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

[Mulligan]

I can't find this issue on Yield Hunter?

Aja, try quantumonline.... And use it.... This (like most of mine) arent home runs, but singles. It is a $25 par trust preferred with a PECO non callable subordinate bond as the underlying issue with $27.10 mandatory call price in 2028. It is not callable. It only pays twice a year and the next 6 month $1 dividend is coming in April. I like part of my money in a terminating date issue.
http://www.quantumonline.com/search.cfm



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[aja8888]

Aja, try quantumonline.... And use it.... This (like most of mine) arent home runs, but singles. It is a $25 par trust preferred with a PECO non callable subordinate bond as the underlying issue with $27.10 mandatory call price in 2028. It is not callable. It only pays twice a year and the next 6 month $1 dividend is coming in April. I like part of my money in a terminating date issue.
Search Results - QuantumOnline.com



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Thanks, aren't these pretty expensive preferreds? In down markets they revert back to the offering price and even have slipped below it.

 

[Mulligan]

Thanks, aren't these pretty expensive preferreds? In down markets they revert back to the offering price and even have slipped below it.

My thinking is ALL preferreds can sink to par or below if market collapsed or inflation ran rampant again. That is why I like the mandatory call. It serves as a backstop. It could drop to $10 and I know in 2028 I am getting $27.10 back no matter what. This works out to around 5.7% or so YTC for an A3 issue from a utility that owns no power plants. A perpetual issue does not provide that protection.
Though I imagine my YTC will be higher if I sell a year prior to maturity. Assuming nothing changes, the market usually will not allow an 8% one year bond at $27.10 with an A3 rating at start of 2027. That is too much of a free lunch for a one year bond. But either way I am comfortable riding it out until call. But as I have said before I am not swinging for the fences, just trying to leg out some infield hits.


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[Coolius]

My thinking is ALL preferreds can sink to par or below if market collapsed or inflation ran rampant again. That is why I like the mandatory call. It serves as a backstop. It could drop to $10 and I know in 2028 I am getting $27.10 back no matter what. This works out to around 5.7% or so YTC for an A3 issue from a utility that owns no power plants. A perpetual issue does not provide that protection.
Though I imagine my YTC will be higher if I sell a year prior to maturity. Assuming nothing changes, the market usually will not allow an 8% one year bond at $27.10 with an A3 rating at start of 2027. That is too much of a free lunch for a one year bond. But either way I am comfortable riding it out until call. But as I have said before I am not swinging for the fences, just trying to leg out some infield hits.


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A 5.7 YTC ( or YTM ) is acceptable for me, I can regard it as a 12 year CD.

The only problem that could arise would be if the holding had to be liquidated for whatever reason. Then you would be at the mercy of the bid/ask price at that time.

But if the intent is to hold to maturity, and you don't anticipate ever having to liquidate prematurely, then that's a reasonable investment.

 

[aja8888]

My thinking is ALL preferreds can sink to par or below if market collapsed or inflation ran rampant again. That is why I like the mandatory call. It serves as a backstop. It could drop to $10 and I know in 2028 I am getting $27.10 back no matter what. This works out to around 5.7% or so YTC for an A3 issue from a utility that owns no power plants. A perpetual issue does not provide that protection.
Though I imagine my YTC will be higher if I sell a year prior to maturity. Assuming nothing changes, the market usually will not allow an 8% one year bond at $27.10 with an A3 rating at start of 2027. That is too much of a free lunch for a one year bond. But either way I am comfortable riding it out until call. But as I have said before I am not swinging for the fences, just trying to leg out some infield hits.


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I read some of the offering prospectus and for the life of me I can't pin down what assets are behind this offering besides Citibank. Also, Lehman is mentioned. Granted, it's late at night and I have not poured thru what looks like 100 pages. Who is paying the dividends?

 

[Mulligan]

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

I read some of the offering prospectus and for the life of me I can't pin down what assets are behind this offering besides Citibank. Also, Lehman is mentioned. Granted, it's late at night and I have not poured thru what looks like 100 pages. Who is paying the dividends?

Its a corporate backed trust security (think TRUPS that banks used to issue until Feds shut them down because they didn't want tier 1 capital backed by debt, they want non cumulative preferreds issued so the preferred investor can be screwed over now). It is a re - denomination of a bond packaged into a $25 baby bond for retail consumer purchase. Citigroup is the trustee owner since they own Smith Barney. It ultimately is a debenture from PECO that PECO must pay. Debenture is just a fancy term for unsecured bond. That shouldn't matter to an investor because an unsecured bond is safer than a preferred under it!
I have studied it a lot and cant begin to recite the prospectus let alone comprehend it. But I know this... It has paid for 16 years, if it cant pay it would go into bankruptcy. It will pay because Excelon the holding company cant get their greasy fingers on the profits from PECO to pay their bills until all preferreds and bonds are paid out first since Excelon as the holding company only owns the common shares. PECO has no preferreds because Excelon called them all. The only reason they haven't called this one is because it is noncallable.


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[Mulligan]

I read some of the offering prospectus and for the life of me I can't pin down what assets are behind this offering besides Citibank. Also, Lehman is mentioned. Granted, it's late at night and I have not poured thru what looks like 100 pages. Who is paying the dividends?

Ugh. Went on a tangent as I didnt know for sure if you knew the history of it. These to my understanding are "pass through" trusts. Thus Citi would technically be paying after interest has been deposited into trust for payment. My understanding is the financial health of Citi is immaterial to safety due to the trust set up. It all boils down to PECO making their payments. PECOs credit rating has very strong debt ratings. Moodys has this issue rated A3, and its a low rung issue.


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[Mulligan]

A 5.7 YTC ( or YTM ) is acceptable for me, I can regard it as a 12 year CD.

The only problem that could arise would be if the holding had to be liquidated for whatever reason. Then you would be at the mercy of the bid/ask price at that time.

But if the intent is to hold to maturity, and you don't anticipate ever having to liquidate prematurely, then that's a reasonable investment.

Actually in a technical sense it is safer than any preferred on a relative basis. Non payment of bonds forces liquidation, non payment of preferreds is just " too bad, no soup for you!".
Liquidity as you mention is a problem like all illiquids. But about everything I own has a several hundred share trading volume, so it will not feel out of place by joining my list of other illiquids. If I was ever going to need to sell I would not own much of these, but I don't spend or need my investment money.


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[Mulligan]

I dont like to sell my favorites, but someone really wanted CNLPL, so I sold 250 of them over $55.That is a years worth of dividends paid up front. Will wait for the nutty buying to subside and reenter closer to $52 later, unless I find something else.
Had a little fun with AILLL before that. Had extra money to buy some more and continue to accumulate. Not being greedy but I wanted them at $26.03, so I threatened a 1000 share sell dump from a safe ask price lurking in the shadow. That caved them to sell fearing that block would come down and dump.
Also bought a couple more hundred GJP. I accumulate these as a long term play, that counters perpetual preferreds. Sometime in the next 20 years the 3 month treasury will go above 1.85% and every basis point above that goes to the 3.65 yield plus the $4 plus cap gain is always in the pocket long term.


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Completed the full circle trade today from Monday, when CNLPL was bid up too high. Sold 250 out at $55.04, and figured I could re enter cheaper. Thanks to Coolius tipping me off CNTHP which is a near identical sister issue to CNLPL was having a 1,000 share dump. I was able to get 200 at $52.40 so completed round circle trade. An easy $750 cap gain plus reentering at same previous yield. These kinds of imbalances will occur in illiquids, occasionally. One issue will rise while another drop even though capital/structure wise they are the exact same issue.
Appears selling has subsided in KTH as it is up 58 cents today with sub 1000 shares traded. Im assuming the dump is over or nearly over.


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[aja8888]

Mulligan: Thanks for the explanation on the funding of KTH. Not sure if I want to buy in at this level and may keep an eye on it for a future buy at a lower price.

 

[Mulligan]

Mulligan: Thanks for the explanation on the funding of KTH. Not sure if I want to buy in at this level and may keep an eye on it for a future buy at a lower price.

Your welcome, Aja. It all boils down to what you really want or need. Its current yield is over 6.3%, but the call yield is lower if you hold to call. I buy these types not to beat the market, but maximize yield while
minimizing price volatility.


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[RE2Boys]

Patience paid off......picked up some CNTHP today at 52.20 again. Yep, just on the sidelines and cheap!

 

[Mulligan]

Patience paid off......picked up some CNTHP today at 52.20 again. Yep, just on the sidelines and cheap!

Congrats, RE! Its takes patience to get these at the price you want, but the opportunity will come in time. Good job...


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[Coolius]

Patience paid off......picked up some CNTHP today at 52.20 again. Yep, just on the sidelines and cheap!

Good for you! I was also able to grab 300 shares at $52.23, just a shade more expensive.

The next ex-div comes in about 2 months, so once that is under our belts, we're effectively below redemption price, and can ride the gravy train for as long as the issue is not called.

 

[capjak]

In the last 3 days I added 200 shares AILLL at 26.10 and 300 at 26.05 and 500 shares KTH at 31.00

 

[Mulligan]

In the last 3 days I added 200 shares AILLL at 26.10 and 300 at 26.05 and 500 shares KTH at 31.00

Cap, I think the KTH for what purpose it serves is a great buy and especially at $31. You know what your current yield is which is 6.4% and YTC if you so desire to carry full maturity is over 5.75% for 12 years no matter what happens to price in between. And you can see by historical chart movement even when 10 year treasury in 2005 was around 4.25% (which that aint happening for a while) KTH was over $30 then. For pure yield, in relation to historical rates, high investment grade rating safety, and a backstop mandatory call date, you cant beat the yield in my opinion. Yes you can find higher, but always at the expense of safety. The only thing is you must either be in 15% tax bracket or have in tax deferred accounts as it is interest not a dividend.


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[Mulligan]

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

Made a few purchases the past week. Made a just for kicks 200 share purchase of CVB (KMI trust bond 7.25%) which is basically non callable due to fact all trust shareholders have to approve it. Flipped my MNR-A at a two dividend plus profit holding less than 2 months. Love the issue and will try to get back in after it goes ExD at lower price. Finally finished out my 1000 shares of KTH. Couldn't land that sweet 500 share $31 price Capjack bought, though. Had to settle for around $31.20 averaged out. Still, allowing for accrued dividend this 6.4% yielder is almost 6% YTC if one desired to hold all the way until 2028. I really love this one, A3 rated as a bond. You would have to dig hard to find that rating with that yield and out year price call protection with no call option hanging over your head....It is my number 3 issue, though way behind my #1 Amerens. If it ever falls to $30, there will be some culling of the preferred herd somewhere to dig up cash to buy more.


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[capjak]

Finally finished out my 1000 shares of KTH. Couldn't land that sweet 500 share $31 price Capjack bought, though. Had to settle for around $31.20 averaged out. ....It is my number 3 issue, though way behind my #1 Amerens. If it ever falls to $30, there will be some culling of the preferred herd somewhere to dig up cash to buy more.


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KTH is nice yield but I am in taxable account so actually you are better off. I need to purchase more qualified issues.

 

[Mulligan]

KTH is nice yield but I am in taxable account so actually you are better off. I need to purchase more qualified issues.

Here is one to consider that doesnt appear to be too much of a risk that is currently liquid though usually isnt. EYMXP (cumulative preferred) Entergy Mississippi. The past 52 weeks the stock has moved less than about any I have ever watched. Its 52 week low is $25.15 and the high is $25.45. That spread is less than the quarterly dividend is. It is a 25 million issue that is 80% institutionally owned. It appears an institution is unwinding a position as a 1000 share $25.30 ask price is asked no matter how much is bought each day. They appear to be unwilling to drop ask and just sell on $25.30. No dumping just a steady unwinding. Since it is so institutionally held and float is small, this makes a rare easy entry point into an illiquid. This is a 6.18% yield 15% tax qualified. They have it listed as one notch below investment grade, but the company senior bonds are A rated which usually is what needs to be watched the most as that is where it all starts.


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[capjak]

Thanks Mull,

Taking a 2 week break current on Maui enjoying the sun but when I get back I'll check it out.

Maybe more AIlll upto 850 shares have $70,000 more for preferred purchases

 

[capjak]

Bought EYMXP 1000 @25.30 today and more AILLL 500@25.90

Thanks Mull (I hope)



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[Mulligan]

Bought EYMXP 1000 @25.30 today and more AILLL 500@25.90

Thanks Mull (I hope)



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I just hope Capjack you didnt shorten your Maui trip just to make some trades!


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[Coolius]

I also bought EYMXP today - 600 shares @ $25.30.

 

[capjak]

I just hope Capjack you didnt shorten your Maui trip just to make some trades!


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Nope decided to check out swab and said what the heck, I an afford a few clicks of the confuser to make a trade


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[capjak]

Sorry about the spelling too many pool drinks


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