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

[aja8888]

Schwab is holding my EBBNF in my IRA is has been withholding 15% of the div's as foreign tax. UGH!!

 

[RE2Boys]

Let me know if you find anything negative on the issue. No idea why it's such a sleeper other than it's OTC in US. That's fine, I'll sit with a 7%+ return for next 4.5 years.

I'm somewhat intrigued by this issue (EBGEF). Has anyone had any trouble selling this issue through a US brokerage account?

 

[Mulligan]

Ideas? EBGEF Enbridge is currently yielding about 7.5%. Got my dividend a couple of days ago. Reliable Canadian oil & gas conglomerate. Not sure why it is trading so low. I have 1000 shares. Deal or fools errand? Maybe it has something to do with the Michigan pipeline they have been blocked from building?

Free, these bounce around on current expectations of 5 yr TBill. Although pegged to US Tbill its a Canadian registered stock. Canadians have been burned bad on reset preferreds that reset poorly last cycle. Its a counter play to higher yields down the road. The good thing is these are so under par the adjustment off par is considerably higher than indicative yield. They have bounced off their recent lows as 5 yr has stabilized and crept up a bit.
If you look at ALL Canadian resets (and there are many) they all tend to move in sync. I own sister EBBNF...Also own a decent chunk of fixed minimum floor reset TGAPF from Altagas.
I also own some Canadian Utilities fixed perpetual. Its yield is better than US utes and very high quality, along with being under par.
Most US investors have not experience quality issues with lower reset adjustments and they are coming in the market. They will get quite the surprise come reset time if 5 yr is lower.

 

[bobandsherry]

Most US investors have not experience quality issues with lower reset adjustments and they are coming in the market. They will get quite the surprise come reset time if 5 yr is lower.

Hey Mulligan - happy Sunday! You still hold this?

I think investors will still be happy as it will still be 2.82% higher than whatever the 5 year Treasury is then. Gotta think we'll have a lot more to be concerned about if the 5 year continues to drop other than the reset rate on this or related issues.

 

[Mulligan]

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

Hey Mulligan - happy Sunday! You still hold this?



I think investors will still be happy as it will still be 2.82% higher than whatever the 5 year Treasury is then. Gotta think we'll have a lot more to be concerned about if the 5 year continues to drop other than the reset rate on this or related issues.

Hey Bob, I got EBBNF which has the 3.15% adjustment. Pick your poison EBGEF has lower adjustment but longer reset protection (2024 vs 2022). But they all rise up and down in sympathy of current yield movements. And of course opposite in nature to fixed perpetuals. If you look at their true Canadian tickers (these are not US registered securities) you can see how very volatile these issues are.
Im not enamored with Altagas credit quality but they are following rating agencies demands to delever to maintain IG rating...But I sure love the Series I (AGAPF) prospectus. It is a fixed floor 5.25% off par, but also has a 4.15% adjustment. And being I bought around $16.20 USD I have it almost 20% below par. So for me my “fixed floor” is over 6%. Even if 5 year goes negative my cost yield cannot go below 6%. In theory the naked resets like EBGEF or EBBNF could go to zero because a negative Tbill yield would be subtracted from adjustment. I sure hope that isnt a concern down the road, lol.

 

[bobandsherry]

So for me my “fixed floor” is over 6%. Even if 5 year goes negative my cost yield cannot go below 6%.

Does Altagas trade in US or CAN denomination? If CAN then you have currency risk that could drop your return below that "fixed floor", right? Any link to prospectus?

 

[Free To Canoe]

Does Altagas trade in US or CAN denomination? If CAN then you have currency risk that could drop your return below that "fixed floor", right? Any link to prospectus?

See attached prospectus.

 

[bobandsherry]

See attached prospectus.

Thanks, so it is paid in Canadian dollar, so have to consider exchange rate now and going forward. Looks like this is then trading on ETrade under OTC TGAPF, paying basically $1US dividend.

Thanks Mulligan for sharing the info, time for some due diligence.

 

[RicDee]

The sock drawer illiquid Ute Preferreds are going crazy, simply too high for me to resist selling, much as I like them.
So, this morning, sold some CNTHP and CNLPL for $59.44 and $59.50 respectively.
I'm now down to very reasonable amounts of both issues , maybe will buy back some if prices go back to sanity levels, like $55.

Coolius
Thanks to you I bought CNLPL a while ago at $53.27 and sold it last week at $60.50. Let me know if you buy a replacement.
Ric

 

[pb4uski]

Hey Bob, I got EBBNF which has the 3.15% adjustment. Pick your poison EBGEF has lower adjustment but longer reset protection (2024 vs 2022). But they all rise up and down in sympathy of current yield movements. And of course opposite in nature to fixed perpetuals. If you look at their true Canadian tickers (these are not US registered securities) you can see how very volatile these issues are.
Im not enamored with Altagas credit quality but they are following rating agencies demands to delever to maintain IG rating...But I sure love the Series I (AGAPF) prospectus. It is a fixed floor 5.25% off par, but also has a 4.15% adjustment. And being I bought around $16.20 USD I have it almost 20% below par. So for me my “fixed floor” is over 6%. Even if 5 year goes negative my cost yield cannot go below 6%. In theory the naked resets like EBGEF or EBBNF could go to zero because a negative Tbill yield would be subtracted from adjustment. I sure hope that isnt a concern down the road, lol.

Just picked up some EBBNF (actually ENB.PF.U) for a yield of about 7.1%+.... had to call Fidelity though... could not buy online.... also steep commission.... I'm used to paying $4.95. Still happy with yield and that it is in USD.

AGAPF sounds real attractive other than fx risk.

 

[pb4uski]

I did my first preferred sale today. Last week I mistakenly bought a ticker that I already owned.

Since my dry powder for buys was getting low I sold it today for a total gain after commissions in and out of $10. Good enough. Its in a tax deferred account so no tax implications but Fidelity is probably happy about my mistake.

 

[Freedom56]

I received a notice that Seagate technology has a tender offer for the following notes:

4.250% Senior
Notes due 2022

4.750% Senior
Notes due 2023

4.750% Senior
Notes due 2025

They are "make whole call" notes.

The consideration paid for Notes that are validly tendered and accepted for purchase will be determined in the manner described in the Offer to Purchase by reference to a fixed spread plus the yield to maturity of the applicable U.S. Treasury Security specified in the table above and in the Offer to Purchase. Holders of Notes that are validly tendered at or prior to 5:00 p.m., New York City time, on September 16, 2019 (the “Early Tender Deadline”) and accepted for purchase will receive the applicable “Total Consideration”, which includes an early tender premium of $30.00 per $1,000 principal amount of the Notes accepted for purchase pursuant to the Offers (the “Early Tender Premium”). Holders who validly tender their Notes after the Early Tender Deadline and on or prior to the Expiration Date will only receive the applicable “Tender Offer Consideration” per $1,000 principal amount of any such Notes that are accepted for purchase, which is equal to the applicable Total Consideration minus the Early Tender Premium.

I own all three and bought them well below par (94.13, 92.33, 84.40) a few years ago. At the time of my purchase, I saw a report from Edward Jones stating that investors stay away from Seagate Technology notes. They are all trading above par and the company is doing well as storage demand continues to grow.

I accepted the offer to raise money for my dry powder fund.

 

[bobandsherry]

Just picked up some EBBNF (actually ENB.PF.U) for a yield of about 7.1%+.... had to call Fidelity though... could not buy online.... also steep commission.... I'm used to paying $4.95. Still happy with yield and that it is in USD.

AGAPF sounds real attractive other than fx risk.

Yeah, I have trading account at Fidelity too, not sure why but they don't let some of these OTC trades go through online. So I buy them with my "fun" money account I have at ETrade, can place online order without any issue.

Why'd you go with EBBNF vs. EBGEF?

 

[Mulligan]

As AJ mentioned, your going to have to be aware of 15% withholding inside IRA....There are not supposed to but some do. And then they blame someone else and it may never get resolved. One is going to have to be aware of this and sellout if it cant be resolved. Its random brokerage to brokerage. I got mine figured out I think, lol. But my preference is holding in taxable and most of the monies from CAD are in taxable.
As far as EBBNF and EBGEF goes...Pick your poison. EBBNF has the higher kicker of 3.15%. While EBGEF has the longer duration protection from reset (2022 versus 2024). My preference is EBBNF but in reality a 50/50 spread is a more reasonable decision to spread out reset risk. But they all are going to move as if they reset each day...Crazy I know, but that is how they all largely trade.

 

[Mulligan]

Just picked up some EBBNF (actually ENB.PF.U) for a yield of about 7.1%+.... had to call Fidelity though... could not buy online.... also steep commission.... I'm used to paying $4.95. Still happy with yield and that it is in USD.



AGAPF sounds real attractive other than fx risk.

PB, yes there is currency risk, but I think of it as another way to diversify a bit, lol... Last 40 years it appears for the most time, CAD bounces between 72-78 cent range. But it has spiked and dropped more in periods that is for sure.

 

[bobandsherry]

PB, yes there is currency risk, but I think of it as another way to diversify a bit, lol... Last 40 years it appears for the most time, CAD bounces between 72-78 cent range. But it has spiked and dropped more in periods that is for sure.

Heh - yep, but what has CAD bounced between when 5 year treasury is negative? Ah ha! That's all new soil being tilled and who knows what the range may be. Could be lower, but I guess could be higher too. USD->CAD now 1.32, but has been .94 (back in 07-08) and floated around .97/.98 for a while 2011-2012. But then again it's been 1.58-1.60 back in 01/02. So there is quite a "range" that may need to be considered.

Interesting to even consider negative rates. And people thought 12%+ was concern back around 1980.

 

[Mulligan]

Bob, I am going to give you more to chew on...reach for the Tums already, lol... You buy EBGEF and come reset time the 5 year is negative 3%. Enbridge gonna come looking for you and throw you in debtors prison if you dont cut them their dividend check you owe them! [emoji44]

 

[bobandsherry]

Hey Mulli - anything is possible I suppose. But negative 3% on 5 year money seems like that would be unrealistic, and then still 4.5 year window. And even if it is, that's only 18 basis points out of my pocket, that's still 2.82 percentage points better return than those with the 5 year bonds. Who knows what the trade price would be. Would someone then pay a premium for the security? So many uncharted variables. Maybe we go the other way like the 70's-80's and see 10%+ rates, egads!

Like I said earlier, if we see significant negative rates there's a lot more problems to be concerned about. Just think what will happen with all those fixed rate preferred's. Don't you think those have high risk of being redeemed as companies would be able to re-issue at much lower rates? Where would you park your pile of cash from those redemptions? No matter where, if you envision a negative 5 year then gonna be reaching into your pocket to park that money in some safe harbor.

And just think, last year we were concerned with what would happen in a rising rate environment

 

[pb4uski]

Yeah, I have trading account at Fidelity too, not sure why but they don't let some of these OTC trades go through online. So I buy them with my "fun" money account I have at ETrade, can place online order without any issue.

Why'd you go with EBBNF vs. EBGEF?

I preferred the 3.15% spread over the treasury vs 2.82%... I'm in it for the long haul.

 

[pb4uski]

As AJ mentioned, your going to have to be aware of 15% withholding inside IRA....There are not supposed to but some do. And then they blame someone else and it may never get resolved. One is going to have to be aware of this and sellout if it cant be resolved. Its random brokerage to brokerage. I got mine figured out I think, lol. But my preference is holding in taxable and most of the monies from CAD are in taxable.
As far as EBBNF and EBGEF goes...Pick your poison. EBBNF has the higher kicker of 3.15%. While EBGEF has the longer duration protection from reset (2022 versus 2024). My preference is EBBNF but in reality a 50/50 spread is a more reasonable decision to spread out reset risk. But they all are going to move as if they reset each day...Crazy I know, but that is how they all largely trade.

For some reason I can't figure, the first guy that I talked to at Fido steered me to another guy on their international desk, who steered me to buy the issue on the Toronto exchange...ENB.PF.U... rather than EBBNF which I had on screen when I called. In think in part because the issues is more thinly traded on the OTC than on the TSX. I'm not sure if I got steered wrong or not but the commission was a lot higher... $90 vs $4.95 that I normally pay but it only reduces the yield by about 5 bps.

He did confirm that since I hold this in a tax-deferred account that the 15% withholding tax would not apply.

 

[Mulligan]

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

Hey Mulli - anything is possible I suppose. But negative 3% on 5 year money seems like that would be unrealistic, and then still 4.5 year window. And even if it is, that's only 18 basis points out of my pocket, that's still 2.82 percentage points better return than those with the 5 year bonds. Who knows what the trade price would be. Would someone then pay a premium for the security? So many uncharted variables. Maybe we go the other way like the 70's-80's and see 10%+ rates, egads!

Like I said earlier, if we see significant negative rates there's a lot more problems to be concerned about. Just think what will happen with all those fixed rate preferred's. Don't you think those have high risk of being redeemed as companies would be able to re-issue at much lower rates? Where would you park your pile of cash from those redemptions? No matter where, if you envision a negative 5 year then gonna be reaching into your pocket to park that money in some safe harbor.

And just think, last year we were concerned with what would happen in a rising rate environment

Bob, Im not too worried negative rates...But there is away around the call redemption...Perpetual non callables, or busted convertibles. In theory they would just continue to rise. I got a couple of them like SLMNP and PPWLO. Also you can have issues like IPWLO that I snagged earlier in the year. 5% investment grade yield but at $83 in price and $103 redemption price....If they call that I wont shed tears with a 20% plus cap gain. I own a few like those also as diversity. I actually have about $25k each in IPWLO and SLMNP which is a defacto BBB- QDI preferred since senior unsecured from obligator LYB is BBB+.I also own more of these low yielding way below par issues so I could get some cap gains if redeemed.
EBBNF at 0% 5 yr is still a respectable 4.5% yield at my purchase price. Obviously an issue like TGAPF would yield better due to its 5.25% fixed floor. But it would be more apt to be redeemed if company was doing well.

 

[Mulligan]

For some reason I can't figure, the first guy that I talked to at Fido steered me to another guy on their international desk, who steered me to buy the issue on the Toronto exchange...ENB.PF.U... rather than EBBNF which I had on screen when I called. In think in part because the issues is more thinly traded on the OTC than on the TSX. I'm not sure if I got steered wrong or not but the commission was a lot higher... $90 vs $4.95 that I normally pay but it only reduces the yield by about 5 bps.

He did confirm that since I hold this in a tax-deferred account that the 15% withholding tax would not apply.

PB, they wrung you through the wringer...EBBNF and EBGEF are not illiquid at all. The shares “flow through” to TSX exchange. I have never had a problem buying them or selling them. Have done it often. The key is just throw a nickel bone above ask price, and they scalp them off TSX and sell to you. I just pay normal transaction price of $6.95. It was free until my time just recently ran out on free trades. But this was TD and each brokerage can be different. Vanguard eventually banned them, but I am allowed to hold what I got. Ally has never allowed 5 ticker symbols ending in F to be traded..The ending “F” indicates “Foreign” issue as these stocks are not US registered securities.

 

[Freedom56]

You guys playing with Canadian preferred stocks should read (if your aren't already):

PrefBlog

It's updated every day. I follow Canadian Banks and their bonds and preferred stocks. Personally I would avoid rate reset preferred stocks. The burned a lot of retirees in Canada a few years ago. To make matters worse, when their coupon rest lower not only did the preferred stocks get chopped in half (or more), some companies started making tender offers 30- 40% below par.

 

[Mulligan]

You guys playing with Canadian preferred stocks should read (if your aren't already):

PrefBlog

It's updated every day. I follow Canadian Banks and their bonds and preferred stocks. Personally I would avoid rate reset preferred stocks. The burned a lot of retirees in Canada a few years ago. To make matters worse, when their coupon rest lower not only did the preferred stocks get chopped in half (or more), some companies started making tender offers 30- 40% below par.

Freedom the naked ones are VERY volatile. And tank when yields sag. But they can only go down so far unless one is thinking negative rates are coming. Jan. 2016 is your base point...That is when CAD 5 yr hit 0.50%..Ebbnf for example touched $15 then. See once you get to a certain level, the adjustment sans the 5 yr yield would be higher by itself than a fixed perpetual would be at this point. So that would anchor them...For example it is $17.35 today. The reset is set off par not purchase price, thus the indicative yield would be higher. But I agree in that I am not overexposing myself here.
Actually though the minimum fixed floor resets have held up better than the naked resets. (This is the growing CAD trend now to mitigate your valid concern).
I will admit I bought a small amount of TCANF a few weeks ago when it traded around $10.40 CAD. If 5 yr ever went to 3% its yield would be 11.15% for an investment grade preferred. I will just hold these forever and let it play out at that low purchase price...Just think if we ever got an early 80s type 10% 5 yr it would pay 27% QDI...No, I am not holding my breath for that, ha.

 

[Freedom56]

Just think if we ever got an early 80s type 10% 5 yr it would pay 27% QDI...No, I am not holding my breath for that, ha.

Remember I was one of the few people predicting that rates would invert and the 10 year would break through the 2016 low and the 30 year would break 2%. People like Jamie Dimon told investors to prepare themselves for a 10 year yield of 4.75% by then end of 2019. I still believe rates are going to go lower which will put a lot of strain on banks, especially the regional banks. Look what's going on with European banks. They are breaching their 2008 lows and the one's that haven't are about to.

Recall back about 3 years ago that I posted on this thread that something is going on this this retail sector and things are not as healthy as Wall Street believes. Shops were empty but retail stocks were rallying. That sector 3 years later has caused so much pain and is about to cause even more of a bruising.

The bottom line is that there is too much consumer debt out there for rates to move higher. People on this board are by nature more financially responsible and assume subconsciously that the rest of the world is like them. But the vast majority are clueless when it comes to personal finances and are under severe financial stress due to excessive debt. You have to ask yourself who is going to fuel consumption going forward, the savers or the people drowning in debt.