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

[Hamster]

I just bought 100 shares for $50.15. If it goes to $50.00 I may buy another 100 shares.

This thread has gone on so long with the same people still actively talking to each other that it feels a little like a club - one I don't belong to since I mainly just listen in.

That aside, I got 200 at 50.10 which seemed pretty good. That's enough for me even if it goes lower.

 

[Mulligan]

This thread has gone on so long with the same people still actively talking to each other that it feels a little like a club - one I don't belong to since I mainly just listen in.



That aside, I got 200 at 50.10 which seemed pretty good. That's enough for me even if it goes lower.

Thanks for jumping in, Hamster. Its the Hotel California here so you officially have joined the club and cannot leave! I wish we would get more newbees involved to the thread. What caused you to want to buy in on the issue? Own any others?


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[Hamster]

Thanks for jumping in, Hamster. Its the Hotel California here so you officially have joined the club and cannot leave! I wish we would get more newbees involved to the thread. What caused you to want to buy in on the issue? Own any others?


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Until recently I was 100% stocks, although that did include some REITS. Very few stocks appeal right now and I finally decided to at least get a modest position in fixed income. Bond funds were and are of no interest, so I looked at preferreds and a few ETNs. Being lazy, I have done very little original due diligence and have mostly borrowed ideas from this site and a few others.

Most of my original purchases were in the high risk category, which may not have been prudent, but has paid off well so far since all were bought below par and have gone up nicely along with average dividends of around 10%. My reason for buying AES-C is my lack of faith in the long term fate of these high yield issues and an attempt to resist my addiction to yield and move to lower paying but more reliable offerings.

Other things I have acquired include a decent position in BGEPF which I read about here and which has done well (thank you all). I also have a fair amount of PBB and VERPRF (along with the VER common) which I will probably keep. More marginal items, which I only buy a few hundred shares of, are DXPRA, RFTA, AGNCB, AMTGPRA, CLNYPRC, and CYSPRB. And maybe one or two others I forget right now.

Incidentally, none of these have anything to do with what I live on which is why I am probably not as careful as I could be.

 

[Sunset]

.......
Now here is the kicker with these trust preferreds.... IF they would ever suspend payment of "dividend" you would have to pay a yearly "phantom tax" as if you actually received the proceeds. When they paid the deferral later to you in an upcoming year, you would not have to pay taxes as it was already paid. If company later goes bankrupt and never pays you get to reclaim the taxes paid on the phantom income.
........

Since AES-C is not counted as[FONT=arial, helvetica, sans-serif] [/FONT][FONT=arial, helvetica, sans-serif]15% Tax Rate, I bought it in our IRA accounts.[/FONT]

 

[Mulligan]

Until recently I was 100% stocks, although that did include some REITS. Very few stocks appeal right now and I finally decided to at least get a modest position in fixed income. Bond funds were and are of no interest, so I looked at preferreds and a few ETNs. Being lazy, I have done very little original due diligence and have mostly borrowed ideas from this site and a few others.



Most of my original purchases were in the high risk category, which may not have been prudent, but has paid off well so far since all were bought below par and have gone up nicely along with average dividends of around 10%. My reason for buying AES-C is my lack of faith in the long term fate of these high yield issues and an attempt to resist my addiction to yield and move to lower paying but more reliable offerings.



Other things I have acquired include a decent position in BGEPF which I read about here and which has done well (thank you all). I also have a fair amount of PBB and VERPRF (along with the VER common) which I will probably keep. More marginal items, which I only buy a few hundred shares of, are DXPRA, RFTA, AGNCB, AMTGPRA, CLNYPRC, and CYSPRB. And maybe one or two others I forget right now.



Incidentally, none of these have anything to do with what I live on which is why I am probably not as careful as I could be.

Hamster, you an done an excellent job of riding the high yield wave this year, congrats! I danced in and out of VER-F, but my dad loaded up on that one a few years ago and has really enjoyed that one.
Like you, I dont spend my dividends so I probably should have been more aggressive, but just couldnt ever hit the buy button.


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[MooreBonds]

Picked up 35 more AES-C in a tax advantage account at 50.19. Was all the cash I had available at the moment. Total position now of 85 shares. Also had a GTC hanging out there on IPWLK at $101 and some change. Never expected it to fill...but was filled this morning at $101.0101. Guess the seller has an obsession with binary code?

 

[Coolius]

Picked up 35 more AES-C in a tax advantage account at 50.19. Was all the cash I had available at the moment. Total position now of 85 shares. Also had a GTC hanging out there on IPWLK at $101 and some change. Never expected it to fill...but was filled this morning at $101.0101. Guess the seller has an obsession with binary code?

You did great on IPWLK, Moorebonds. With the next ex-div September 14th, payment October 1, for $1.41. So your buy today is essentially loss-free in 14 days.

I do not think they will call this one within the next 14 days - even if they did, the usual 30 day notice guarantees you the div.

I have a small position in IPWLK, bought last year at around $100.80.

Congrats!!

 

[MooreBonds]

You did great on IPWLK, Moorebonds. With the next ex-div September 14th, payment October 1, for $1.41. So your buy today is essentially loss-free in 14 days.

I've been following the yield curve lower, as I hold my nose and bellyache to Mulligan. Figured I might as well start picking up a few low bedrocks for the portfolio just in case things get worse long-term, before I'm beating everyone else back to buy sub-5% yielders. Even when (?) rates normalize, a 5.5% +/- perpetual yield is much better than some of the bad positions I find myself in when trying to reach for a few more %.

 

[Mulligan]

AES-C selling starting to slow down maybe...Only double normal volume...Lowest in over a week. Price seems to be stabilizing.


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[Sunset]

You did great on IPWLK, Moorebonds. With the next ex-div September 14th, payment October 1, for $1.41. So your buy today is essentially loss-free in 14 days.

I do not think they will call this one within the next 14 days - even if they did, the usual 30 day notice guarantees you the div.

I have a small position in IPWLK, bought last year at around $100.80.

Congrats!!

So of course I look this up, and see something I had not seen (or noticed before).
A great big warning sign... Is this normal or scary ?

IPWLK Indianapolis Power & Light Co.: Summary, Stock Quote & Trades for Indianapolis Power & Light Co. - OTCMarkets.com

 

[Coolius]

So of course I look this up, and see something I had not seen (or noticed before).
A great big warning sign... Is this normal or scary ?

IPWLK Indianapolis Power & Light Co.: Summary, Stock Quote & Trades for Indianapolis Power & Light Co. - OTCMarkets.com

Interesting find, Sunsets. I suspect this is just the usual CYA boilerplate stuff and applies to those with Insider info, not us retail peons - but perhaps our very own in-house Guru Mulligan will comment on it.

 

[Mulligan]

So of course I look this up, and see something I had not seen (or noticed before).
A great big warning sign... Is this normal or scary ?

IPWLK Indianapolis Power & Light Co.: Summary, Stock Quote & Trades for Indianapolis Power & Light Co. - OTCMarkets.com

Good news, Sunset....Its ok.... Here is why it is this way... IPL used to be an independent company long ago. Like all local utilities... Then it was essentially turned into a one company holding company IPALCO... Then later AES bought IPALCO out who owned IPL. All it is saying is that IPL does not independently report its financials to SEC as an individual company anymore. Its finances are buried into IPALCO and ultimately AES...The company is not an independent reporting company anymore. Nothing dangerous....


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[Sunset]

Good news, Sunset....Its ok.... Here is why it is this way... IPL used to be an independent company long ago. Like all local utilities... Then it was essentially turned into a one company holding company IPALCO... Then later AES bought IPALCO out who owned IPL. All it is saying is that IPL does not independently report its financials to SEC as an individual company anymore. Its finances are buried into IPALCO and ultimately AES...The company is not an independent reporting company anymore. Nothing dangerous.... ...

Since AES owns IPL indirectly, then is there much difference in risk from buying AES vs AES + IPL ?
I ask as earlier you said you had 500 AES and after div and some price increase would sell them, which suggests to me you consider AES not as secure as some others. But wouldn't IPL fit into the same "not as secure" bucket as AES ?

 

[Mulligan]

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

But....If you like to not overweight yourself into any individual company, I wouldnt buy a slug of AES-C and IPWLK thinking they are total separate entities.... The legalise is over my head but...Even though IPWLK is just a preferred and AES-C is debt....IPWLK is actually safer... As IPWLK is a monopoly... In theory it could be possible for IPALCO and AES to go bankrupt and IPWLK continue to pay its preferred... IPALCO is a holding company with debt thats only revenue it receives is from IPL. IPALCO cant recieve any money from IPL until IPL pays its dividends to IPWLK preferred holders. As IPALCO owns the common stock of IPL.
Now if AES which owns IPALCO goes under, there could be some cascading of cross covenent debt defaults. IPALCO isnt totally ring fenced. Even regulators dont really know what ramifications are from what I have read... But bottom line IPWLK is safer than AES-C is though...Clear as mud?


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[Mulligan]

Since AES owns IPL indirectly, then is there much difference in risk from buying AES vs AES + IPL ?
I ask as earlier you said you had 500 AES and after div and some price increase would sell them, which suggests to me you consider AES not as secure as some others. But wouldn't IPL fit into the same "not as secure" bucket as AES ?

Funny you asked question, Sunset, because I posted the explanation before I knew you posted the question...If that wasnt clear, feel free to ask, and I will try to clarify a bit.


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[Mulligan]

Just some more info...AES is an unwieldy power producing company with a few regulated utilities it bought. Power producers love buying regulated utilities for their guaranteed income stream to finance their activities. AES produces power all over the world and has currency risk in addition to business risk as income as to be transferred back into US currency.
AES has a bunch of subsidiaries like IPALCO. Some of this debt is recourse debt and some is parent debt. In other words it may own the company that has the debt, but has managed to secure loans that doesnt have them responsible for it themselves.
However, they have a butt load of debt themselves unrelated to the subsidiary companies that have debt themselves. The only way AES can pay their debts is by their subsidiaries making a profit, paying their debts, and ultimately feeding cash to the parent (AES).
Usually we consider preferred stock to be weaker in standing in terms of safety to debt...But that is only in a one company scenario. As in this case, the preferred stock of a subsidiary is actually safer than the debt issue of the parent.


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[Mulligan]

Just finish out scenerio...Yes, its possible for IPL to go bankrupt and not AES... If IPL went bankrupt, IPALCO is toast...As IPL is IPALCO's only source of revenue. The reason why this is considerably less likely is IPL is a regulated monopoly while AES largely operates in unregulated power provider industry. Moody's and S&P acknowledge this as IPWLK preferred is rated safer than AES-C is.


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[Mulligan]

Moorebonds and I both dabbled in ALLY-A today. In this environment of not knowing interest rate momentum direction, it seems like a good trade value. It has a very generous kicker of 5.875% plus 3 month Libor tacked on. Libor is heading close to 1% recently, so near 6.5% now and would receive higher yield if Libor heads up. Been trading under $25.25, is past call, but has already declared next divi in Nov. of 42 cents.
Bank is slowly improving its health and is receiving a lot of new online deposits. This is big because they can use this cheap money to loan out instead of borrowing money to loan out. They recently bought TradeKing to expand into online brokerage services. Ally-A is a very huge and liquid issue... It is a trust issue and is actually debt, not a non cumulative preferred, so it has debt protections. However, it is not QDI since it is debt.


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[Sunset]

I picked up 1200 of ALLY-A and paid 25.23 as I recently have been bidding too low to save a few cents and not filling orders.

I really appreciate the efforts put forward in suggesting possible targets, as last night I spent a few hours looking up preferred. Some preferred that are listed are not existent anymore, for example a Bank in Georgia, looked a little promising until I saw the FDIC took it over back in 2008.

So there are dead ends in the maze of preferreds.

I also got to see, some nice high yielding ones up in the 10% range, but they are suspended, so obviously pretty dangerous in my opinion as they could be wiped out.

 

[Mulligan]

Just keep a modest eye on company, Sunset. I only own 200. If AES-C or PJS hits my target down the road, I will look to maybe get to 500 shares if price stays around here... "Negative convexity" of preferreds is a draw back to them in a general sense...But I actually am using this to my advantage with ALLY-A. If short term rates head up ( exposing higher yield cost for "A") ALLY may call it... But sense it was bought around par with next divi declared, no loss can occur....But if they call because of a rate hike, chances are the perpetual long issues will have dropped. Thus the money than can be used to purchase perpetuals at a better price point. As long as the company stays healthy, this is a good "hideout issue". Collect your 6.5% and have potential upside if Libor goes up.


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[Mulligan]

I actually thought I danced to the beat of my own drum when buying preferreds, but I guess I do not. Tuesday, while reading my latest Forbes copy, I read an article from Richard Lehman on income investing. He is an editor for an income investing newsletter and manages portfolios through Lehman Livian Fridson Advisors....Anyways when he invests for income for his clients portfolios he advocates buying perferreds. He also said he prefers to buy "slightly over par, past call issues". He states those issues pay higher yield do to their need to stay close to par due to call risk. He also says rarely do they get called anyways. This has basically been my style the past 3 years. This is where I got the idea to buy ALLY-A as it was on his list...Others he mentioned at the price the preferred was when he recently wrote this I will post beside it.... ALLY-A $25.26, AGO-F $25.72, GJH $10.10, JMPB $25.39, HPF ( this is a fund) $22.90.
I havent really dug into the other issues he recommended besides the Ally one.


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[OrcasIslandBound]

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

Wall Street article from August 13-14 (Saturday - Sunday) didn't paint preferred stocks in a very rosy light. "Preferred stocks tend to offer returns similar to those of bonds, at a level of risk that can approximate that of stocks."

"Over the 5 years ending July 31, the S&P returned an average of 7.8 % annually, beating the 3.5% of the overall bond market. But look back and the risks loom larger: Preferred stocks lost 12.2% in 2007 and another 25.8% in 2008 including 32% in the third quarter of 2008 alone..."


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[Mulligan]

Orcas, Thanks for sharing! Anyone new to preferred stock investing, IMHO, should always start with the understanding of preferreds with the sentence inside the quotations of your first paragraph. Not understanding that sentence may cause one to be on a yield chasing rainbow hunt...That may end bad....Preferreds have been around for hundreds of years, they were never a magical investment then or now. But chronically low yield has pushed many into them not knowing the risk.
If you bought CNLPL when issued in late 60s, you will have earned approximately its coupon 6.48% over the last 50 years. One has to determine needs, suitability, and goals if that was appropriate rate of return.
The 2007-09 reference was horribly unsophisticated if it didnt flesh out why this happened. Remember preferreds as a collective group by market value are 85% financials... What happened during 07-09? The financial system in US almost collapsed. That is why preferreds crashed so hard because there was serious worry the banks of issued preferreds may go under. With that fear who would want to own a preferred?
But, the writer was obviously not very sophisticated in his research. If he was he would have found out utility preferreds held up 50% better than the market did, common stocks included. I keep my portion of financial preferreds under 20%.
Still, you point posted is good and should always be reinforced on anyone considering these. I read some other forums on preferreds and people are throwing cash at things they have no understanding of. That usually never ends well in preferreds or commons.


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[Sunset]

I wish I could get bond funds paying 6.5 % that would not drop hugely when interest rates move up.

My intention is to keep preferred shares at a low % of overall investment, as a hedge for continued low interest and/or low inflation for a long time.

 

[RE2Boys]

Just found a source confirming that EGYKP is to be called.

From Utility Giant Entergy Corp. Sells High Quality Baby Bonds | The Yield Hunter

Entergy Arkansas Inc. has sold a $25/bond issue at a coupon that reflects the quality of the offering as well as the rock bottom coupon market we currently live in. With an offering of $410 million of 4.875% First Mortgage Bonds the company has sold the lowest yielding issue seen in many years. The company will use the proceeds to call in 2 outstanding issues with higher coupons. They will redeem the $25/share 6.45% preferred stock issue (NASDAQ:EGXKP) as well as the 5.75% $25/bond 1st Mortgage Bonds (NYSE:EAA).

Now to check on EyMXP