Preferred Stocks as Part of Fixed

[oliverdickens]

What is the opinion of the experts on this forum about utlizing Preferred Stocks from A+ rated companies as part of one's fixed side allocation to up the yield and cash flow?

By this, I currently have about $815K in CD ladders averaging about 5% for my fixed side. Now that the CD's are dropping dramatically, I am looking at Preferred Stocks in A+ companies such as Morgan Stanley, GE, USB, that will payout 6.2-6.9% yield. Granted the principle will be volitile, the yield is much better than CD's. Was looking to allocate up to 20% of my fixed allocation. Will not need any of this money for at least 5 years.

What are your thoughts on risk vs benefit? Is this a crazy strategy to take? Know that is company goes belly up, could lose all my money, but odds for A+ companies should be less of a risk.

Thanks for advice/opinions.

 

[brewer12345]

There is nothing wrong with preferreds, especially now that yields have gotten fatter. But be aware that when you buy these thingsin place of CDs, you are taking substantially more credit risk than a CD. Can you evaluate thew creditworthiness of, say, Morgan Stanley? Probably not. So 1) don't go overboard with preferreds, 2) stay diversified by name or buy an ETF or CEF that specializes in these things, and 3) pay attention to the tax status of these issues, as not all spit out qualified dividends.

 

[terminator]

And pay attention to if and when it can be called away from you.

 

[Art G]

Also, if you have the choice, look for preferreds with a maturity date (no matter how far out) vs. a perpetual one.

 

[Art G]

BTW, if anyone has a list of recommended preferreds, I am always looking to add to my portfolio. Preferably, ones paying over 7%.

 

[JB]

Got this in my in-box yesterday. Nice yield, but maturity is perpetual.May be callable
in 5 years. No thanks.

I've had a chance to learn some about preferred stocks over the past few months.
I expected less volatility (they've been hit hard with the recent credit fears).



Charles Schwab & Co. Inc., is pleased to announce the
availability of the following new issue Taxable Offering:


Issuer Name: Deutsche Bank AG Non-Cumulative Capital Funding
Trust X
Issuer Description: This hybrid security is a direct obligation
of Deutsche Bank AG and is QDI eligible. Deutsche Bank AG is a
global financial service provider delivering commercial,
investment, private and retail banking. The Bank offers debt,
foreign exchange, derivatives, commodities, money markets, repo
and securitization, cash equities, research, equity prime
services, loans, convertibles, advice on M&A and IPO’s, trade
finance, retail banking, asset management and corporate
investments. Symbol: DB
Type Of Bond/Security: Hybrid Preferred Security
Expected Credit Rating*: Moody's, Aa3; S&P, A+
Expected Bond Maturities*: Perpetual
Investment Amount: 100 Share Min/100 Share
Increments
Anticipated Yield to Maturity: 7.30%
Payment Frequency: Quarterly
Expected Call Features: Noncallable for 5 years
Expected Settlement Date: November 13, 2007

 

[Art G]

Got this in my in-box yesterday. Nice yield, but maturity is perpetual.May be callable
in 5 years. No thanks.

I've had a chance to learn some about preferred stocks over the past few months.
I expected less volatility (they've been hit hard with the recent credit fears).



Charles Schwab & Co. Inc., is pleased to announce the
availability of the following new issue Taxable Offering:


Issuer Name: Deutsche Bank AG Non-Cumulative Capital Funding
Trust X
Issuer Description: This hybrid security is a direct obligation
of Deutsche Bank AG and is QDI eligible. Deutsche Bank AG is a
global financial service provider delivering commercial,
investment, private and retail banking. The Bank offers debt,
foreign exchange, derivatives, commodities, money markets, repo
and securitization, cash equities, research, equity prime
services, loans, convertibles, advice on M&A and IPO’s, trade
finance, retail banking, asset management and corporate
investments. Symbol: DB
Type Of Bond/Security: Hybrid Preferred Security
Expected Credit Rating*: Moody's, Aa3; S&P, A+
Expected Bond Maturities*: Perpetual
Investment Amount: 100 Share Min/100 Share
Increments
Anticipated Yield to Maturity: 7.30%
Payment Frequency: Quarterly
Expected Call Features: Noncallable for 5 years
Expected Settlement Date: November 13, 2007

JMO, but DB does nothing for me here.

 

[saluki9]

BTW, if anyone has a list of recommended preferreds, I am always looking to add to my portfolio. Preferably, ones paying over 7%.

Brewer turned me on to quantumonline.com and I've become a huge user of the site. It's a great place to look for preferreds.

 

[Art G]

Thanks, I'll check it out. I also use this....

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