 200 at $25.16 before this call thing came out. So in total, not as good as yours. Remember you always out do me by a few cents as you are not so trigger happy!
I really like that UBP-F, up to 600 shares now.
I have been trading so much in my HSA and Roth, I was about to seal up the quick CHS profits, I remembered, hey you got this in taxable, it needs to be kept.
And my flip cash got smaller.... Had to stuff AILNP into my Roth which is not cool since that is 7.5% QDI.... But I was out of taxable cash and unwilling to trigger more taxes by selling anything.
I really havent noticed much any losses in my issues and actually some gains. Probably because of some lucky flipping and owning considerably more in illiquids...
AILLL is holding strong I see. Somebody had a 500-600 bid at $26.50 and nobody is willing to sell to them yet...Interesting.
This would be the perfect time to be loaded to the absolute gills with AHT-A at $25.09 and see how many free nickels get tossed our way.

 

[Coolius]

My guess, FWIW, is that there will be a full AHT-A, and partial AHT-D call next week. Hope I am wrong.

They will realize about $150M from the new issue, enough to fully call AHT-A ( $50 Million ), and the balance should retire some of AHT-D ( $200 Million )

 

[Mulligan]

My guess, FWIW, is that there will be a full AHT-A, and partial AHT-D call next week. Hope I am wrong.

They will realize about $150M from the new issue, enough to fully call AHT-A ( $50 Million ), and the balance should retire some of AHT-D ( $200 Million )

So.... should we consider flipping out into the D's and let it play out? At SI, poster told me they do proportional calls. I assume he knows this better than I do...More meat on the bone going there?

 

[Coolius]

Assuming they utilize the entire proceeds of the new issue, they could call AHT-A in its entirety, and up to 1/2 of AHT-D.

So if you bought 200 shares AHT-D, you will be guaranteed keeping 100 shares or more, and continue to ride the gravy train, until the company can come up with enough money to retire the rest. That might be a while, so one can enjoy the high yield until then.

Buying AHT-D below $25.15 ( assuming free trade ), should assure you of a few cents/share using the same calculation as for AHT-A above, as their coupon rates are very close to each other.

Good point there - I will need to decide if I wish to add AHT-D. probably will not sell AHT-A as a call is all but certain, will wait and take the call proceeds.

 

[Mulligan]

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

This is not the type of company I like at all.... But oddly enough this situation is unique and provides a relative safe trade... You bring up a good option and I like it... I got 11k in my HSA in cash... Instead of flipping out of AHT-A, I will hold, and buy 400 of AHT-B and hold both... My Lord if this wasnt a near sure thing and they hadnt rolled over their debt recently, I would be sending myself to the Insane Asylum and making a family member take over my finances... This outfit would be my biggest holding by far outside of my Amerens that still dwarf it... But I like the trade.

 

[Mulligan]

Well that was easy money for me and Uncle Sam. About $265 for me and about $120 for Uncle Sam. I couldnt resist, I sold both CHSCL and CHSCO today. On to something else!

 

[Mulligan]

BTW- I chickened out and never bought AHT-D... Still thinking about one more bite of the AHT-A call apple though.

 

[Winemaker]

Finally, I pulled the plug on 80% of my PGX last week. It's been a great ride but after falling $0.25 during the past month, to me, the handwriting is on the wall. Acquired during the Great Recession below $11.00, it has been a great ride. I don't have anything to replace yet.

It's okay to be a bear, or a bull but never a pig. Pigs get slaughtered.

 

[Mulligan]

Finally, I pulled the plug on 80% of my PGX last week. It's been a great ride but after falling $0.25 during the past month, to me, the handwriting is on the wall. Acquired during the Great Recession below $11.00, it has been a great ride. I don't have anything to replace yet.

It's okay to be a bear, or a bull but never a pig. Pigs get slaughtered.

Come on Winemaker, quit hiding out in those sissy preferred funds...If you can make wine, you can definitely buy only individual preferreds on your own.

 

[Winemaker]

I had 6 figures in PGX, 6 figures in individual issues in roughly $5,000 increments. I feel confident in my individual issues, not so much in PGX, hence the sale.

I make wine to savor the flavors and I enjoy the effort to produce a wine that is better than what professionals can make, for less money.

I invest money to make positive returns and I enjoy the effort to produce returns that are better than what I may have to pay professionals.

I'm up 14.2% over the last 12 months. I'm enjoying a 2015 Barbera as we speak......

 

[Mulligan]

See, I was right! I knew a man confident in his wine making skills, could create a fine tasting portfolio too. . I assumed this wasnt the major piece of your preferreds as we have talked about your individual issues. I was just trying synch wine in with the conversation.
There is a possibility that maybe I should have bought your PGX shares today, as I went a bit nuts today.... Bought 400 more shares of AHT-A which gives me 1200.... Just waiting for the call and collect the easy money...Now that one wasn't the problem though, that was a layup trade. The problem one was buying 300 shares of BANC-C. Some internet blogger sent out a post that caused the common shares of BANC to crash hard and dropped preferreds too, trying to connect dots of a fraudster being connected to bank through associates. Leading of course to conclusion of fraud at the bank. Well I took the bait on their 8% preferred (the oldest one and nearest call) as it sagged hard and went under par which I grabbed....We shall see how this plays out... Probably should have gambled on the commons as that would be where the biggest pop would occur if this leads to nothing. This forum pulled the same act on Bank of Internet a few months back and caused its common the crash and their preferred to plummet. They have since recovered.