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

[Texas Proud]

In July 2021, tired of seeing what the money market in my HSA was paying, I did something that turned out to be incredibly stupid. Started dollar cost averaging into S&P Investment Grade Preferred ETF (EPRF)

My total return is -18% & it's also the largest individual holding in the account (14%)

After today, the preferred index is sitting very near the March 2020 5 year low.

The only decision I've made is not to invest any 'new' money.

If you were in a similar position, would you ?

A-Sell
B-Hold & continue to DRIP
C:Hold & take dividends in cash.

My gut says anything other than A. Why sell something that's at a 5 year low ?

I would think you were investing this for yield... and a good yield at the time... as far as I know you will still be getting the dividend you bought...


I would just hold on and either DRIP it back if I did not need any cash or take the cash if I was burning cash...

 

[ownyourfuture]

Thanks for the replies.
Since I don't need the cash, I'll let it ride & continue to reinvest the dividends.

 

[Mulligan]

Thanks for the replies.

Since I don't need the cash, I'll let it ride & continue to reinvest the dividends.

Since its very diversified in the amount of holdings time is on your side if you have no problem as a long term hold. As Tex said it could be a good reinvestment candidate to lower your cost basis over time.

 

[Montecfo]

Mulligan,

Where can I find more info on KTN and KTH?

thanks for all you do.

 

[Winemaker]

Quantumonline.com

 

[Mulligan]

Mulligan,



Where can I find more info on KTN and KTH?



thanks for all you do.

Hey Montecfo. Really all you need to know is these issues simply have subordinate debt held inside a trust wrapper. KTH is simply the PECO 2028 subordinated debt held inside it. It redeems at $27.10 simply because brokerage bought the bonds way back when under par and you receive the cap gain at maturity. This means however there is some “phantom tax on that portion of the issue. I dont own KTH now, but I do actually own the 2028 Bond.

https://finra-markets.morningstar.com/BondCenter/BondDetail.jsp?ticker=C71986&symbol=EXC.JA

KTN is the same with a 2027 AON subordinate bond held in it.

https://finra-markets.morningstar.com/BondCenter/BondDetail.jsp?ticker=C500135&symbol=AON3675835

It doesnt have any phantom tax and redeems at $25. I have seen the actual bond trade several times but minimum amount was 250 shares, that is over a quarter mil. Too rich for my blood.

 

[Montecfo]

thanks, very helpful.

 

[Mulligan]

thanks, very helpful.

Added thought… The only risk to these issues is the actual companies. The KTH and KTN are simply certificates that lay claim to the actual bonds held inside their trusts. US Bank I believe holds the bonds. They were synthetically created baby bonds when baby bonds didnt exist and brokerages had to create them for smaller investors.

 

[Texas Proud]

OK... looking for some recommendations for some variable yields...


I have money from a 401(k) transfer and want to get some pref shares while I wait for the market to correct (if it ever does)... the 4.5 or so in MM funds is pretty good but would like to get some more...


I did buy a bit of CUBI back when someone mentioned it but did not buy that much.. opps... just saw I bought more in my ROTH account but not the cheap price... at $25...


So, have these holding right now


ALL B
CPN
JPM K
GLP A
NSS
SPLP A

 

[Mulligan]

OK... looking for some recommendations for some variable yields...


I have money from a 401(k) transfer and want to get some pref shares while I wait for the market to correct (if it ever does)... the 4.5 or so in MM funds is pretty good but would like to get some more...


I did buy a bit of CUBI back when someone mentioned it but did not buy that much.. opps... just saw I bought more in my ROTH account but not the cheap price... at $25...


So, have these holding right now


ALL B
CPN
JPM K
GLP A
NSS
SPLP A

Here is one that doesnt float until 1/2025 but is kicking out some shares under $95. CKNQP. This is a bank preferred from CoBank one of the 50 safest banks in the world with preferred rated BBB+. United States only has 4 banks on the list and they are all Ag Bank related which means they are sisters to CoBank. They are not a bank that accepts deposits so they arent exposed to any of this current bank crisis.
Watch SPNT-B. I recently bought at $22 and its over $23 already. The common stock is bouncing around 52 week highs and they just got their credit rating reaffirmed. It has a very juicy reset when it starts floating down the road.

 

[Texas Proud]

Here is one that doesnt float until 1/2025 but is kicking out some shares under $95. CKNQP. This is a bank preferred from CoBank one of the 50 safest banks in the world with preferred rated BBB+. United States only has 4 banks on the list and they are all Ag Bank related which means they are sisters to CoBank. They are not a bank that accepts deposits so they arent exposed to any of this current bank crisis.
Watch SPNT-B. I recently bought at $22 and its over $23 already. The common stock is bouncing around 52 week highs and they just got their credit rating reaffirmed. It has a very juicy reset when it starts floating down the road.

Thanks, both look good... and SPNT at 8% is nice already...


Also I remember one is cumulative which is also good..

 

[Mulligan]

Thanks, both look good... and SPNT at 8% is nice already...


Also I remember one is cumulative which is also good..

Tex, this one is more along the lines of CoBank…AGRIP is trading right around par and floats next year.

AgriBank FCB, 6.875% Fixed/Float Series A Non-Cumulative Perp Preferred Stock
Ticker Symbol: AGRIP CUSIP: 00850L203 Exchange: OTOTC
Security Type: Traditional Preferred Stock
QUANTUMONLINE.COM SECURITY DESCRIPTION: AgriBank, 6.875% Series A Non-Cumulative Perpetual Preferred Stock, liquidation preference $100 per share, redeemable at the issuer's option on or after 1/1/2024 at $100 per share plus accrued and unpaid dividends, and with no stated maturity. In addition, the Series A preferred stock will be redeemable in whole, at AgriBank’s option, at any time upon the occurrence of certain defined regulatory events.
Fixed rate Non-Cumulative distributions of 6.875% per annum ($6.875 per annum or $1.71875 per quarter) will be paid quarterly on 1/1, 4/1, 7/1 & 10/1 through 12./31/2023 to holders of record on the record date of 12/1, 3/1, 6/1 & 9/1 respectively (NOTE: the ex-dividend date is one business day prior to the record date). Starting on 1/1/2024, variable rate distributions will be paid at a rate equal to the three-month LIBOR plus 4.225%, reset quarterly. The dividends are non-cumulative and if the board of directors does not declare a dividend or the company fails to pay a dividend declared by the board for any quarterly dividend period, the holder will not be entitled to receive any dividend for that quarterly period and the undeclared or unpaid dividend will not accumulate.

The eligibilty of this security for the preferential income tax rate of 15% to a maximum of 20% depending on the holder's tax bracket (and under IRS specified holding restrictions) and are also the eligibility for the dividends received deduction for corporate holders is unknown.

This security was rated as Baa1 by Moody’s and BBB+ by S&P at the date of its IPO. In regard to the payment of dividends and upon liquidation, the preferred shares rank junior to the company's senior debt, junior to any series of preferred stock AgriBank may issue in the future with priority rights and senior to the company's capital stock. See the IPO prospectus for further information on the preferred stock by clicking on the ‘Link to IPO Prospectus’ provided below.

Stock
ExchangeCpn Rate
Ann AmtLiqPref
CallPriceCall Date
Matur DateMoodys/S&P
DatedDistribution Dates15%
Tax Rate
OTOTCn
OTOTCps
FixFloat
$6.88

 

[Texas Proud]

Here is one that doesnt float until 1/2025 but is kicking out some shares under $95. CKNQP. This is a bank preferred from CoBank one of the 50 safest banks in the world with preferred rated BBB+. United States only has 4 banks on the list and they are all Ag Bank related which means they are sisters to CoBank. They are not a bank that accepts deposits so they arent exposed to any of this current bank crisis.
Watch SPNT-B. I recently bought at $22 and its over $23 already. The common stock is bouncing around 52 week highs and they just got their credit rating reaffirmed. It has a very juicy reset when it starts floating down the road.

SPNT down today.... picked up some on the way down... I will take an 8.44% yield...

 

[bobandsherry]

SPNT down today.... picked up some on the way down... I will take an 8.44% yield...

This may be the reason why.

https://www.reuters.com/markets/dea...nsurance-firm-siriuspoint-private-2023-04-12/

 

[Texas Proud]

SPNT down today.... picked up some on the way down... I will take an 8.44% yield...

Was looking at Schwab page... actual yield is 9.14%... better...


It could be the reason as some funds etc might not want preferred in a private company...

 

[Phroig]

Was looking at Schwab page... actual yield is 9.14%... better...


It could be the reason as some funds etc might not want preferred in a private company...

I wondered why great news for common was terrible news for preferred.

 

[bobandsherry]

I wondered why great news for common was terrible news for preferred.

Common will be taken out and with a premium. On the other hand preferred issue stuck in limbo with a company that could go dark for 3 years until call date. Could end up with no way to cash out unless at some severely depressed price (like the "expert market" issues are today.

 

[Mulligan]

Common will be taken out and with a premium. On the other hand preferred issue stuck in limbo with a company that could go dark for 3 years until call date. Could end up with no way to cash out unless at some severely depressed price (like the "expert market" issues are today.

Yes the expert market thing is really becoming a problem. Up until last year they just went to the pink sheets and traded just fine there. The SPNT-B preferred said they must make reasonable effort to keep the preferred listed on NYSE, but that doesnt mean they wont worm out of it being the company would be private and not on the exchange.
There has been a lot of this activity going on lately and expert market has just doubled the risk. Prefereds have always been annoying enemies to the common stock holders. Now via expert market there is a way to exploit this and make the preferred shareholders get ran over to the benefit of the common shareholder. As most preferreds dont have automatic redemptions on a buyout.

 

[Phroig]

Interesting, thanks.

 

[Sunset]

Yes the expert market thing is really becoming a problem. Up until last year they just went to the pink sheets and traded just fine there. The SPNT-B preferred said they must make reasonable effort to keep the preferred listed on NYSE, but that doesnt mean they wont worm out of it being the company would be private and not on the exchange.
There has been a lot of this activity going on lately and expert market has just doubled the risk. Prefereds have always been annoying enemies to the common stock holders. Now via expert market there is a way to exploit this and make the preferred shareholders get ran over to the benefit of the common shareholder. As most preferreds dont have automatic redemptions on a buyout.

Could they go as far as to suspend paying the dividend in perpetuity ? Since a private company won't have the same shareholder pressure, in fact their few shareholders/owners would like it.

 

[Mulligan]

Could they go as far as to suspend paying the dividend in perpetuity ? Since a private company won't have the same shareholder pressure, in fact their few shareholders/owners would like it.

Its possible…But…Most arent aware of this though but there are more private placed preferreds out in the investment world than public traded ones. We need the liquidity though and institutions dont and can also shuffle deals around in the dark pool that we cant.
Its even possible IF the company did go private the issue still traded publicly. I just dont want to deal with the hassle of babysitting and seeing what happens…If anything…

 

[perrytime]

NLY-F

cumulative, floating rate currently 9.8%, $24.77.

risks?
might get called, I break even, Div is suspended, will eventually get it.
Price may drop, eventually yield will drop when Libor rates fall.

Seems pretty safe to me,

 

[aja8888]

cumulative, floating rate currently 9.8%, $24.77.

risks?
might get called, I break even, Div is suspended, will eventually get it.
Price may drop, eventually yield will drop when Libor rates fall.

Seems pretty safe to me,

Just throwing this out.....

Seems pretty risky to me. Who says they have to pay you suspended dividends even if it's cumulative? Better read the offering documents!

 

[Mulligan]

Just throwing this out.....



Seems pretty risky to me. Who says they have to pay you suspended dividends even if it's cumulative? Better read the offering documents!

Which one are we discussing?

 

[aja8888]

Which one are we discussing?

Post above mine - NLY-F