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

[Mulligan]

I just got in it, at 10.25 a month or so ago and sold last week at 10.57. I doubt it gets called this time. But I made 2 quick interest payments. CEO said in last conference call that caused the sell off to 10.20 that they were looking at redeeming it. But they may try to acquire a bank instead... I took advantage of the drop and exploited it. But I never get caught holding the call bag. But I move in and out of similar issues on 25-50 cent wobbles. So this is more my style with trading/holding above par, past call issues.

I got what I got, but have moved a bit more defensive lately. My more recent add ons have been EP-C, INBKL, GGO-A. So I have a more definitive amount of shorter duration issues of decent quality. But of course I have others that do not mirror that genre though I am holding.

Free, you gave up hours too early... A 7000 dump occurred today and brought it back to $50. I bought a 100 more...

 

[Mulligan]

Sounded like a good idea. I limit ordered 100 on 12/5. Filled 2, then 2. On 12/6 I got 2 more. The price went up and the liquidity down. Didn't want to be stuck with 6. Sold them today. Fido's free trades policy helped take the sting out of it. Try again another day.

Free, you think that liquidity dried up...Try my IPWLO...It is now showing $0.00 in my account despite having over 300 shares. Soi lost about $30k today! Nah, not really. This happens all the time in my Ally when a stock goes about 3 months without a trade. One of these days it will trade again and suddenly that $30k will show up again.

 

[53anddone]

Safety of Preferred Stock and Indexes

I am pretty pessimistic about 2020 overall.

What are folks thoughts on the safety of preferred stock investments should we have a down year and, perhaps more importantly - downgrades of some of the corporate debt that's out there.

I own a few preferreds but tend to simply buy the index (like PFF) and collect the dividend.

Thanks - Good Luck to All.

 

[Mulligan]

I am pretty pessimistic about 2020 overall.



What are folks thoughts on the safety of preferred stock investments should we have a down year and, perhaps more importantly - downgrades of some of the corporate debt that's out there.



I own a few preferreds but tend to simply buy the index (like PFF) and collect the dividend.



Thanks - Good Luck to All.

Thats a tough question 53 and I am too dumb to know the answer. I thought surely this past year and year before had to be down years. But yet, I easily went over 10% again (around 15% as of yesterday) like every year despite only being in preferred stock and nothing else.
I tend not to own any company that has poor prospects or credit quality. Unless its an in and out burger like I just did with PBI-B, or the LTS baby bonds.
So I am more tethered to the long end of yield curve. Any perpetual of any quality will suffer if long end rises appreciably. Or if credit spreads blow out. PFF is no different. Though I mitigate that some owning some term dated, adjustables, and Canadian resets that will not trade in tandem with the typical perpetual preferred.
I have twisted a buy and hold instrument into a grind out cap gain trading vehicle with dividends. Takes time, but I enjoy it. But really for the typically moderately exposed preferred investor, you really are buying an income stream with some residual value if one sells. If you arent overexposed and bought for the purpose of income stream it really should just be a buy and hold and let it do what it wants. As predicting interest rate and credit spread directions and expectations have poor results. It was about a year ago Gundlach and Jamie Dimon both said 10 yr was heading over 4%....Wrong!

 

[brokrken]

I tend not to own any company that has poor prospects or credit quality. Unless its an in and out burger like I just did with PBI-B, or the LTS baby bonds.

PBI-B. I'm still holding this one with a $2+ cap loss. Guess I'm stuck with it for a while.

 

[bobandsherry]

PBI-B. I'm still holding this one with a $2+ cap loss. Guess I'm stuck with it for a while.

Turn that lemon into lemonade? If ya liked it $2+ more, is it a buying opportunity now?

 

[brokrken]

Turn that lemon into lemonade? If ya liked it $2+ more, is it a buying opportunity now?

Way ahead of you, Bob. That $2 is net. I'm nearly $4 off the original purchase.

 

[Free To Canoe]

Sounded like a good idea. I limit ordered 100 on 12/5. Filled 2, then 2. On 12/6 I got 2 more. The price went up and the liquidity down. Didn't want to be stuck with 6. Sold them today. Fido's free trades policy helped take the sting out of it. Try again another day.

Better luck today. 100 at $49.47 with the div ex date coming up tomorrow. Thanks Mul.

 

[Mulligan]

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

Way ahead of you, Bob. That $2 is net. I'm nearly $4 off the original purchase.

I looked at it more before I hit the in and out trade. Its really in no near term problems as they got plenty liquidity and have reduced some debt. Common stock action is horrible and I cant get over the postage stamp thing. I just dont understand their goals and if they will work. But I am still watching.

 

[bobandsherry]

I looked at it more before I hit the in and out trade. Its really in no near term problems as they got plenty liquidity and have reduced some debt. Common stock action is horrible and I cant get over the postage stamp thing. I just dont understand their goals and if they will work. But I am still watching.

I looked at the latest 10Q, financials not looking good by any means, for 9 months revenues flat, expenses up and net income down significantly from prior year. And the prior year was down, so forth. 3rd quarter posted a loss. Unclear what their future opportunities are. The upside could be with low rates they find a way to re-issue to take advantage reducing interest expense and call this.

They did small acquisition, so still seems to be focused on trying to do something. So I'm sitting on the sideline still looking at the underlying position of the company and that big fat yield.

 

[Mulligan]

Bob, here is how it usually plays out for me on something like this....Option 1, It drops $2.... Glad I didnt buy that, I knew it was junk!.... Option 2, it rises $2.... I knew I should have bought it, I knew it was going up.

 

[Mulligan]

Better luck today. 100 at $49.47 with the div ex date coming up tomorrow. Thanks Mul.

Free, Im kind of surprised it dropped today. I really cant justify buying more but if it sags more, I may be forced too. The key besides the decent quality is the 8 yr duration. No matter what it does or doesnt do, I can hold until maturity. Its really the plan anyways unless it ever spikes again down the road.

 

[bobandsherry]

Free, Im kind of surprised it dropped today. I really cant justify buying more but if it sags more, I may be forced too. The key besides the decent quality is the 8 yr duration. No matter what it does or doesnt do, I can hold until maturity. Its really the plan anyways unless it ever spikes again down the road.

Heh - I don't figure I'll win them all, just enough to keep my head above the water line

 

[Coolius]

Free, Im kind of surprised it dropped today. I really cant justify buying more but if it sags more, I may be forced too. The key besides the decent quality is the 8 yr duration. No matter what it does or doesnt do, I can hold until maturity. Its really the plan anyways unless it ever spikes again down the road.

Strange why EP-C is selling below par. I am very tempted to buy more, and ride the security to maturity in 2028.


Consider it a 8 year CD at a 4.75% yield.

 

[Mulligan]

Strange why EP-C is selling below par. I am very tempted to buy more, and ride the security to maturity in 2028.


Consider it a 8 year CD at a 4.75% yield.

I bought 250 more at $49 flat yesterday. That is over 5% on a YTM basis. Unfortunately, 8 years isnt very long is it, Coolius. Heck you and I have been bantering to each other for almost that length of time online already.

 

[Coolius]

Mul,


Like you, I bought more EP-C, but at $49.20, higher than you. You win again!!


Did you notice CBKLP dump? Down to par. Closed at $100.38. It's gotta be some fund dumping, volume was 11,000 shares. Or maybe a call is coming?



Heck, an IG rated QDI 6% preferred, from one of the strongest banks in the US, selling at Par ?

 

[Mulligan]

Inspy, prospectus says quarterly calls beginning July 1, 2018. So they can only call on specific dates.

 

[Coolius]

Inspy, prospectus says quarterly calls beginning July 1, 2018. So they can only call on specific dates.

Hey, you blew my cover by calling me " Inspy " here !! LOL


I went to page 96 of the annual report, and yes, it is as you said. they can only call quarterly beginning July 1, 2018.


So April 1, 2020 dividend is assured.


Beats me why someone would sell at $100.38, and give up the dividend? Could it be some kind of dividend capture strategy going on ? If it is, I can't see where it benefits the sellers.

 

[Mulligan]

Hey, you blew my cover by calling me " Inspy " here !! LOL


I went to page 96 of the annual report, and yes, it is as you said. they can only call quarterly beginning July 1, 2018.


So April 1, 2020 dividend is assured.


Beats me why someone would sell at $100.38, and give up the dividend? Could it be some kind of dividend capture strategy going on ? If it is, I can't see where it benefits the sellers.

Ha, I cant keep track of aliases...Getting old myself, ha. Were these trades on the OTC, or did they bypass bid/ask spreads?

 

[Coolius]

Ha, I cant keep track of aliases...Getting old myself, ha. Were these trades on the OTC, or did they bypass bid/ask spreads?

Those CBKLP trades appear to bypass the spreads, so likely a private transaction.


I am expecting CBKLP to rise back to $101 at least, tomorrow. Still no harm in putting out a bid at $100.40 in case someone gets rattled by Fridays activity and dumps his/her shares.

 

[Castaspey]

Does a cumulative provision on a REIT preferred really offer that much protection? Because the law says that REITs have to pay out earnings as common dividends, and preferreds are senior to common stock, it seems that REITS cannot merely make the business decision to temporarily suspend dividends. Now if a REIT is in such existential risk that it cannot pay dividends at all because it has no earnings, I think you face bigger risks than a cumulative provision really protects against.

Am I think this through right?

 

[Mulligan]

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

Does a cumulative provision on a REIT preferred really offer that much protection? Because the law says that REITs have to pay out earnings as common dividends, and preferreds are senior to common stock, it seems that REITS cannot merely make the business decision to temporarily suspend dividends. Now if a REIT is in such existential risk that it cannot pay dividends at all because it has no earnings, I think you face bigger risks than a cumulative provision really protects against.

Am I think this through right?

Castaspey, Bottom line in reality whether it be a Reit or C Corp if a company suspends the preferred they are in deep trouble. There is never any non payment going on just to hold money. Even non cumulative. Many that may have trouble but have some cash, may still have higher cap stack covenant provisions that prevent the issuing of dividends.
In fact there are a couple Reit preferreds with suspended dividends now on the preferreds. It does happen where a suspended dividend is reinstated. But usually it never returns. That is why Moodys and S&P do not rate a cumulative preferred any higher than a non cumulative as they stated the difference is largely immaterial.

 

[Coolius]

Mulligan, good points that you made. Conventional wisdom is that a cumulative is " safer " than a non-cum, I do not necessarily agree.


OTOH, there are instances where a company suspends the dividend under exceptional circumstances; PG&E comes to mind. They are likely to reinstate and pay all deferred dividends once they get through this very difficult time of bankruptcy and legal wrangling about restructuring.




the issue of cum or non-cum is a low priority for me, for the reasons you stated. But, of course, if all other parameters were equal, a cumulative issue will be more attractive.

 

[Mulligan]

Yes, Coolius, and in PCG case the preferred has largely traded from the beginning of its suspension like it would be reinstated. Most suspended preferreds tank hard...Look at the CBL preferreds and Just Energy ones that got the hook. Look at price of PCG-A...Its almost $27 for a 6% par. Its price yield is lower than the Same utility preferreds that are actually paying. Of course there is a deferred payment accruing, but it may be years more before its ever paid..And there is no absolute certainty either.

 

[Castaspey]

At the core of my question is whether I should be willing to pay any sort of premium for a cumulative preferred over a non-cumulative. While it is not a huge factor, I think it is even less so for REIT preferreds.