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

[Freedom56]

A rated bonds make preferreds look like they are fairly priced...Connecticut Light and Power recently reopened a 2014 4.3% bond with 2044 maturity at a price of $109! That is sub 4% for 27 years.....

This is going to force me and others to day trade equities with available cash. BTW there was an article on Seeking Alpha regarding AGO-E. The spike was a result of a re-balancing of PFF. So PFF rules the preferred share world - or at least can impact short term pricing of securities.

 

[Coolius]

Do you guys think CHSCM is too expensive right now? It's around $27.3. I calculate YTC at about 5.1%.

I own CHSCM, as well as CHSCO and CHSCL.

The commodity sector has been in the doldrums for a couple of years now, and CHS has been affected like everyone else in that sector.

Hopefully, things will improve going forward, but I have been satisfied with the stock price performance through this difficult period - they have been less volatile than their peers.

The failure of their fertilizer plant project and its abandonment ( they went for a JV instead ), is behind them ( as is the exec who championed the deal ), so we can hope for clear skies ahead if prices for commodities and fertilizer rise.

As you know, CHSCM is a Fixed-to-Floating issue, so that could imply a fluctuating yield in future.

But, overall, I feel the CHS preferred Issues are safe and should provide a reliable income stream.

FWIW

 

[Mulligan]

I watch the CHS issues, and if price was right would get back in them, but no hurry as I really have nothing to sell to buy them...I would caution CHSCM as a total 100% bogus adjustable preferred... Remember its capped at 8% off par...Buying today, the best yield you could ever get from it at that point is 7.31% at todays price, never higher when it became adjustable. And the call risk loss would still be there also at that time.

 

[brokrken]

Thanks Coolius and Mully for your thoughts. Good stuff.


Mully, even if it gets called in 7 years, 5.1% YTC isn't a bad consolation prize, right?

 

[Mulligan]

Thanks Coolius and Mully for your thoughts. Good stuff.


Mully, even if it gets called in 7 years, 5.1% YTC isn't a bad consolation prize, right?

Actually Brokrken, I wouldnt mind a few 5.1% , 7 year term issued QDI issues in my fold. This may be wishful thinking, but several of those CHS issues are market liquid. So if a market selloff occurs they will swoon too. I remember this happening a few times and would like a chance again... Who knows when though...

 

[Coolius]

I watch the CHS issues, and if price was right would get back in them, but no hurry as I really have nothing to sell to buy them...I would caution CHSCM as a total 100% bogus adjustable preferred... Remember its capped at 8% off par...Buying today, the best yield you could ever get from it at that point is 7.31% at todays price, never higher when it became adjustable. And the call risk loss would still be there also at that time.

Very true about the "bogus " adjustable yield - cap is set at 8%, so if US Treasuries shoot up significantly, one could be stuck at a 8% capped yield.

However, my goal for CHSCM is to sell it well before the adjustable rate kicks in, that's several years away, so I don't spend time pondering that. Might not even be around at that time, and my heirs make the decision for themselves then.

 

[jimnjana]

Finally got back into AILLL today at 26.50. Have all of the SPLP-T I can handle as well.

 

[aja8888]

CHSCM is sellable when it hits $29. Then buy it back when it pulls back to near $25.

 

[Freedom56]

Unbelievable! JPM-D (perpetual)is being called. This was a $1.3B issue with a 5.5% coupon. This is going to cause other financial preferred stocks to be pulled higher as funds re-balance. The banks must know something about where interest rates are heading (flat to lower) otherwise this call makes not sense. I own 4500 of JPM-H (purchased at $24.60) and have call protection to 9/2020.

 

[Mulligan]

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

Unbelievable! JPM-D (perpetual)is being called. This was a $1.3B issue with a 5.5% coupon. This is going to cause other financial preferred stocks to be pulled higher as funds re-balance. The banks must know something about where interest rates are heading (flat to lower) otherwise this call makes not sense. I own 4500 of JPM-H (purchased at $24.60) and have call protection to 9/2020.

These are only issued for reasons of capital reserve ratio regulations. Its possible they don’t need as much capital in reserve
and not making a value judgement on rates. My theory of buying old higher yielding tiny float preferreds has definitely paid off over the years. I have only had one call on me this year and that was TCF-B that I knew would likely be called but there was some meat on the bone to pick off.

 

[Mulligan]

Had a nice little divi dump last couple days so I used that and some excess checking account cash building up to buy 300 more shares of LANDP at $25.93 today. My focus has been on term dated issues lately.

 

[Coolius]

Had a nice little divi dump last couple days so I used that and some excess checking account cash building up to buy 300 more shares of LANDP at $25.93 today. My focus has been on term dated issues lately.

I also bought more LANDP yesterday, at $25.90.

 

[Mulligan]

I also bought more LANDP yesterday, at $25.90.

This is a safe play... I had been buying around $25.9 getting a divi and sell on spikes into $26.20s. Just built my share count up back to full amount... I might just hold as it does get harder to buy as the months have gone on... And 2021 isnt far away so a very respectable plus 5% YTM holding.

 

[Winemaker]

Unbelievable! JPM-D (perpetual)is being called. This was a $1.3B issue with a 5.5% coupon. This is going to cause other financial preferred stocks to be pulled higher as funds re-balance. The banks must know something about where interest rates are heading (flat to lower) otherwise this call makes not sense. I own 4500 of JPM-H (purchased at $24.60) and have call protection to 9/2020.

The target on my back is getting bigger, this is the 3rd issue at 5.50% that got called. the only consolation I have is I paid $22.80 each.

I'm gonna have to start playing the flippin' game!

 

[Mulligan]

The target on my back is getting bigger, this is the 3rd issue at 5.50% that got called. the only consolation I have is I paid $22.80 each.



I'm gonna have to start playing the flippin' game!

I know you like par Winey... Might not quite be a buy yet, but you may watch this one as it is about as safe of preferred as there is....TY-... It went to $50 today ( 5% yield) at par...TY-... Its an old low level juice for their closed end fund of stocks. Basic good ones. Been around since 1962 and call price is $55 (wont ever be called I suspect). We had a discussion on this in another thread and the stock market would have to drop something like 75-80% to endanger payment of the preferred. I have looked at its 20 year price history and it stays pretty strong. It only dropped very briefly below $40 even in depths of the 08-09 financial crisis..

 

[Freedom56]

These are only issued for reasons of capital reserve ratio regulations. Its possible they don’t need as much capital in reserve
and not making a value judgement on rates. My theory of buying old higher yielding tiny float preferreds has definitely paid off over the years. I have only had one call on me this year and that was TCF-B that I knew would likely be called but there was some meat on the bone to pick off.

I tend to stick with investment grade or upper end high yield notes and preferreds that are fairly liquid. My average position size is about 4800 shares for preferred and exchange traded notes and about $100K for bonds and notes.

On another note, DFS-B got called. The supply is running out.

 

[Mulligan]

3 of my issues dont even have a float of 4800 shares outstanding, lol.

 

[Coolius]

On another note, DFS-B got called. The supply is running out.

Do you have a link to this announcement? Thanks.

Edit: I found it under DFS investor relations press release. Redemption date is Dec 1.
No accrued interest as that day is also a dividend payment day, so regular dividend of $0.40 is also paid.

 

[Coolius]

Small swap today.

Sold CNTHP @ $55.25, bought CNLPL @ $54.40.

Lack of volume forced me to trade only 100 shares each way. They don't call them illiquids for nothing.

I'm beginning to root for a rate hike to bring down Preferred prices, there's slim pickings out there.

And DFS-B was called.....

 

[Freedom56]

Small swap today.

Sold CNTHP @ $55.25, bought CNLPL @ $54.40.

Lack of volume forced me to trade only 100 shares each way. They don't call them illiquids for nothing.

I'm beginning to root for a rate hike to bring down Preferred prices, there's slim pickings out there.

And DFS-B was called.....

A rate hike has been priced in for December. The spreads between the 30 year 10 year and 2 years are narrowing. If we get to an inverted yield, perpetual preferred and long date notes are going to spike up. I picked up some CTX and CTU below par to replace CTQ that got called last year and whats left of my CTW that has gone through 2 partial calls. Both CTX and CTU are passed their call date by a few months so they will stay close to par.
If banks across the board are calling low coupon preferred stocks, and a company like AT&T is able to float a long dated 2066 note at 5.35% at a time when rates are supposed to be rising, it tells you something about what's to come. There are some low investment grade corporate notes being sold off from Teva, CBL&Associates. With tax loss selling approaching, these notes will continue to sell off and become bargains.

 

[Sunset]

A rate hike has been priced in for December. The spreads between the 30 year 10 year and 2 years are narrowing. If we get to an inverted yield, perpetual preferred and long date notes are going to spike up. I picked up some CTX and CTU below par to replace CTQ that got called last year and whats left of my CTW that has gone through 2 partial calls. Both CTX and CTU are passed their call date by a few months so they will stay close to par.
If banks across the board are calling low coupon preferred stocks, and a company like AT&T is able to float a long dated 2066 note at 5.35% at a time when rates are supposed to be rising, it tells you something about what's to come. There are some low investment grade corporate notes being sold off from Teva, CBL&Associates. With tax loss selling approaching, these notes will continue to sell off and become bargains.

I do find this odd, as supposedly rates will rise .5 to .75 percent per year for a couple of years. My thinking (which could be totally wrong, please advise) is that banks are expecting rates will stagnate at low rate levels for many years.
This thinking has made me comfortable with owning some preferred shares as getting 5 -> 7 percent would turn out to be great if rates stop rising for 10 more years, or only rise .25% per year.

 

[Golden sunsets]

Had a nice little divi dump last couple days so I used that and some excess checking account cash building up to buy 300 more shares of LANDP at $25.93 today. My focus has been on term dated issues lately.

Mul - How likely would Gladstone be to let this stick around until 2021, as opposed to calling it in on 9-15-18? Second question - is your 5% YTM based on 9-15-18 or 2021? (Sorry too lazy to do the math)

 

[Freedom56]

I do find this odd, as supposedly rates will rise .5 to .75 percent per year for a couple of years. My thinking (which could be totally wrong, please advise) is that banks are expecting rates will stagnate at low rate levels for many years.
This thinking has made me comfortable with owning some preferred shares as getting 5 -> 7 percent would turn out to be great if rates stop rising for 10 more years, or only rise .25% per year.

Back in mid-2013 the "rates are rising" narrative started. A lot of people were dumping perpetual preferred stocks and long dated notes in favor of short term preferred stocks (there aren't very many of them period) and notes. I did the opposite and loaded up on investment grade perpetual preferred stocks and even CEFs such as FFC, PDT, FPF, HPI, HPS at the end of December 2013 during tax loss selling season. Here we are 4 years later, and the 10 near note yield is lower than it was at this time in 2013. At some point you have to ask yourself is a 6.5%-7.5% yield on a high quality preferred (investment grade) or notes good enough? This is my YTM for my core holdings from JP Morgan, Bank of America, Capitol One financial, Citibank, Goldman Sachs, Ebay ...etc. Buying a short term investment grade note yielding 1.5 to 2% makes no sense to me. I would rather buy CDs, My biggest regret was selling off my CEF holdings last year because of their volatility and interest rate risk. The performance of the CEFs I used to hold has been phenomenal since the end of 2013 whereas the performance of most passively managed preferred stock ETFs has been dismal. I may be wrong this time, but I believe that there is too much debt out there (government and corporate) for interest rates to rise dramatically. The federal reserve knows this. The CEOs of JP Morgan, Goldman Sachs and others know this. Do they really want to pay more to service the 20 trillion of debt that is increasing by $700B every year? A lot of companies have been issuing debt to buy back their stock, what happens when those notes and bonds become due? Will they be able to re-finance at higher rates? Another issue are mortgage debt on malls and other retain properties. Malls have been growing exponentially and the retail mall and new store opening bubble is bursting. Restaurant chains are closing restaurants in large numbers. How long can mall owners continue to support their mortgage payments with their tenants closing their doors. Don't be surprised if you see rate cuts next year. Just my thoughts interest rates.

 

[Mulligan]

A rate hike has been priced in for December. The spreads between the 30 year 10 year and 2 years are narrowing. If we get to an inverted yield, perpetual preferred and long date notes are going to spike up. I picked up some CTX and CTU below par to replace CTQ that got called last year and whats left of my CTW that has gone through 2 partial calls. Both CTX and CTU are passed their call date by a few months so they will stay close to par.

If banks across the board are calling low coupon preferred stocks, and a company like AT&T is able to float a long dated 2066 note at 5.35% at a time when rates are supposed to be rising, it tells you something about what's to come. There are some low investment grade corporate notes being sold off from Teva, CBL&Associates. With tax loss selling approaching, these notes will continue to sell off and become bargains.

I would suggest based only on what I am concerned with (long end yield curve), there has been no yield rate increases. 10 year is lower now than Jan. 1 of this year... Short end yield hikes are not reflective of perpetual yield. But.... Though the yield curve is flattening we are still under market manipulation throughout world. There is no way this economy or world economy based on measurable economic data should even begin to suggest the yield curve should flatten. The long end should be growing in yield, yet
it hasnt. ... It is what it is for me now. I have all I can put in term dated issues, and unwilling to sell the perpetuals to adjust.

 

[Mulligan]

Mul - How likely would Gladstone be to let this stick around until 2021, as opposed to calling it in on 9-15-18? Second question - is your 5% YTM based on 9-15-18 or 2021? (Sorry too lazy to do the math)

Golden, going from memory but I think I had it just over 2% for a YTC, and 5.1% for YTM. Gladstone historically doesnt get to gung ho about calling immediately. Obviously I am betting they stay outstanding longer or I wouldnt own. Gladestone mentioned this spring about another preferred they may offer. But hasnt brought it up since, so maybe plans have changed. If they did I would sell this and roll into other one, but I have not heard of this since.