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

[bobandsherry]

Seems like too much of an "unknown" to opt for the $9.75 in cash when an unknown amount may be paid in common stock. One needs to be "comfortable" with getting the common and take the position that they survive and the common will be worth more in the future then selling at market price today. If not comfortable with the possibility of getting the common then consider selling preferreds at market price. [/U]

Yeah, I had mentioned that and posted the details for each security as to what the max cash out could be. If you do get the common then can sell those, but who knows what those will end up trading at. Even at $4 that's still over $10/share on conversion. Trading at $4.70 today, so 20% downside yet to the $4 mark.

I used this as a flip opportunity. Snagged 1,000 shares around $7.20 yesterday, sold off at $7.99 today, almost $800 for a day, I'll take that. Keeping an eye on these as there's still upside to drive volatility, see if there's another chance to flip a few shares.

 

[Mulligan]

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

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.

 

[Born2Fish]

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.

Mulli, I found credit ratings dated June 9, 2020 on the NGHC preferred stock at this link

https://www.businesswire.com/news/home/20200709005986/en/Places-Credit-Ratings-National-General-Holdings-Corp.#:~:text=OLDWICK%2C%20N.J.%2D%2D(BUSINESS%20WIRE,of%20National%20General%20Holdings%20Corp.

Businessware gave them a "BB" rating on the preferred stock - "non investment grade speculative". Is this a concern?

 

[Mulligan]

Born, the thesis of the purchase isnt Nat Gen rating, but AllState which is acquiring it. They have an A3 senior unsecured. They will not tolerate paying 7% preferreds. In fact buried on page 56 is this info concerning Acquisition....


At Parent’s sole expense and subject to Parent’s reasonable cooperation therewith, the Company shall, as reasonably requested by Parent in writing, take all actions necessary to effect the redemption of any or all series of the Company Preferred Stock as of or immediately prior to the Effective Time to the extent redeemable by the Company on its terms at such time, including preparing and delivering all notices of conditional optional redemption in form and substance reasonably acceptable to Parent to effect the redemption pursuant to the requisite provisions of the applicable Certificate of Designations; provided, however, any notice of redemption shall be irrevocably conditional on the Closing occurring immediately following such redemption and the date of redemption shall be no earlier than the Closing Date; provided, further, that Parent shall provide, or cause to be provided, all funds required to effect such redemption or shall confirm the use of cash on hand at the Company to effect such redemption.

 

[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.

 

[aja8888]

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.

When you say there is a lot of meat on the bone for owning these, where's the beef? Redeem @ $25, maybe two dividends? What am I missing?

 

[Mulligan]

When you say there is a lot of meat on the bone for owning these, where's the beef? Redeem @ $25, maybe two dividends? What am I missing?

Aja, I probably wrote too much and you forgot the first part of original post.. A short term parking place, ha! Actually they said early 2021, so I am assuming March or 3 dividend payments. But even if its only 2 payments you back out the 25 cents , that leaves 68 cents of income. Annualize that out and its a very decent short duration return. You get three and it is really good for 8 month return.
The genesis of my thoughts are if one has cash and needing a safe spot that doesnt expose oneself to duration risk. Plus it will stay anchored and creep up and one can later use the cash for a better opportunity long term down the road if it presents itself.

 

[aja8888]

Aja, I probably wrote too much and you forgot the first part of original post.. A short term parking place, ha! Actually they said early 2021, so I am assuming March or 3 dividend payments. But even if its only 2 payments you back out the 25 cents , that leaves 68 cents of income. Annualize that out and its a very decent short duration return. You get three and it is really good for 8 month return.
The genesis of my thoughts are if one has cash and needing a safe spot that doesnt expose oneself to duration risk. Plus it will stay anchored and creep up and one can later use the cash for a better opportunity long term down the road if it presents itself.

Understand! Thanks. I may park some with these as I have a lot just sitting right now.

 

[Mulligan]

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

Understand! Thanks. I may park some with these as I have a lot just sitting right now.

Aja, These two issues are very liquid and are being priced like they will be redeemed next dividend. But filings are showing that wont be the case. Typically these issues will stay roughly in this area and then a few weeks prior to next exD they will jump up to a divi above par, then rinse and repeat for following divi. I tend to buy these and just grab whatever money I can get until a “deal” comes along. And if one doesnt just keep holding, and hope one does down the road, ha.

 

[bobandsherry]

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.

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

 

[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]

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]

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]

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]

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]

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]

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]

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]

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]

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]

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.