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

[Texas Proud]

Interesting, the date range for WFC-L shows as $1,030 - $1,130, yet my traded executed at $1,015. I could have sworn I saw it hit $1,012.50. I must have snagged some ghost shares Or probably because it wasn't a full lot size that it doesn't register. It was enough for me on a bottom feed.

I think it has to be 100 shares to count... did you by 100 or more?

 

[Texas Proud]

Yes I know they are different and I know that preferred dividends were not restricted, we are at 5-10 times the level of financing needed for 2008. We are at the early stages, once the preferred shares fall, the ability to restrict payments for a period of years will be far easier to enforce while the loans are repaid. At some point down the line the dividends will be restarted and that will be when preferreds will be the best possible investment. I strongly reccomend reading The Great Depression by Benjamin Roth, to get an idea of what will happen to financial securities, and now we are in an era where it is expected for governments to take extraordinary measures for the common man.

I think you are confusing the financial need of the citizens today with the banks back then...


Most of the big banks were going under... they needed the bailout to function... to keep the economy going... it worked..


Today the banks are not the problem... it is that so many people that are hourly workers are not going to get paid and that is hurting the economy... they are trying to get them money...


There are some businesses that are hurting this time, airlines, hotels etc... they will try and get them money....


But, the money that is going to the bank is so the bank can 'help' the small businesses, not to bail them out..

 

[Freedom56]

Today the banks are not the problem... it is that so many people that are hourly workers are not going to get paid and that is hurting the economy... they are trying to get them money...

Agree but, all banks are not created equal. The large money center banks will be fine (JP Morgan, Wells Fargo, Capital One Financial, Citibank, Bank of America) but many of the regional banks that heavily exposed to the energy sector are not that safe.

 

[bobandsherry]

I think it has to be 100 shares to count... did you by 100 or more?

At $1,000 a share? Um nope. Not putting that much into any individual holdings at this time.

 

[Freedom56]

Thanks for sharing Freedom. Certainly many ways to skin a cat, I certainly respect that! Up until Friday, I have been 100% in preferreds and have been over 10% annually every year since 2013. Im down 6% this year now but was down 15% Wednesday morning, and I aint done fighting yet to get back to the plus side, lol...But it hasnt been from buy and hold, but as a modified version mirroring a bit your strategy which has involved a lot of flipping on disjointed price movements.
I will push back in a bit in defense of utilities as about 75% of my money has always been in utility preferrds so I have been able to generate returns there. But mostly because my personal opinion is they are as a general rule safer than banks. No Ute needed a bailout in 2008-09 while hundreds of banks including money centers did or they were dead.
After all it isnt called Utilityrupt, its called BANKrupt.
Only 3 utes have went bankrupt since Great Depression...Public Service New Hampshire (3 Mile Island) El Paso Electric (nuke building financing fiasco) and Pacific Gas and Electric (twice). So that generally is why utes pay less because of their business model.
But there has been some nice recent volatility that created some great plus 7% ute baby bonds I exploited.

Hi Mulligan,

Your preferred stocks will no doubt climb back up. Going back to the summer of 2015 I have traded JPM-PH and COF-PF (I bought both after the IPO well below par) multiple times. These preferred stock sell off below 23 (and even more now) and then climbed back up to 27 so many times, that I had to ask myself, "why am I holding it" when it's over $27. The cycle repeats at least once per year. I have posted my thoughts on these preferred stocks particular several times on this thread. One issue is that preferred stocks and baby bonds do not accrue their payments like regular bonds do, so once you have made a reasonable gain (lately it has been 4 to 24 hours), there is no reason to hold them. Trading them in an IRA, there is no immediate tax consequence. For buy and hold type investors, buying a basket of investment grade preferred stocks, is much better than owning those buy high sell low ETFs like PGX and PFF and total disasters like SPFF. Understanding how these passive ETFs operate (i.e. selling off lowest coupon investment grade preferred first) may help avoid 20-30% losses on a particular preferred stock by setting your buy entry point at an yield comparable to the highest coupon preferred from the same issuer that is trading below par.

 

[pb4uski]

.... Only 3 utes have went bankrupt since Great Depression...Public Service New Hampshire (3 Mile Island) ...

That can't be Mully. 3 Mile Island was in Pennsylvania, not New Hampshire. I think you're thinking of Seabrook.

... By January 1972 PSNH had decided not only to build a nuclear plant at Seabrook but also to have it consist of two 1,150-megawatt units, to be completed in 1979. PSNH was to own 50 percent of the $1.3 billion project and share the remaining investment with other New England utilities. In January 1974 the New Hampshire Site Evaluation Committee, the Public Utilities Commission (PUC) and other regulatory bodies had issued the basic permits, but interveners in the case succeeded in having the New Hampshire Supreme Court overturn these permits. After repeated appeals and rehearings PSNH received its construction permit in July 1976--and experienced its first protest at the planned site.

There followed a decade of other protests at the site, inside regulatory chambers, and in New Hampshire and Washington courtrooms. The 1979 accident at the Three Mile Island nuclear-power plant in Pennsylvania--to name but one event that triggered concern about ecological and safety issues--played a significant role in these protests. So did delays imposed through public intervention, slow regulatory approvals, and two significant labor strikes. PSNH had to borrow money to meet ever-escalating costs. In 1978 the company had been authorized to charge customers for the carrying costs of loans to build the Seabrook plant. New legislation stated that PSNH could not recover any investment in the Seabrook Station until the plant provided electricity to its customers. Deprived of CWIP costs (Construction Works in Progress, known as stranded costs), PSNH had to borrow even more heavily at a time of high interest rates. The N.P. Public Utilities Commission (NHPUC) ordered PSNH to reduce its ownership in the plant from 50 percent to 35.6 percent. In March 1984 the joint owners canceled Seabrook Unit II and formed New Hampshire Yankee, a separate division of PSNH, to manage the construction of Unit I and bring it into operation.

Seabrook Unit I was completed in July 1986 at a cost of $4.5 billion but did not go into full operation until August 19, 1990, at which time PSNH had not yet recovered any of the construction costs. Seabrook's final cost was $6.6 billion and PSNH's share of the debt was $2.9 billion. In May 1986 PSNH asked the NHPUC for a two-step rate increase; however, the agency ruled against the request. In a final effort to remain solvent, PSNH appealed NHPUC's decision by filing for a 15 percent emergency rate increase and asked the New Hampshire Supreme Court to suspend the Anti-CWIP law.

Late 1980s-90s: Bankruptcy and Restructuring

On January 26, 1988, the court ruled that the Anti-CWIP statute was constitutional and prevented PSNH from receiving the emergency rate increase. Two days later, on January 28, PSNH filed for protection under Chapter 11 of the U.S. Bankruptcy Code and became the first investor-owned utility since the Great Depression to declare bankruptcy. ...

 

[Mulligan]

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

That can't be Mully. 3 Mile Island was in Pennsylvania, not New Hampshire. I think you're thinking of Seabrook.

Ha, yes you are 100% correct... Mix facts with bad memories and one comes up with a wrong answer! I remember it now being Seabrook after you corrected me.
But if you beat me with a bat until I said Seabrook on my own, you would have beat me to death as I would not have ever remembered...I just would have kept saying 3 Mile Island and getting hit again, ha!

 

[Running_Man]

I think you are confusing the financial need of the citizens today with the banks back then...


Most of the big banks were going under... they needed the bailout to function... to keep the economy going... it worked..


Today the banks are not the problem... it is that so many people that are hourly workers are not going to get paid and that is hurting the economy... they are trying to get them money...


There are some businesses that are hurting this time, airlines, hotels etc... they will try and get them money....


But, the money that is going to the bank is so the bank can 'help' the small businesses, not to bail them out..

we are in the october 2007 phase of the housing crisis substituting corp debt for homes. banks are going to get killed, corps are going to get killed hedge funds are getting killed and the fed is spending 3 trillion already to try the and stop it. this is not 2015,this is the worst financial crisis in the history of the us, but faith is so high in fed with that people believe they can just defer their economic reality through printing and we will find out if that issue possible. i think not

 

[brokrken]

people believe they can just defer their economic reality through printing and we will find out if that issue possible. i think not

This has been a fear of mine for a while.

 

[brokrken]

Was able to finally grab some LANDP at $22.25 today. Also, I know it's risky, but i added to my NSS at $11.02

 

[Winemaker]

SLMNP at $850.00, $49 high than it's 52 week low last week.

 

[Mulligan]

SLMNP at $850.00, $49 high than it's 52 week low last week.

Compared to the market and whats out there its pretty much fell in line with most of its ilk. Percentage wise on can say it has fell a lot less than most others.

 

[bobandsherry]

SLMNP at $850.00, $49 high than it's 52 week low last week.

It hit $600 back in 2016, not sure what caused that dip.

 

[RE2Boys]

Seems some of the Conn Power & Light preferreds got shook loose. These are plus 6% preferreds that are very lightly traded. Picked up a small portion to add to my sock drawer. CHNLPL and CNTHP

 

[Texas Proud]

Was able to finally grab some LANDP at $22.25 today. Also, I know it's risky, but i added to my NSS at $11.02

I added NSS at $15ish... getting a divi soon...

 

[Mulligan]

Seems some of the Conn Power & Light preferreds got shook loose. These are plus 6% preferreds that are very lightly traded. Picked up a small portion to add to my sock drawer. CHNLPL and CNTHP

I snagged 204 of CNTHP at $52. Pretty pleased. Been quite a while since I had any. Im still down a bit but wow, have increased my income stream and with fairly high credit quality also.

 

[Mulligan]

I added NSS at $15ish... getting a divi soon...

Texas this could be a great buy...Im just giving you info if you dont know but I suspect you do...NSS is purchased with going strategy that NS will stay solvent. The debt covenant will provide little protection. Fitch rated NSS as 0%-10% recovery if they went into receivership. Not suggesting at all it would. Just making sure you know how subordinate this debt is.

 

[brokrken]

I'm really surprised how much PBI-B has sold off. Now down to $9.32 with a current yield of 18% for Ba2/BB+ Debt. Aside from the current Covid-19 situation, I haven't found any justifiable reason for this debt issue to be beaten down worse than shipping or energy preferreds. Any knowledge from the group?

 

[Freedom56]

I'm really surprised how much PBI-B has sold off. Now down to $9.32 with a current yield of 18% for Ba2/BB+ Debt. Aside from the current Covid-19 situation, I haven't found any justifiable reason for this debt issue to be beaten down worse than shipping or energy preferreds. Any knowledge from the group?

It may have a lot to do with the USPS looking for a multi-billion dollar bailout as mail volumes have fallen off a cliff. I would avoid it.

On another note.

The same passive preferred funds that were selling off preferred stocks are baby bonds 40% - 60% below par last week are now busy buying buying them back at much higher prices yesterday and today. The same can be said about equity funds. This is why you avoid them.

 

[Mulligan]

I'm really surprised how much PBI-B has sold off. Now down to $9.32 with a current yield of 18% for Ba2/BB+ Debt. Aside from the current Covid-19 situation, I haven't found any justifiable reason for this debt issue to be beaten down worse than shipping or energy preferreds. Any knowledge from the group?

Ken its one of those companies that just keeps getting its debt downgraded over time. Rating agencies are slow...More downgrades coming. They are a dinosaur, way higher risk than its credit implies though at this price it qualifies for a high yield chase play though. I wont participate though.

 

[Mulligan]

It may have a lot to do with the USPS looking for a multi-billion dollar bailout as mail volumes have fallen off a cliff. I would avoid it.

On another note.

The same passive preferred funds that were selling off preferred stocks are baby bonds 40% - 60% below par last week are now busy buying buying them back at much higher prices yesterday and today. The same can be said about equity funds. This is why you avoid them.

Today was a good day.. Got my stash over the amount I had at start of this year now. But still down from end of Feb peak. Today everything was a winner. Sold off a lot of issues up 10% in one day.. Sold a core (its a core but I flip all the time, ha) SR-A well over $25 today and bought them all back at close for $23.30. Picked on a few trash issues that arent mlps or hospitality crap. Got INBKZ at $15.20 after buying it about a buck cheaper yesterday so I doubled down... A shameless flip play as it is lagging its almost identical sister INBKL badly.

 

[brokrken]

Ken its one of those companies that just keeps getting its debt downgraded over time. Rating agencies are slow...More downgrades coming. They are a dinosaur, way higher risk than its credit implies though at this price it qualifies for a high yield chase play though. I wont participate though.

Mully, I don't disagree, but all of that was true prior to this recent meltdown. It just seems overdone at this point.

 

[Freedom56]

Today was a good day.. Got my stash over the amount I had at start of this year now. But still down from end of Feb peak. Today everything was a winner. Sold off a lot of issues up 10% in one day.. Sold a core (its a core but I flip all the time, ha) SR-A well over $25 today and bought them all back at close for $23.30. Picked on a few trash issues that arent mlps or hospitality crap. Got INBKZ at $15.20 after buying it about a buck cheaper yesterday so I doubled down... A shameless flip play as it is lagging its almost identical sister INBKL badly.

That's good. With all the trading of investment grade preferred stocks I have done over the past week and a half, coupled with the purchase of investment grade corporate notes that I have made, I am just about even with the beginning of the year. I lost mostly my bond/note premiums which are gone at maturity anyway and I always buy below par. This time however, I had so many fills of investment grade corporate short term corporate notes well below par that it was difficult keeping track of everything. There were many funds selling anything and everything just to raise cash into a very illiquid bond market. I even got "A "rated note 15 months to maturity (Applied Material) at a YTM of 5% and a Capital One 5 year note (Baa1)at a YTM of 8.9% and many others. It was frightening to see how much fund selling was going on. When they announced that the Fed was buying investment grade corporate bonds/notes the other day, that was my signal to buy even more before the rush comes in. I am done with the buying for now and am holding 20% in cash for trading. With the 10 year heading to zero, coupled with the Fed buying corporate bonds, my premiums will be back up in a little while.

After these mass selloffs (like 2008/9), I noticed that these preferred ETFs like PGX and PFF sustain damage beyond repair and trade thereafter at a lower band. You can see this from the long term charts. This is most likely due to some of their holding getting wiped out and never coming back. These preferred stocks are going to be volatile over the next few months by a combination of liquidation and rebalancing of those ETFs.

 

[Mulligan]

Mully, I don't disagree, but all of that was true prior to this recent meltdown. It just seems overdone at this point.

I just cant do it, but logic dictates you are correct. Definitely a better shot for a quick score there than others that popped back. I just cant read their balance sheet enough to know anything or know how much this downturn directly hits them. But it could pop $3 easily without a sweat one would think.

 

[Mulligan]

That's good. With all the trading of investment grade preferred stocks I have done over the past week and a half, coupled with the purchase of investment grade corporate notes that I have made, I am just about even with the beginning of the year. I lost mostly my bond/note premiums which are gone at maturity anyway and I always buy below par. This time however, I had so many fills of investment grade corporate short term corporate notes well below par that it was difficult keeping track of everything. There were many funds selling anything and everything just to raise cash into a very illiquid bond market. I even got "A "rated note 15 months to maturity (Applied Material) at a YTM of 5% and a Capital One 5 year note (Baa1)at a YTM of 8.9% and many others. It was frightening to see how much fund selling was going on. When they announced that the Fed was buying investment grade corporate bonds/notes the other day, that was my signal to buy even more before the rush comes in. I am done with the buying for now and am holding 20% in cash for trading. With the 10 year heading to zero, coupled with the Fed buying corporate bonds, my premiums will be back up in a little while.

After these mass selloffs (like 2008/9), I noticed that these preferred ETFs like PGX and PFF sustain damage beyond repair and trade thereafter at a lower band. You can see this from the long term charts. This is most likely due to some of their holding getting wiped out and never coming back. These preferred stocks are going to be volatile over the next few months by a combination of liquidation and rebalancing of those ETFs.

Dont get me going on the bond market, Freedom...ugh. I poked around 2 days ago in some issues and they were pricing like it was January but offering bids like they were going bankrupt. I mean 30-40% spreads and they were ready to fleece!