Mulligan
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
- Joined
- May 3, 2009
- Messages
- 9,343
What does that mean?
If you are buying at a premium to par, and there is no call protection (does past call mean they are past the date the issuer is required to wait to redeem) don't you risk the issuer calling at par at any time, losing your premium?
The prices of the issues stay relatively close to par because of call risk. As recently as earlier this week you could have bought CNLPL about one dividend above with next dividend already declared. No loss of principal risk there with a 6.1% yield. It has been callable since the 1970s so I am not worried. In fact all of mine have been callable for decades except for a couple that are not callable.
The key is to buy tiny series issued preferreds from huge companies. These companies have abandoned the preferred stock capitalization structure decades ago issuing cheaper debt now instead, but left the tiny issues stranded and delisted them. Not worth their time and effort to call. 6 months profits from these big utilities could pay off entire series of the issued preferreds but they don't bother. I have one that yields 7.15% that is only a $450,000 stranded issue. The original utility has been bought out twice and only that amount of a $10 million issue from decades ago is still in circulation.