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

[BeachOrCity]

Tutorial? Beginners guide? Online learning?

Looking for someone to point me to any instructional blogs on how to evaluate preferreds. Not a “what is a preferred” but more a guide to evaluating rates, call options, risk of issuer etc. more so i can understand what is a good deal and the risk involved.

Huge knowledge here, and looked at beginning of thread and did a quick search, but did not see a discussion of how to guides.

Anyone who could point me in the right direction would be helpful.

(Fyi. The only preferred i now own are wfc-L and bac-L. Bought them just below their 1300 conversion price based on another blog i read back over the summer. )

 

[Sunset]

I thought the conversion price of wfc-l is: $156.71×6.3814 which is approx $1,000.

The same with bac-l just using different values, still approx $1,000.

Both get triggered when stock price is 30% over, but they convert at the conversion price, which I don't read as the stock price.

 

[Mulligan]

Looking for someone to point me to any instructional blogs on how to evaluate preferreds. Not a “what is a preferred” but more a guide to evaluating rates, call options, risk of issuer etc. more so i can understand what is a good deal and the risk involved.



Huge knowledge here, and looked at beginning of thread and did a quick search, but did not see a discussion of how to guides.



Anyone who could point me in the right direction would be helpful.



(Fyi. The only preferred i now own are wfc-L and bac-L. Bought them just below their 1300 conversion price based on another blog i read back over the summer. )

Beach that is pretty broad and so many variables. Buying a preferred is like car. One type doesnt fit all. What you need to determine personally is... Yield needs, risk needs (those two variables are usually inversely related), perpetual?, cumulative?, term dated? adjustable?, call protection? QDI? Non QDI? Sector? Ala, real estate, industrial, utility, shipping, etc....
Quantumonline will give you synopsis of preferred along with link to actual prospectus of the preferred. Due to structural level of where preferreds lie, their risk level is above the companies bonds. Google debt ratings of the company interested in. Notice the rating of the bonds in relation to secured bonds and unsecured bonds, such as Moodys, S&P, and/or Fitch. Unless you are a through deep diving inspector of a companies financials then
you would thoroughly peruse the companies quarterly and yearly SEC filings.

 

[BeachOrCity]

Hence my need for some training! Ha ha.

But I do think I get the 20 shares of stock if they convert and tre price needs to be 65 or more recent avg so it works out to roughly 1300 dollars of stock, no?

 

[Mulligan]

I thought the conversion price of wfc-l is: $156.71×6.3814 which is approx $1,000.

The same with bac-l just using different values, still approx $1,000.

Both get triggered when stock price is 30% over, but they convert at the conversion price, which I don't read as the stock price.

Sunset, no, Wells can force conversion when stock price is 130% above the conversion price. Im just going off memory but if it ever got there years from now, the conversion price would be closer to $1300. The $1000 par is really only relevant to a holder if the company was liquidated.

 

[Mulligan]

Hence my need for some training! Ha ha.

But I do think I get the 20 shares of stock if they convert and tre price needs to be 65 or more recent avg so it works out to roughly 1300 dollars of stock, no?

It depends on final ave conversion price, but it will be right in the ball park you are quoting, Beach.

 

[Mulligan]

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

Hence my need for some training! Ha ha.

But I do think I get the 20 shares of stock if they convert and tre price needs to be 65 or more recent avg so it works out to roughly 1300 dollars of stock, no?

Beach...Just to get you thinking....Here is a link to a preferred stock screener that will show various issues with various yields...You can then look at the ticker symbols you find appealing to check out the terms of issue in Quantumonline... Then if that further interests you, you can then find the credit quality by looking at the companies bond ratings. You can then ask questions here if you cant find info you are looking for...
http://research2.fidelity.com/fidel...ts=B64ENCeyJjcml0ZXJpYSI6WyJEaXZkWWllbGQiXX0=


Just for info purposes I can give you my thought process. I generally lean towards safety, will chase a bit of yield mostly through call risk (owning past call above par issues with higher than comparative market yield...Plus I will own some with a bit lower yield just because of their safety and also because I just want them...Plus I need a majority of funds in QDI for tax purposes.
Examples... Safe, basically 50-hundred year history of payments, thrown in the sock drawer and forgotten about examples...These are also perpetuals and some are past call, others non callable.....CNTHP,AILLL, DMRRP, CTWSO, CTGSP, MSEXP
Perpetuals are most exposed to long end interest rate spikes. Im not selling so its largely irrelevant to me as I will gladly reinvest proceeds with higher yields at lower prices (none of above or really any of mine are priced currently as great buys)
But I do want some money not exposed long term to long end in perpetuity...Those I have some term dated and adjustables. About 35%-40% maybe...Would go higher, but the quality level of these types are not as strong as the perpetuals..Some of my examples include, NSS, LANDP, and ABRN..

 

[BeachOrCity]

Thanks, Mulligan, this is what I was looking for.

 

[Mulligan]

Thanks, Mulligan, this is what I was looking for.

Anytime, Beach... If you sign up with Quantum you are then able to access the income lists which will show some more of the more older illiquid ones that the Fidelity link will not. However the present yield and price wont be assessable, so you will have to write down the ones that interest you and then check out their pricing.

 

[CoolChange]

Quantum Signup

Anytime, Beach... If you sign up with Quantum you are then able to access the income lists which will show some more of the more older illiquid ones that the Fidelity link will not. However the present yield and price wont be assessable, so you will have to write down the ones that interest you and then check out their pricing.

Has anyone actually successfully registered with Quantum recently?

I have tried using three different email addresses and user names without getting any response to any of them over the last two weeks. I also emailed them my phone number per their suggestion in signup difficulties FAQ's; again, no contact.

As a last resort, I will be sending actual physical USPS snail mail to the address on their web site for donations.

 

[Coolius]

CoolChange, I have been a subscriber to QOL for a few years.

I usually send in a paper check via USPS Snail Mail each year, no issues or problems experienced.

QOL is a very good source for Preferred and ETD information - well worth the amount I donate annually.

Occasionally there are a few hiccups - for example, they do not yet have SPLP-PT listed - but by and large, I am happy with their site.

 

[Mulligan]

Has anyone actually successfully registered with Quantum recently?



I have tried using three different email addresses and user names without getting any response to any of them over the last two weeks. I also emailed them my phone number per their suggestion in signup difficulties FAQ's; again, no contact.



As a last resort, I will be sending actual physical USPS snail mail to the address on their web site for donations.

Cool, did you check your junk mail to see if the info went there? I registered a long time ago, so I cant help there.

 

[BeachOrCity]

Cool, did you check your junk mail to see if the info went there? I registered a long time ago, so I cant help there.

I had registered earlier this year, and just checked it and it still has me and let me log on.

 

[Wes49]

Anyone have an idea what is going on with CenturyLink preferreds (ctl, ctx, ctv, ctu)?? Maybe they have a new issue coming with a higher coupon? Thanks

 

[Mulligan]

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

Anyone have an idea what is going on with CenturyLink preferreds (ctl, ctx, ctv, ctu)?? Maybe they have a new issue coming with a higher coupon? Thanks

Century is in a hell whole investing industry right now and the market is crushing them...They are very similar to FTR and WIN. Check out their stock prices and bonds....ugly... Century balance sheet has been deteriorating for years and now this big acquisition they are wanting to digest will really dig them a hole. Of course they are playing the cash flow card...But it didnt pay off for FTR. The debt is getting riskier for Century. All telco though has had a bad year. Even ATT has struggled a bit here.
Could be a good play. But I dont do these. I didnt trust the CTL debt a year ago, so I cant be a player now when it has gotten riskier. But that is just me, though.

 

[Mulligan]

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

Anyone have an idea what is going on with CenturyLink preferreds (ctl, ctx, ctv, ctu)?? Maybe they have a new issue coming with a higher coupon? Thanks

Wes, here is another example of the retail investor getting screwed buying these liquid preferreds.. Check out this CenturyLink bond... 7.6%, 2039 maturity date (shorter than the preferred baby bonds)..Cusip 156700AM8... Currently trades at 83.62 with a current yield of 9.37%. Why in the hell would anyone buy the retail baby bond note at a 7.5% yield when they can own the similar senior unsecured note bond with 20% higher yield, PLUS a potential cap gain, too? When you see bonds trading near 10% in this rate era, this means there is some serious stress in their finances.

 

[Freedom56]

Anyone have an idea what is going on with CenturyLink preferreds (ctl, ctx, ctv, ctu)?? Maybe they have a new issue coming with a higher coupon? Thanks

There is a new debt issue coming out to finance the approved merger with Level 3. Also the common stock was pricing a dividend cut which is not going to happen now per the Q3 conference call. They have enough cash flow to fund the dividend. With Level 3's contribution, the interest coverage ratio improved. Keep in mind with telecom companies the depreciation and amortization expense is high but it is a non-cash expense. EBITDA was $2.15B for the combined company in Q3. Interest expense was about just under $500M for the combined company. The dividend would be another $550M going forward. Interest expense will increase with the new debt issue but can be covered. Level 3 has about $10B of non operating losses that can be carried forward which will reduce the income tax liability going forward. As far as debt is concerned there is no near term risk of insolvency. The merged company will primarily have a enterprise focus business versus a consumer focused business. The world-wide fiber optic network that they have (funded during the dot-com bubble days) is not being replaced anytime soon. A large portion of the internet traffic in this country and the world is now running through Centurylink's network. Wireline phone is no longer a large part of the business. Their focus is high speed broadband which is where the world is headed with streaming TV as the industry supports 4K streaming. This is no Windstream or Frontier who are primarily wire-line phone companies who do not have any earnings at all. I don't own CTL common shares or common shares of any company for that matter. I own their short dated notes maturing in 2024 and 2028 and some of their exchange traded notes (CTW, CTU, CTX, and CTAA). There is going to be pressure on the Qwest notes until the new debt issue clears.

 

[Mulligan]

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

There is a new debt issue coming out to finance the approved merger with Level 3. Also the common stock was pricing a dividend cut which is not going to happen now per the Q3 conference call. They have enough cash flow to fund the dividend. With Level 3's contribution, the interest coverage ratio improved. Keep in mind with telecom companies the depreciation and amortization expense is high but it is a non-cash expense. EBITDA was $2.15B for the combined company in Q3. Interest expense was about just under $500M for the combined company. The dividend would be another $550M going forward. Interest expense will increase with the new debt issue but can be covered. Level 3 has about $10B of non operating losses that can be carried forward which will reduce the income tax liability going forward. As far as debt is concerned there is no near term risk of insolvency. The merged company will primarily have a enterprise focus business versus a consumer focused business. The world-wide fiber optic network that they have (funded during the dot-com bubble days) is not being replaced anytime soon. A large portion of the internet traffic in this country and the world is now running through Centurylink's network. Wireline phone is no longer a large part of the business. Their focus is high speed broadband which is where the world is headed with streaming TV as the industry supports 4K streaming. This is no Windstream or Frontier who are primarily wire-line phone companies who do not have any earnings at all. I don't own CTL common shares or common shares of any company for that matter. I own their short dated notes maturing in 2024 and 2028 and some of their exchange traded notes (CTW, CTU, CTX, and CTAA). There is going to be pressure on the Qwest notes until the new debt issue clears.

Good points Freedom. This is what makes a market. As nothing you said disagrees with what I said. They are hoping for Level 3 to bail them out. There is risk and maybe great reward, who knows. But when you take on big debt risk increases...Look at what happened to Frontier with the assets, Look at Teva after they over paid for Allergen, etc..The list is long. But the bond market is making a statement.

Expand Portfolio
CenturyLink -11.8% on Q3 miss, lower full-year guidance

Nov. 8, 2017 4:33 PM ET|By: Jason Aycock, SA News Editor
CenturyLink (NYSE:CTL) is off 11.8% in postmarket trading after missing on Q3 earnings and lowering guidance on lower revenues (and higher capex) than anticipated.

Operating income fell to $487M from $593M as higher-margin legacy revenues fell more sharply than strategic revenues. Overall, revenues dropped 8%.

Net income fell to $92M from $152M; EBITDA fell to $1.4B from $1.6B, falling short of an expected $1.44B.

Revenue breakout: Strategic, $1.89B (down 7%); Legacy, $1.71B (down 10%); Data integration, $134M (down 18%).

Revenue by segment: Enterprise, $2.17B (down 11.2%); Consumer, $1.39B (down 5.8%).

 

[Freedom56]

Mulligan....All the joys of fixed income investing. What I look for is an industry I understand and that has a future and interest expense coverage going forward. If you add the Level 3 component, it's not that bad in terms of EBITDA and free cash flow.

I would keep an eye on Maiden Holdings today. They reported another big loss yesterday. I dumped my Maiden holding preferred stock several months ago when the SEC fraud investigation on Amtrust was reported again.

 

[Wes49]

Thanks Mulligan and Freedom, good info. I just thought is was curious that the preferreds got hit so hard prior to the earnings announcement, but then they have been weak for a week now.

 

[Mulligan]

Mulligan....All the joys of fixed income investing. What I look for is an industry I understand and that has a future and interest expense coverage going forward. If you add the Level 3 component, it's not that bad in terms of EBITDA and free cash flow.

I would keep an eye on Maiden Holdings today. They reported another big loss yesterday. I dumped my Maiden holding preferred stock several months ago when the SEC fraud investigation on Amtrust was reported again.

Freedom, I kind of go with the idea that there is no such thing as a good buy or a bad buy. Provided it is done in proper proportion and fits within ones risk profile. So I dont mean it should be bought or sold either way. I am not but that is all it means. Whenever I read heavy debt, declining legacy issues, but cash flow is strong, I run... And run fast. Especially those that dont make profits but love talking cash flow... For longer periods of time, in my sector of choice, I would rather deal with the opposite....Solid profits and cash flow negative. I have about 1/3 of my stash in a company that has run cash flow negative for 16 of last 20 quarters..Totally safe and sleep at night though.
Maiden, I am long gone from them boys... I doubt I ever venture around that briar patch again.

 

[Freedom56]

Freedom, I kind of go with the idea that there is no such thing as a good buy or a bad buy. Provided it is done in proper proportion and fits within ones risk profile. So I dont mean it should be bought or sold either way. I am not but that is all it means. Whenever I read heavy debt, declining legacy issues, but cash flow is strong, I run... And run fast. Especially those that dont make profits but love talking cash flow... For longer periods of time, in my sector of choice, I would rather deal with the opposite....Solid profits and cash flow negative. I have about 1/3 of my stash in a company that has run cash flow negative for 16 of last 20 quarters..Totally safe and sleep at night though.
Maiden, I am long gone from them boys... I doubt I ever venture around that briar patch again.

You can make that argument about 90% of the stocks in the S&P 500. Revenues are flat to down (IBM 22 consecutive quarters down). EPS is propped up buy share buybacks and taking on debt. Look at EXXON and Chevron. Chevron issues debt or sells assets to pay their dividends. How long can they keep that up. GE does the same thing. Companies get to a point where they reach saturation and the only way they can grow is by merging with other companies. AT&T is a case. But in my opinion, they paid too much for DirectTV and they are dealing with declining revenues from this acquisition. I actively manage my portfolio and I only buy fixed income products and will trade the occasional common stock.
For all my holdings, I follow the company closely. The first sign of trouble, I will exit. I avoid unrated and anything CCC+ and below.

With respect to preferred stock and baby bonds, most are not very liquid. Therefore when a fund sells, they can drive the security down. Case in point AGO-E. It was driven down to $24.92 buy sellers and other fund buying brought it back up to $26.59 in a matter of 2 weeks. What changed? Bonds are even worse as the spreads are sometimes very wide with very low liquidity. As an individual retail investor you have to watch for opportunities and deal with the volatility.

 

[Mulligan]

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

You can make that argument about 90% of the stocks in the S&P 500. Revenues are flat to down (IBM 22 consecutive quarters down). EPS is propped up buy share buybacks and taking on debt. Look at EXXON and Chevron. Chevron issues debt or sells assets to pay their dividends. How long can they keep that up. GE does the same thing. Companies get to a point where they reach saturation and the only way they can grow is by merging with other companies. AT&T is a case. But in my opinion, they paid too much for DirectTV and they are dealing with declining revenues from this acquisition. I actively manage my portfolio and I only buy fixed income products and will trade the occasional common stock.

For all my holdings, I follow the company closely. The first sign of trouble, I will exit. I avoid unrated and anything CCC+ and below.



With respect to preferred stock and baby bonds, most are not very liquid. Therefore when a fund sells, they can drive the security down. Case in point AGO-E. It was driven down to $24.92 buy sellers and other fund buying brought it back up to $26.59 in a matter of 2 weeks. What changed? Bonds are even worse as the spreads are sometimes very wide with very low liquidity. As an individual retail investor you have to watch for opportunities and deal with the volatility.

But one cant make that argument with 90% of S&P and have a government monopoly and allowed ROE with captive ratepayers who have to pay for it....IE..T&D utes. No T&D only ute preferred has not paid its preferred. There was one I researched that had to suspend for a few years in the Great Depression, but quickly reinstated and paid in arrears also.
As far as AGO goes, the price up or down became irrelevant to me once I know how much of a shadow Puerto Rican debt hangs over their head. Im just not the type to own something I have to worry about.
Im just discussing because I enjoy it, not to present a case I am right and someone else is wrong. In fact I am admitting I know nothing. So I stick with stuff I dont have to be smart to investment in... Take the yield, risk the call is what I do. Bought more CNLPL the past few days. This is where I belong.... Guaranteed monopoly, allowed ROE, captive ratepayers, and interest coverage ratios guaranteed in prospectus.

 

[Freedom56]

But one cant make that argument with 90% of S&P and have a government monopoly and allowed ROE with captive ratepayers who have to pay for it....IE..T&D utes. No T&D only ute preferred has not paid its preferred. There was one I researched that had to suspend for a few years in the Great Depression, but quickly reinstated and paid in arrears also.
As far as AGO goes, the price up or down became irrelevant to me once I know how much of a shadow Puerto Rican debt hangs over their head. Im just not the type to own something I have to worry about.
Im just discussing because I enjoy it, not to present a case I am right and someone else is wrong. In fact I am admitting I know nothing. So I stick with stuff I dont have to be smart to investment in... Take the yield, risk the call is what I do. Bought more CNLPL the past few days. This is where I belong.... Guaranteed monopoly, allowed ROE, captive ratepayers, and interest coverage ratios guaranteed in prospectus.

The example of AGO-E was to illustrate that none of us have any control over these short term volatility. You were keeping an eye on things and caught an anomaly and a very good catch. A fund starts unloading the price drops and then another starts buying and the price goes back up. Since 2013 there have been so many of these sell-offs followed by gradual buying, I just use the sell-offs to buy more of something I want to hold for income.

We are all learning as we go. We have the rest of our lives to do so. I certainly did not go to some fixed income school or become an economist (I did go through all the TD Ameritrade Bond investing training videos) I like many I manage my own portfolio to avoid high fees, dismal performance, and worse, theft. I certainly did not plan for a low interest rates for this long 35 years ago. I thought I could live on interest income from CDs. However, I and others had to adapt to get more income to cover living expenses, travel, hobbies, and never ending home improvements.

 

[Mulligan]

Keep posting the good thoughts, Freedom. Im kind of hunkered down overweighted in a few issues, now. But if they ever get yanked from me, I may have to steal an idea or two from you.