Preferred Stock Investing-The Good , The Bad and The In Between 2021

[Winemaker]

I'm just picking up higher rated issues at reduced prices at sale prices. A JPM issue yielding 6% at $19 and some change? The YTW is looking pretty good to me.

 

[aja8888]

I'm just picking up higher rated issues at reduced prices at sale prices. A JPM issue yielding 6% at $19 and some change? The YTW is looking pretty good to me.

Thanks. I'll have a look. which issue is it?

 

[Winemaker]

It was a Capital One COFPRK that was below $19, yielding 6.245%. But a JPMPRM, a 4.20% preferred, yielding 5.648% presently at $18.47, was $17.39 last week, yielding 6.6%.

 

[aja8888]

It was a Capital One COFPRK that was below $19, yielding 6.245%. But a JPMPRM, a 4.20% preferred, yielding 5.648% presently at $18.47, was $17.39 last week, yielding 6.6%.

Thanks!

 

[Mulligan]

Thanks!

I took the safety valve today. I bought 300 of the 4.2% Alabama Power at $104 and 55 at 102 before that this morning. It is being redeemed June 21 or so at $105 plus a nearly 3 month divi attached. That is about a safe as hideout as one can get, ha.
If you want to try to pick up nickels in front of a steam roller consider BKEPP at 8.60. It has been announced general partner Ergon is buying BKEP out and taking preferreds out at 8.75. Filings stated mid summer to be completed unless objections delay it. At plus 8% I dont care if it drags out as long as it gets eventually done. We shall see as I definitely have a skin in the game, ha.

 

[aja8888]

I took the safety valve today. I bought 300 of the 4.2% Alabama Power at $104 and 55 at 102 before that this morning. It is being redeemed June 21 or so at $105 plus a nearly 3 month divi attached. That is about a safe as hideout as one can get, ha.
If you want to try to pick up nickels in front of a steam roller consider BKEPP at 8.60. It has been announced general partner Ergon is buying BKEP out and taking preferreds out at 8.75. Filings stated mid summer to be completed unless objections delay it. At plus 8% I dont care if it drags out as long as it gets eventually done. We shall see as I definitely have a skin in the game, ha.

At my age, I don't have the time or the stomach to play with fire in front of the interest rate steam roller. LOL

I'm pretty much out of preferreds but I still hold a few hundred shares of EP/PRC and that's good for a few more years of trickle in divies. I'm waiting for the bond yields to go nuts when rates go up later this year. I'll then load up on some good corporate and municipal ones and hold them to maturity.

Also sliding into treasuries....13 week ones and rolling over, and will go longer when they too get better.

I turn 79 in a few months and last month went to my best friend and golf partner's funeral. Stroke took him out.

 

[Mulligan]

At my age, I don't have the time or the stomach to play with fire in front of the interest rate steam roller. LOL



I'm pretty much out of preferreds but I still hold a few hundred shares of EP/PRC and that's good for a few more years of trickle in divies. I'm waiting for the bond yields to go nuts when rates go up later this year. I'll then load up on some good corporate and municipal ones and hold them to maturity.



Also sliding into treasuries....13 week ones and rolling over, and will go longer when they too get better.



I turn 79 in a few months and last month went to my best friend and golf partner's funeral. Stroke took him out.

I have raised cash myself. And I got a now decent little slug hiding in IBonds too. Tough yield search environment that is certain.

 

[Sunset]

I took the safety valve today. I bought 300 of the 4.2% Alabama Power at $104 and 55 at 102 before that this morning. It is being redeemed June 21 or so at $105 plus a nearly 3 month divi attached. That is about a safe as hideout as one can get, ha.
If you want to try to pick up nickels in front of a steam roller consider BKEPP at 8.60. It has been announced general partner Ergon is buying BKEP out and taking preferreds out at 8.75. Filings stated mid summer to be completed unless objections delay it. At plus 8% I dont care if it drags out as long as it gets eventually done. We shall see as I definitely have a skin in the game, ha.

Would have been a lot nice to buy May 13th at $90

 

[aja8888]

Would have been a lot nice to buy May 13th at $90

If we could just go back in time....

 

[pb4uski]

...If you want to try to pick up nickels in front of a steam roller ...

... Tough yield search environment that is certain.

I've been writing deep OTM puts on high-quality stocks that I wouldn't mind owning for a couple months now and averaging about 5% yield... though I have two tickers that will likely get assigned to me on Friday (out of 35 written)... but even if I just sold them and took the loss I would still be yielding 4.43%.

Somewhat entertaining but a little nerve wracking in a declining market.

 

[Mulligan]

Would have been a lot nice to buy May 13th at $90

Ya, there was no chance, but it would have been sweet. They sent out the notice Friday afternoon and buy Monday before market open the prices were all adjusted for it.

 

[Freedom56]

It's still too early to buy investment grade preferred stocks. This isn't 2015 when coupons were much higher. In the past JP Morgan issued preferred stock with coupons in the range of 6.15-6.5% and during those wild sell-offs yields would pop up to 7.5-8%. Most of those higher coupon investment grade coupon preferred stocks have been called and the newly issued preferred stocks have paltry 4.25%-5% coupons. The coupons on recently issued long term investment grade bonds are even lower. Yield have improved to the 5.9%-6.5% but they are nowhere near the 8% range when it's time to put fear aside and back up the truck or near the 9% yield needed to furiously load up the truck. The PFF ETF still dominates the buying and selling of preferred and so far all we have seen is a drip, drip, drip selling of preferred ETFs leading to slow erosion of individual preferred stocks. Eventually, tax loss selling will lead to more aggressive selling of these preferred ETFs and we should start to see some bargains like we saw back in March 2020. All the preferred stocks that I bought in March 2020 were sold above par or called at par. Given the low coupons, the recovery up to par will take much longer than after March 2020 and any recovery will be to levels where they are currently trading unless the FED decides to lower rates again which isn't going to happen in the near term. The equity market is still grossly overvalued and like the 2000 bubble this one will take a few years to unwind with many counter-trend. We all know from history that when equity markets sell-off there is a scramble for liquidity fixed income funds are one source of liquidity. I have a lot more dry powder this time and will be ready when the time comes.

 

[tutan]

It's still too early to buy investment grade preferred stocks. This isn't 2015 when coupons were much higher. In the past JP Morgan issued preferred stock with coupons in the range of 6.15-6.5% and during those wild sell-offs yields would pop up to 7.5-8%. Most of those higher coupon investment grade coupon preferred stocks have been called and the newly issued preferred stocks have paltry 4.25%-5% coupons. The coupons on recently issued long term investment grade bonds are even lower. Yield have improved to the 5.9%-6.5% but they are nowhere near the 8% range when it's time to put fear aside and back up the truck or near the 9% yield needed to furiously load up the truck. The PFF ETF still dominates the buying and selling of preferred and so far all we have seen is a drip, drip, drip selling of preferred ETFs leading to slow erosion of individual preferred stocks. Eventually, tax loss selling will lead to more aggressive selling of these preferred ETFs and we should start to see some bargains like we saw back in March 2020. All the preferred stocks that I bought in March 2020 were sold above par or called at par. Given the low coupons, the recovery up to par will take much longer than after March 2020 and any recovery will be to levels where they are currently trading unless the FED decides to lower rates again which isn't going to happen in the near term. The equity market is still grossly overvalued and like the 2000 bubble this one will take a few years to unwind with many counter-trend. We all know from history that when equity markets sell-off there is a scramble for liquidity fixed income funds are one source of liquidity. I have a lot more dry powder this time and will be ready when the time comes.

Thank you! You mentioned this before, i.e. wait for preferred ETFs to drop to pick up individual preferreds. Good information!

 

[Mulligan]

Thank you! You mentioned this before, i.e. wait for preferred ETFs to drop to pick up individual preferreds. Good information!

Fund outflows have been going on all year, thus the pressure.

https://www.etf.com/etfanalytics/etf-fund-flows-tool

You have to surgically buy preferreds on price movements or just wait for the tide to turn. Its a tough market. I never buy from funds as they always underperform me considerably and I am no mensa. But, there are accidental higher yield IG preferreds now.
FRMEP had a liquid bout yesterday and that always causes a price drop. FRME acquired Level One this year which issued it and FRME changed its name. Its a 7.5% par callable in 2025. FRME is Baa1 credit and a perennial Top 15-20 bank. This is defacto slotted to Baa3. 7.5% is very high even now for IG credit. FRME will likely call in 2025 because they couldnt redeem it at acquisition because prospectus wouldnt allow it. FRME doesnt use preferreds in their cap structure so this little $25 million issuance is likely a goner in 2025. This is a good one to put on your watch list if it hits your strike price. I bought 600 at 25.06-10 yesterday and will hold or flip when liquidity dries back up.

 

[Mr._Graybeard]

Question from a longtime lurker to the assemblage: What are your thoughts on Duke Energy's preferred, DUK.PRA? It has been pretty volatile lately, and I added to my small position after the ex-dividend date recently (5.75% coupon) when the share price fell to $25.01. It seems like a nice widows-and-orphans candidate, but in this environment who knows what will happen.

 

[pb4uski]

While I'm a fan of quality preferreds for income in the long run, there is too much interest rate risk to attract me in the short run so I'm out for now and have been out since early February.

Also see Freedom56's post #662 above... good advice.

 

[Mulligan]

While I'm a fan of quality preferreds for income in the long run, there is too much interest rate risk to attract me in the short run so I'm out for now and have been out since early February.

Also ee Freedom56's post #662 above... good advice.

Im mostly in term dated, short rope call anchored, and adjustables. They have been doing just fine. Up as of today about 3%. Nothing spectacular, and has been hard work getting to this with just an all income portfolio. The perpetual preferreds have not been a good place and one to avoid.

 

[Freedom56]

We are slowly approaching the the March 2020 moment for investment grade preferred stocks and later on in the year Wall Street will start talking about deflation and recession. Those preferred funds are very predictable. Low coupon investment grade get slaughtered first followed by the higher coupon preferred of which very view exist today. Just a bit more patience and keep you dry powder ready. With the yield curve inversion, the recession trade is now in full swing.

 

[Mulligan]

We are slowly approaching the the March 2020 moment for investment grade preferred stocks and later on in the year Wall Street will start talking about deflation and recession. Those preferred funds are very predictable. Low coupon investment grade get slaughtered first followed by the higher coupon preferred of which very view exist today. Just a bit more patience and keep you dry powder ready. With the yield curve inversion, the recession trade is now in full swing.

My thought is more a December 2018 moment or 2013 Taper Tantrum moment, but 3/20 is a stretch to me. That was a huge one off a event that wouldnt seem base case to me. Unless you are thinking IG perpetuals are going to 12%. But base case going forward I agree directionally with you.

 

[Mulligan]

My thought is more a December 2018 moment or 2013 Taper Tantrum moment, but 3/20 is a stretch to me. That was a huge one off a event that wouldnt seem base case to me. Unless you are thinking IG perpetuals are going to 12%. But base case going forward I agree directionally with you.

Live floaters are doing good. For example I bought a lot of CUBI-E near $25 a few weeks ago. And its a strong bank with a bloated 5.14% plus Libor. Its catching all the upswing and in fact was up .91% today.
And of course having a chunk invested in WTREP that is 6.7% plus Libor minimum 1% floor. Especially this one because its deregistered and is untradeable. So I dont have to worry about the price dropping, lol.

 

[Freedom56]

My thought is more a December 2018 moment or 2013 Taper Tantrum moment, but 3/20 is a stretch to me. That was a huge one off a event that wouldnt seem base case to me. Unless you are thinking IG perpetuals are going to 12%. But base case going forward I agree directionally with you.

Hello Mulligan,

To me 2013, 2015, 2018, 2020 are all the same. All great opportunities buy fixed income. At the beginning of this year I stated that 2022 would be a lot like 2013 but I see a lot of ominous signals that the major preferred ETFs PFF and PGX are about to see some massive selling coupled with the reality that coupons are nowhere near where they were back in 2013 for investment grade preferred stock when 6.75% was the norm from banks like JP Morgan. We may see those 4.25% coupon preferred stocks from banks trade down to $10-11 in moments heavy fund liquidation. At that point it will be time to load up the truck and enjoy retirement with supersized returns.

 

[Mulligan]

Hello Mulligan,

To me 2013, 2015, 2018, 2020 are all the same. All great opportunities buy fixed income. At the beginning of this year I stated that 2022 would be a lot like 2013 but I see a lot of ominous signals that the major preferred ETFs PFF and PGX are about to see some massive selling coupled with the reality that coupons are nowhere near where they were back in 2013 for investment grade preferred stock when 6.75% was the norm from banks like JP Morgan. We may see those 4.25% coupon preferred stocks from banks trade down to $10-11 in moments heavy fund liquidation. At that point it will be time to load up the truck and enjoy retirement with supersized returns.

Hey Freedom. I think we are in agreement. I was thinking more in pure terms of in 3/20 how the preferreds for a day or two were totally roached and the yields generated, not the pricing. As a $12-$13 price for a low yield 4% ish IG today wouldnt equate to the yield they were getting in 2020 as low yield IG coupon yields were higher then. Considerably more than the other times. Some decent preferreds actually got to 20%-30% yields briefly. That period was more volatile. For example in one day, I bought a crashing SR-A at $16.30, sold it at $25, bought at $21 and sold at $23….All in one day!
Funds are danger to preferreds the way they dump on sell orders. I missed most of all the previous routs because I was in preferreds that are not in funds. So they just sideswiped all the problems. In 2020, I was 50/50, so I sold the illiquids that didnt have any price carnage and used proceeds to buy the roached out liquid issues the funds were dumping.

 

[Freedom56]

We may start to see the next leg down for preferred funds leading to some bargains in the investment grade preferred stocks starting this week. The crypto bubble is popping which is a good sign that some rationality is returning to markets. However, meme stocks still trade at absurd valuations which implies that equity markets have much further to fall.

 

[Mulligan]

We may start to see the next leg down for preferred funds leading to some bargains in the investment grade preferred stocks starting this week. The crypto bubble is popping which is a good sign that some rationality is returning to markets. However, meme stocks still trade at absurd valuations which implies that equity markets have much further to fall.

The liquid recent issued low yield preferreds havent even retraced their lows from a few weeks ago despite ever higher govt yields. So definitely I agree they need to drop more for a good entry point.

 

[aja8888]

The liquid recent issued low yield preferreds havent even retraced their lows from a few weeks ago despite ever higher govt yields. So definitely I agree they need to drop more for a good entry point.

Let me mention that I bought a T Bill at Schwab today (one year) yielding 2.954%. Safe money.