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

[Slow But Steady]

Dear Friends,

It's been a long time since I've posted here.

I decided that I don't have the time or energy to be investigating individual issues. I ended up making some expensive mistakes, exacerbated by not knowing when to sell.

I still like the idea of holding some preferreds, so I hired an outfit called Stonebridge to do it for me. They are available through Schwab. On April 3, I gave them some cash to invest. It was a great choice of days. They bought a portfolio of about 125 issues. Lots of tickers we've talked about. About 2/3 are QDI.

Since then, they have made 50 more trades, including 49 winners and one loser. A lot of what we are trying to do, taking a profit of 80 cents or 1.10 per share. The portfolio is now worth 22% more than on April 3. It's paying 7.2% based on purchase prices (5.9% based on today's values.) I've started taking three quarters of that to buy groceries.

I think I pay them 0.6% and that's a good value for me. I was just making too many mistakes. I still hold a few, mostly my losers in hopes they will come back. CEQP is a favorite, but you'll get a K1. (I don't recommend listening to me.)

Sad story, but with a happy ending, I think.

[Golden sunsets]

22%. Wow that's great, and I assume after their fee.

[Slow But Steady]

Quote:

Originally Posted by Golden sunsets 22%. Wow that's great, and I assume after their fee.

Yes. But so far I've only paid one quarter of fee, or 0.15%.

To be fair, the 22% comes mostly from the fact that April 3 was a great day to start. Everything was really beat up at that time.

[Slow But Steady]

I noticed that yesterday Stonebridge bought WCC-A (Wesco Intl 10.625%) for $26.75.

[yakers]

Do you (Mulligan & others) hold preferreds exclusively in tax deferred accounts? I only have a few of them in my IRA where I have my fixed income but as I am holding cash/MMFs in taxable preferreds may be as effective for some of these funds, what do you think?

[Sunset]

Quote:

Originally Posted by yakers Do you (Mulligan & others) hold preferreds exclusively in tax deferred accounts? I only have a few of them in my IRA where I have my fixed income but as I am holding cash/MMFs in taxable preferreds may be as effective for some of these funds, what do you think?

If they qualify for the 15% tax rate, I prefer to hold them in a taxable account.

[aja8888]

Quote:

Originally Posted by Mulligan For anyone looking for a parking spot, look at NGHCO and NGHCP from insurer Nat Gen. AllState is buying them out and expected to clear regulatory hurdles early 2021. SEC filings state the preferreds will be redeemed prior to acquisition closing. That could give one up to three more divi payments. Prices of these two are sitting in 25.25 range, so a lot of meat on the bone for a short duration play. I have a decent slug of these.

I have an order in for both, adding to my ever growing collection of preferreds.

[Born2Fish]

Quote:

Originally Posted by Mulligan See so what this means is AllState demands them to be redeemed right at closing. Nat Gen wont redeem them until this process is right at the finish line (ala, regulatory clearances). Nat Gen has already approved this so no battles there. And this will go thru because Nat Gen is a pimple in size on Allstates butt. Allstates one year annual profits can pay for this acquisition in total. Now...if you are concerned it gets blocked or cancelled then your worry is a concern...But they were already at $24 before announcement so its not like they were $8 and then jumped off Allstate bailing them out.

Sounds good. I bought some!!

[Sunset]

Quote:

Originally Posted by Slow But Steady I noticed that yesterday Stonebridge bought WCC-A (Wesco Intl 10.625%) for $26.75.

You made me look, it seems fine as a company in my quick look, so I bought a few at $26.81

[Mulligan]

Slow, Sorry for the losses. Wish things had went better for you....Were they in energy, hospitality, Mreits, and or Mall reits? Those are really only the sectors I know that have been hit and didnt recover.

[Mulligan]

Quote:

Originally Posted by bobandsherry Looks like around 6.5% return if 3 div's. Sure beats a CD Thanks Mulli.

Bob, I think its a pretty safe place to hide while waiting for the quality ones to sage and reenter.

[Mulligan]

Quote:

Originally Posted by Sunset If they qualify for the 15% tax rate, I prefer to hold them in a taxable account.

Thats my preference, but sometimes the cash is in my HSA or Roth though...I notice brokerages dont follow QDI rules. I always get QDI treatment even if I dont own it the required amount of time.

[Mulligan]

Quote:

Originally Posted by Sunset You made me look, it seems fine as a company in my quick look, so I bought a few at $26.81

This is a pure bet the acquisition works and they rapidly pay down debt. I would assume the goal is for these to be redeemed in 5 years. A Fortune 500 company with long history albeit not so great on common stock over the years...But I am never always without sin, as I bought a modest 300 shares a month ago or so when they sagged into the $26.20 range. This issue was in effect created to help fund an acquisition.

[Sunset]

Quote:

Originally Posted by Mulligan This is a pure bet the acquisition works and they rapidly pay down debt. I would assume the goal is for these to be redeemed in 5 years. A Fortune 500 company with long history albeit not so great on common stock over the years...But I am never always without sin, as I bought a modest 300 shares a month ago or so when they sagged into the $26.20 range. This issue was in effect created to help fund an acquisition.

I felt the company will last many years, and the div is ~10% so I bought 200.
Do you still have yours, or did you flip them when some sucker paid $26.81?

[Slow But Steady]

Quote:

Originally Posted by Mulligan Slow, Sorry for the losses. Wish things had went better for you....Were they in energy, hospitality, Mreits, and or Mall reits? Those are really only the sectors I know that have been hit and didnt recover.

Losses are mostly in hospitality and MREITS.

I also hold quite a few common shares of Weingarten Realty, a shopping center REIT. They have reduced but not eliminated the div. I expect them to come back eventually. They have a lot of good properties.

I had been thinking about doing this for a while, so I had several other preferred holdings that I was able to sell at or near all-time highs. And by the grace of God, the losses aren't enough to affect our financial situation very badly.

Still, it's a bit of a jolt to find out I'm not as smart as I thought I was.

[Mulligan]

Quote:

Originally Posted by Slow But Steady Losses are mostly in hospitality and MREITS. I also hold quite a few common shares of Weingarten Realty, a shopping center REIT. They have reduced but not eliminated the div. I expect them to come back eventually. They have a lot of good properties. I had been thinking about doing this for a while, so I had several other preferred holdings that I was able to sell at or near all-time highs. And by the grace of God, the losses aren't enough to affect our financial situation very badly. Still, it's a bit of a jolt to find out I'm not as smart as I thought I was.

Yes, Slow, The leverage unwinding really smacked Mreits and Covid quickly grabbed the hospitality reits by the throat in a flash. Things can move quickly south, way quicker than I can react. Really what has always saved my bacon was I researched in 2012 ish for 6 months and studied everything bad. And back then all preferreds were inside the 5 year charting window of the 08-09 crisis. Those charts were horrendous for all preferreds that survived, but the utility preferreds I noticed stayed a lot stronger. Then I noticed highly illiquid ute preferreds were even stronger than that. So that has always been my base thesis and kept me from stretching much. And trust me I am tempted, but I try to keep it in a designated small “high risk bucket”. Utes are bastards...They have a monopoly, get to file to raise rates to get reimbursed for the “deadbeats”, and will stick money in regulators and state govt officials pockets in some creative method to get the rest of what they need.
I need to watch myself as I am at my lowest ute threshold in quite a while. About 40%, but I still try to buy ute type stuff..For example DMRRP...A railroad preferred, (issued in 1863) but a very unique one...The company no longer exists, its just a piece of property stretching 141 miles of rail track. CSX Transportation has a perpetual life lease of the property and in return must pay the few remaining preferreds and common (CSX owns most of the shares and doesnt have to pay itself) shares. This costs about $50,000 a year.
Anyways the preferred is backed by the land which has no debt on it. And if not paid CSX must sell the property to redeem the shares plus dividends. Well that isnt happening especially since they have owned it through mergers for 160 years. So what you have is a preferred that is actually a senior secured bond backed by the land and rail line worth infinitely more than the outstanding shares. So this one is actually safer than a ute in my mind. The trouble is it is 50% over par and yielding 4% now. And with only 8000 shares outstanding it isnt going to trade often.
I have drifted into Industrial Reits (think Amazon distribution type warehouses) these bad boys are running on all cylinders basically even during this crisis which has hit many reit segments hard.

[Mulligan]

Quote:

Originally Posted by Sunset I felt the company will last many years, and the div is ~10% so I bought 200. Do you still have yours, or did you flip them when some sucker paid $26.81?

Sunset, I feel in the long run, I got to hang onto these. Acquistions are always a bit dicey (think OXY and their disaster buying Anadarko last year). But where do you have a chance for 10% with a real company with a real background the size of it and its resources...Plus their bonds despite a lower rating are trading very strong well above par. Im probably holding and forgetting about them and letting it play out. And at 300 shares its not going to make me panic on them. But...I aint buying anymore, I promise!

[aja8888]

Quote:

Originally Posted by aja8888 I have an order in for both, adding to my ever growing collection of preferreds.

My orders closed @ 200 shares of each. Now the wait.

[Sunset]

I went to quantumonline to look and of course my login didn't work.
So I put in my email, and they literally sent me my username and password.
Turns out they chop off a password if it's too long which is why my record of the password failed.

The point is: they don't encrypt your password on the site. So don't use that password anywhere else.

Now I have to think of something other than 1234567 to use at the bank

[bobandsherry]

Quote:

Originally Posted by Mulligan For anyone looking for a parking spot, look at NGHCO and NGHCP from insurer Nat Gen. AllState is buying them out and expected to clear regulatory hurdles early 2021. SEC filings state the preferreds will be redeemed prior to acquisition closing. That could give one up to three more divi payments. Prices of these two are sitting in 25.25 range, so a lot of meat on the bone for a short duration play. I have a decent slug of these.

Any reason you didn't include NGHCZ and NGHCN? "Z" has slightly higher rate with same call as "O" and "P" and has a slightly better yield/return as well.

And "N" has same rate but call date is 7/15/21, so has 4 div's before it can be called (unless change of control allows them to call earlier). So has a little more meat on the bone for a longer time, gives another 20 basis points or so to the overall return.

Unless there's something I didn't see, this just gives a few more options when trying to snag a few shares at a lower cost.

Update: Looks like prices pulled in with original calcs had the "N" wrong. Refreshed with current prices and indeed "N" not so meaty. Have to watch for when each of these dip. So "O" and "P" have the best returns currently.