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

[Running_Man]

I could not resist, and sold off 20% of my position, at $1,332.00.

Can always buy back if it retraces a little. And I have 2 months to buy back without interrupting the dividend stream.

That thing has gone up like a rocket......and the volume today is quite big vs normal volumes. Wonder why the rush to buy?

I have not understood for quite a while why there was the possibility of getting a 6.5% then 6% and now 5.6% yield on Wells Fargo, it was vastly underpriced. The dividend yield should be 5.25 - 5.00% to be competitive in this environment, which is a price of $1400-1500. As I posted on June 26th I was shocked the price was not trading over 1300 and now that it has broken it 1400 could happen quick.

I do not for sure know the reason for the recent uptick in price but I suspect some hedge fund or someone reasoned with the recent stress test there is little risk of common and preferred dividends being stopped, which as this is a non-cumulative issue is the biggest risk, and therefore are jumping in for the extra yield. It will have to be 1700 before I sell, there just is not the ability to get the quality yield, which is why I own this preferred. I did increase my position 20% on this, Bunge and CHS preferreds when BREXIT happened as I thought that was going to pressure yields to the downside and all of them dropped in price, I picked up WFC-L @1260 (5.95% yield) It will take a lot to shake this from me...

 

[Running_Man]

Another day another 39 points up for WFC-Pl (nearly 2 quarters of dividends) and yield has dropped to 5.47%. Of course 30 year treasuries are at all time lows. With the soaring volume I find it very likely that pension funds are purchasing as an attempt to offset the low long term bond yields. Really quite an incredible move in such a short time, it makes me think there is a change in mindset that is ongoing among market participants, a big group who would be pension fund managers, who did not truly believe interest rates could go to zero or negative for long periods of time prior to BREXIT.

$60 million+ of volume today

 

[Mulligan]

Another day another 20 points up for WFC-Pl and yield has dropped to 5.5%. Of course 30 year treasuries are at all time lows. With the soaring volume I find it very likely that pension funds are purchasing as an attempt to offset the low long term bond yields. Really quite an incredible move in such a short time, it makes me think there is a change in mindset that is ongoing among market participants, a big group who would be pension fund managers, who did not truly believe interest rates could go to zero or negative for long periods of time prior to BREXIT.

I am not a big contrarian guy. But I must admit I felt more comfortable when Coolius and I were privately PMing a year ago to embarrassed to say this interest rate increase is a shame lie and isnt happening.... Buy long dated perpetual preferreds....I don't do cartwheels of joy though when public starts pounding my thoughts with their actions though.


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[Coolius]

it makes me think there is a change in mindset that is ongoing among market participants, a big group who would be pension fund managers, who did not truly believe interest rates could go to zero or negative for long periods of time prior to BREXIT.

I was thinking that maybe Big Pension Funds like CALPERS, who recently fired their hedge funds, might be behind this move. We're seeing volumes of $37 Million ( 37K shares ) a day - no retail types can ever achieve those figures collectively. Isn't the Illinois Pension Fund also seeking to divest itself of their highly paid, underperforming Hedge Funds as well ?

Grrr.....kicking myself for selling some at $1262 and at $1332.

 

[Running_Man]

So far in 2016 the Illinois Pension fund has pulled 1 billion dollars from pension funds, since 2014 CALPERS has pulled 4 billion from hedge funds. New York has pulled 1.6 billion.

 

[dixonge]

I'm not a market timer, but...

I have to admit I enjoy seeing the market dip right when new money is available. I will definitely buy today, but maybe not right at the open.

 

[Mulligan]

I read WFC-L last week was added to the staple preferred fund PFF. I am sure this assisted in the bump. Though on relative basis L is a decent sized issue, I have serious concerns of a big fund cobbling together a bunch of illiquids to make a "liquid" fund. A herd stampede recipe for disaster. And guess which ones the fund manager will have to dump on redemption notices? That is why my preference is smaller issues that are to small for preferred funds to buy and screw things up down the road for me.


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[Running_Man]

As of yesterday PFF did not hold shares in WFC-L though today on the big drop in price there is 200 million dollars of activity so perhaps they are buying for the fund today and maybe the previous activity was an intermediary jumping in front. I cannot find any news announcing this move though PFF does own 2 other JP Morgan preferred. Personally I am unconcerned about the price volatility as I see the security as worth a 5.25 percent yield and therefore the present price is a discount to that and if they drive it to 4.5% yield I will sell, but in the meantime the financials of Wells Fargo are easy to follow and holding this one is an easy decision for me for now.

I marvel at the skill and patience Mully and Cooly have in the illiquids, that mindset is impressive. I find this giant move down in interest rates fascinating as the impact surely will be making a mark soon in common stock prices. Last September the Swiss 50 year treasury was yielding one percent and market commentary was what good is one percent per year for 50 years? And now in nine months the price of that bond has appreciated over 50 percent, prepaying if one were to sell in nine months all the interest the bond will pay over it’s 50 year term......Unbelieveable........

 

[Mulligan]

Running Man I was only going by what a poster on another forum said, so I definitely do not know. Just parroted info, as he said it occurred Thursday.
Ocassionally I gamble and am doing it today...Bought 500 MORE shares of PVTBP at $25.63 and $25.56. Private Bank is getting bought out by a canadian bank. At this price and the juicy 9.6% plus yield, I am looking them in the eyes and daring them to call. With 20 days already on next divi and 30 day call notice, there is little to be lost in an immediate call. I checked SEC filings and no mention.. My goal is 3 divis and call at merger next spring. Or price settles down and sell on a flip. Possibly get lucky and it is held over as Tier 1 cap due to its dual juicy tax benefit.
Im already positive with this trade as I a couple weeks ago I bought and sold at almost $1 profit per share in one weeks time, just getting out minutes before the sell stampede occurred....Then repurchased 600 more later that day almost $2 a shares less. Building me up a huge PVTBP war chest!


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[Mulligan]

An example today of knowing what the hell you are doing before hitting buy button....Some idiot bought 500 shares of CNLHO at $58.76. This is a sister issue of CNLPL, but its par is $50 and a par yield of 4.5%... Their yield is 3.83% and bought $8 over par...As Rick Perry famously said .."Ooopps!"


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[Coolius]

An example today of knowing what the hell you are doing before hitting buy button....Some idiot bought 500 shares of CNLHO at $58.76. This is a sister issue of CNLPL, but its par is $50 and a par yield of 4.5%... Their yield is 3.83% and bought $8 over par...As Rick Perry famously said .."Ooopps!"


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There is an article on SA about WFC-L. And read the very first comment - says that it was added to PFF on Thursday.

Once-Tame Wells Fargo Preferred Is On A Tear - Wells Fargo & Co. (NYSE:WFC) | Seeking Alpha


And there must be some rather foolish buyers out there today - just sold GLFPO for $128.50. This is a 5.6%, $100 par stock that I bought 2 years ago for $101.

 

[Mulligan]

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

Wow, TradeKing is something else. I love their low costs, but they do not like you buying illiquids at all. I have a 100 share order in on a $100 par issue and it said I had to call them as they do not allow pink sheet issue transactions over $10k. I dutifully called and then they told me it was too illiquid to trade and I wouldnt be able to sell if I bought. Well, that is just flat wrong to begin with. So for the second time I had to bully them into initiating the transaction for me. I had to tell clerk, I know more illiquid preferred ticker symbols than you know common stock symbols, and own a few issues that haven't traded in past couple years except for my purchases. Finally after 5 minutes of explaining to them and voicing a recording stating I am responsible for the trade they relented.....So do you get your money back on a bad common stock trade or am I missing something, ha!


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[Mulligan]

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

Ok, I didnt golf today, so being gone from Vegas I was eager to wheel and deal since I got back... Sold out several hundred shares of BGLEN, locking in the easy money profits from the panic sale a few weeks ago. Will keep the other half and let it play out a while. Bought 500 more of PVTBP and was given only 140 shares of CTWSP at $18 despite wanting 200. Right at the 5% yield and going exD next week. I really want to get to $30,000 in total amount of the Connecticut Water preferreds be it CTWSO or CTWSP but it appears I will come up short... But near $20k, and after 2 years the process will continue and I will not give up.


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[dixonge]

I'm not a market timer, but...

I have to admit I enjoy seeing the market dip right when new money is available. I will definitely buy today, but maybe not right at the open.

Woo-hoo! Got in right at the bottom of the dip today. Won't mean much 30 days from now, but currently feels pretty good

 

[Coolius]

Woo-hoo! Got in right at the bottom of the dip today. Won't mean much 30 days from now, but currently feels pretty good

Dixonge, are you talking about WFC-L ? If so, congrats ! The low was $1,350 - and presently trading at $1,358.

Yield on cost basis of $1,350 is 5.56% - no barn burner, but OK for a highly rated investment grade, QDI bank preferred. And only interest rate risk to be aware of.

 

[Running_Man]

There is an article on SA about WFC-L. And read the very first comment - says that it was added to PFF on Thursday.

Once-Tame Wells Fargo Preferred Is On A Tear - Wells Fargo & Co. (NYSE:WFC) | Seeking Alpha


And there must be some rather foolish buyers out there today - just sold GLFPO for $128.50. This is a 5.6%, $100 par stock that I bought 2 years ago for $101.

I found out what has occurred the index that PFF tracks is adding WFC-PL. This was announced last Thursday. The changes are effective July 15th 2016 so PFF does not yet own the issue and so many were front running the required purchases.

https://www.spice-indices.com/idpfiles/spice-assets/resources/public/documents/369745_spuspreferred-20160630.pdf?force_download=true

 

[Mulligan]

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

Finally after weeks, I was able to close the deal. Bought 200 shares of EGYKP (Arkansas's biggest utility) at $102 today. After weeks of nothing, I put an additional 100 share bid and that spilled open the floodgate trading 1200 shares right after. What I really like about this one is it is basically the last of the near 6% issues investment grade that is trading under its call price ($102.83). A tiny $7.5 million issue from early 1960s. Its tiny float size should escape call notice. Very pleased with this one.


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[Running_Man]

Finally after weeks, I was able to close the deal. Bought 200 shares of EGYKP (Arkansas's biggest utility) at $102 today. After weeks of nothing, I put an additional 100 share bid and that spilled open the floodgate trading 1200 shares right after. What I really like about this one is it is basically the last of the near 6% issues investment grade that is trading under its call price ($102.83). A tiny $7.5 million issue from early 1960s. Its tiny float size should escape call notice. Very pleased with this one.


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Nice! hope you can avoid the call curse for a few years at least

 

[Mulligan]

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

Nice! hope you can avoid the call curse for a few years at least

RM, you know I have never had a call problem with any small float issues. They just arent worth companies time to call. A reissue float of 7 million is useless to a megacap company. And buying them out is needless cash drain. Their return of capital is higher than preferred yield anyways. The only utility preferreds I ever see called are issues that are 30 million and above. Or a company buys another out and retires all of the issues. Psychologically I need more under par issues which I have worked on, but my above par past call tiny float issues have held strong... Hopefully the trend continues.


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[Mulligan]

Past week or two moved some things around...Trying to get balanced for "lower for longer" and not have so many of my issues in call danger and associated loss of capital and reinvestment risk. Only 2 of my issues will I have the trigger finger on as they are more for flips than long term holds mostly for call risk. I flipped out about half of my BGLEN holdings at $104-104.50 and snagging a divi... Easy money for a months hold. Will hold rest and let play out a bit. Bought up more PVTBP holding 1100 shares looking at same scenario...
Holdings now are AILLL/AILNP/UEPCO (Ameren) BGLEN (Baltimore Gas & Electric) PVTBP (PrivateBank TRUP) CTWSO and CTWSP (Connecticut Water) CNTHN (Connecticut Light & Power) PFK (Prudential Insurance Inflation Adjustable) SIVBO (Silicon Valley Bank TRUP) OSBCP (Old Second Bank TRUP) CBB-B (Cincinnati Bell) CRLKP (Central Parking Trust Preferred) HAWEL (Hawaii Electric) EGYKP (Entergy Arkansas)



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[Slow But Steady]

I mentioned a week or so ago that I sold EYMXP at $27, after waiting around a couple weeks with an open order. I replaced that with AILLL at $26.81.

Today I also picked up a few CVB at $10.83.

I was busy at work the day the of the announcement that PVTB was being sold, so I wasn't able to get out of PVTBP like Mulligan and others. By the time I saw the notice, the price was too low to bother selling. I may buy more if the price heads down again. (I paid $26.59 for the first batch, so I may come out OK depending how long it takes them to call it.)

Only 5 more days of work for me. After that, I'll be able to check the markets before getting on with the rest of my day.

 

[Mulligan]

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

I mentioned a week or so ago that I sold EYMXP at $27, after waiting around a couple weeks with an open order. I replaced that with AILLL at $26.81.

Today I also picked up a few CVB at $10.83.

I was busy at work the day the of the announcement that PVTB was being sold, so I wasn't able to get out of PVTBP like Mulligan and others. By the time I saw the notice, the price was too low to bother selling. I may buy more if the price heads down again. (I paid $26.59 for the first batch, so I may come out OK depending how long it takes them to call it.)

Only 5 more days of work for me. After that, I'll be able to check the markets before getting on with the rest of my day.

Good decision just to hang on. There is no certainty the issue will even be called. At this point it appears best to hang on. I only got lucky because Coolius is in charge of waking up the Roosters in his area so he knew and passed info on to me. Then it was just luck at opening my sell order got in before others. But this was the first time I ever sold something and then bought even more than I owned of it the same day.
I like CVB and have owned it... But when BGLEN went on fire sale, I dumped every stray non core issue that was a winner and sold to get those 800 shares. Then when I sold those this week I used that money and quick profits to double down more on PVTBP. If any of my TRUPs get called, I will look to get back in CVB.


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[makd]

Question: WFC-L is non-cumulative.

Should one care?

Is the idea that for them not to pay that things would have to be very bad and if they suspended that would be a reputational issue?

Just buy it and at the first sign of any issue with WFC, sell?

 

[Mulligan]

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

Question: WFC-L is non-cumulative.

Should one care?

Is the idea that for them not to pay that things would have to be very bad and if they suspended that would be a reputational issue?

Just buy it and at the first sign of any issue with WFC, sell?

Makd, I do not own nor will I buy non cumulative preferreds. BUT.... With WFC or pretty much any bank it is largely immaterial I will admit. Due to Dobb Frank Banking Act, banks BY LAW must issue non cumulative preferreds. They are the new near mandatory issues and life blood for Tier 1 capital regulations determined by law for the big banks.. They will not screw you over unless its of dire emergency, as they want people to buy these as they need the capital.
Basically the Feds got ticked off during the bailout they had to cover all the trust preferred stock as it was technically debt not stock. So they banned the use of them and grandfathered trust preferred old issues for smaller banks. They dont want to bail the bonds out if things ever go to hell again. They want the preferred stock holders to eat it instead. But banks have more stringent requirements so that risk is greatly minimized now.
So I wouldnt worry, until they start slashing common stock divi greatly.



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[Coolius]

Question: WFC-L is non-cumulative.

Should one care?

Is the idea that for them not to pay that things would have to be very bad and if they suspended that would be a reputational issue?

Just buy it and at the first sign of any issue with WFC, sell?

The dividends on the Preferred issues cannot be suspended unless common dividend has been cut to zero.

So, with preferred stock you do have a early warning indicator. If a company starts slashing the common dividend, then yes, the risk of suspension on preferreds will go up, and you might want to exit at that time.

But, as Mulligan says, this would be an action close to their last resort - and WFC is one of the strongest banks around. So i would not be overly concerned.

Disclosure: I own WFC-L