Preferred Stock Investing-The Good , The Bad and The In Between 2021

[LarryMelman]

Not knowing what the final dividend payout would be, I sold half my shares at 25.26 last week. Looking at my Fidelity account tonight, I see they gave me 36.58 cents per share on the shares that I held till the end. (which is 95.555% of a full quarter's dividend, or 86/90, FWIW)

But what's interesting is it looks like they first credited me with 36.58 cents on ALL my original shares. Then they took it back and gave me only half. That makes me wonder what the ex-dividend date was for the final payment. QOL says the regular dividends were "paid quarterly on 3/15, 6/15, 9/15 & 12/15 to holders of record on the record date fixed by the board, not more than 30 days or less than 10 days prior to the payment date (NOTE: the ex-dividend date is one business day prior to the record date)".

If I sold half my shares on 2/24, I believe I held them past the record date and should have gotten the dividend on them as well as on the ones I held.

 

[Sunset]

Thanks for the mentioning of Monmouth, I'll have to look at the accounts with it.

 

[youbet]

Not knowing what the final dividend payout would be, I sold half my shares at 25.26 last week. Looking at my Fidelity account tonight, I see they gave me 36.58 cents per share on the shares that I held till the end. (which is 95.555% of a full quarter's dividend, or 86/90, FWIW)

But what's interesting is it looks like they first credited me with 36.58 cents on ALL my original shares. Then they took it back and gave me only half. That makes me wonder what the ex-dividend date was for the final payment. QOL says the regular dividends were "paid quarterly on 3/15, 6/15, 9/15 & 12/15 to holders of record on the record date fixed by the board, not more than 30 days or less than 10 days prior to the payment date (NOTE: the ex-dividend date is one business day prior to the record date)".

If I sold half my shares on 2/24, I believe I held them past the record date and should have gotten the dividend on them as well as on the ones I held.

I believe the buyer of your shares received the accumulated unpaid dividend. That’s why he was willing to pay above PAR. The partial div went to whoever owned the shares Feb 28.

 

[LarryMelman]

Evidently yes, of course. But there is that annoyance of the "record date" to receive a dividend. That apparently doesn't apply in this case. I read the merger paperwork and the process of the shares being redeemed and converted to a "right to receive" $25 plus the last unpaid dividend, is probably the explanation.

Otherwise you're correct, if there was a record date in this case, then after that date no one would offer $25 or more because they were buying only the $25 redemption value.

 

[Texas Proud]

Evidently yes, of course. But there is that annoyance of the "record date" to receive a dividend. That apparently doesn't apply in this case. I read the merger paperwork and the process of the shares being redeemed and converted to a "right to receive" $25 plus the last unpaid dividend, is probably the explanation.

Otherwise you're correct, if there was a record date in this case, then after that date no one would offer $25 or more because they were buying only the $25 redemption value.

Record date does not matter as it was redeemed... you have to look at the docs on the redemption to determine who gets the money...

 

[youbet]

Record date does not matter as it was redeemed... you have to look at the docs on the redemption to determine who gets the money...

I think the shares were “acquired” rather than redeemed. The terms were detailed in the acquisition agreement. This was not a call or a redemption but rather a payment to the owners of MNR (us) for MNR by ILPT.

Schwab called the transactions a “cash merger” when they added cash to my account and a “cash merger adjustment” when they removed the shares.

Note: I’m working way, way above my pay grade here…..

 

[Free To Canoe]

Playpen Overview

Had AILLL and DTJ called in 2021.
Sold CNLPL@ 61 for a 10% profit. My other motivation was that I would loose the gain in the event of call due to rising interest rates. Checking the share price today I can see that so far there is no evidence of it being so.
Good times while they lasted.

Bought some EPPRC and JPM-M with the profits.
I was happy to get the new issue JPM-M at par because it was a new issue although the yield was low at 4.1%. I was warned by Mulligan that the rising interest rates would hammer the share value on this type of preferred but I held on anyway. Down about 15% to date. The JP Morgan common is under pressure recently. I wander if that would explain some of the fall?
I plan to sell and take the loss at some good time in the future. Maybe when EPPRC goes positive?

I am happy with the other holdings:
EBGEF Enbridge, a Canadian reset. Still tooling along @ 7%. Was under water share value wise for a while. Above where I bought it now.

EPD a MLP. This was under water from where I bought it for quite a while. It is positive now. I was never worried about this because the dividend is delivered “like the post office ” as per aja8888.

EPPRC is a secure 4.5%.

KMI – a midstream gas pipeline stock. Price bounces around but it is still paying a 6% dividend. I have much confidence in the future of natural gas. The market disagrees with me.

 

[aja8888]

I sold my shares of SJIJ in very early February as it started to sink and I wanted to get out with a good profit. I think I sold at $25.25. It is now $21.XX. Yikes, nothing like getting lucky!

 

[Mulligan]

I sold my shares of SJIJ in very early February as it started to sink and I wanted to get out with a good profit. I think I sold at $25.25. It is now $21.XX. Yikes, nothing like getting lucky!

SJI is getting bought out and will go private. This kills SJIJ because they stated it would be left outstanding which means it is high risk of heading to the “experts market”. Meaning general investors like us can only sell and not buy. This in essence turns it into private equity debt and untradeable.
Market knows this and that is why it keeps dropping. The merger will take a good deal of time if approved. It isnt now, but if it tanks harder towards the end with people dumping to avoid being permanently stuck with it, I may buy some and just treat it as an untradeable annuity.

 

[Mulligan]

Playpen Overview



Had AILLL and DTJ called in 2021.

Sold CNLPL@ 61 for a 10% profit. My other motivation was that I would loose the gain in the event of call due to rising interest rates. Checking the share price today I can see that so far there is no evidence of it being so.

Good times while they lasted.



Bought some EPPRC and JPM-M with the profits.

I was happy to get the new issue JPM-M at par because it was a new issue although the yield was low at 4.1%. I was warned by Mulligan that the rising interest rates would hammer the share value on this type of preferred but I held on anyway. Down about 15% to date. The JP Morgan common is under pressure recently. I wander if that would explain some of the fall?

I plan to sell and take the loss at some good time in the future. Maybe when EPPRC goes positive?



I am happy with the other holdings:

EBGEF Enbridge, a Canadian reset. Still tooling along @ 7%. Was under water share value wise for a while. Above where I bought it now.



EPD a MLP. This was under water from where I bought it for quite a while. It is positive now. I was never worried about this because the dividend is delivered “like the post office ” as per aja8888.



EPPRC is a secure 4.5%.



KMI – a midstream gas pipeline stock. Price bounces around but it is still paying a 6% dividend. I have much confidence in the future of natural gas. The market disagrees with me.

Free its a tough market know thats for sure. The higher yielder past call issues have held considerably stronger. Some kind of bounce up and down at a lower price now. I have been trading those to make up for sagging in others. Best investment I made this week, was GF and I gifting IBonds to each other today. So now I have 30k in Ibonds drawing 7.12% now. Next cycle is a layup to be 7% again, also.

 

[brokrken]

Hey guys, with TBB currently trading a few pennies below par, why wouldn't I plow some cash into it, take the next 3 divies and wait for it to be called in November? Am I missing something? Tough to find 5%+ out there

 

[Mulligan]

Hey guys, with TBB currently trading a few pennies below par, why wouldn't I plow some cash into it, take the next 3 divies and wait for it to be called in November? Am I missing something? Tough to find 5%+ out there

Yes, I would suggest the odds of my balding head will have a thicker head of hair than a gorillas than TBB being called then. We are in a rising rate environment, these issues will not be redeemed then. The call date benefits the company in case yields drop. The 2066 maturity date benefits them as they dont have to redeem until then.

 

[brokrken]

OK, I figured they already had something in the works at a lower rate to redeem these with. Still not a bad coupon clipper, even if it stays

 

[Mulligan]

OK, I figured they already had something in the works at a lower rate to redeem these with. Still not a bad coupon clipper, even if it stays

Things can change so at some time a redemption is possible. But if your capital conscious as opposed to just looking for an annuity type income stream, you have to be ready to accept the price will drop more. Its a guessing game on how much or if or when.

 

[Coolius]

Have been busy lately, so have not been active on forumas.


Anyway, here's hoping everyone is well, and not too badly hit by the carnage in Income stocks since the beginning of the year.


Bought a couple issues recently at what I thought were good prices, only to see almost all of them drop another 10% - 15% more. Ugh.


QRTEP would be a great buy at $70, so its on my watchlist.

 

[tizod]

I added more GEO bonds (I think they will not default, and the govt will not let them?), QRTEP, and for stocks: STAA, NVCR, LPTH (small cap but I track this biz), GLDD, EMRAF. I had already gotten into some shippers (way up) and banks (down a bit) now have to figure out when to get out. Also did a hunk of SMDD, which is my only "hedge". I'm trying to get into "safe" areas and assume there will be a down market for the highly overvalued -even at these new levels. Also plan that EV vs. ICE will rationalize so not chasing those high fliers.

 

[Freedom56]

I added more GEO bonds (I think they will not default, and the govt will not let them?), QRTEP, and for stocks: STAA, NVCR, LPTH (small cap but I track this biz), GLDD, EMRAF. I had already gotten into some shippers (way up) and banks (down a bit) now have to figure out when to get out. Also did a hunk of SMDD, which is my only "hedge". I'm trying to get into "safe" areas and assume there will be a down market for the highly overvalued -even at these new levels. Also plan that EV vs. ICE will rationalize so not chasing those high fliers.

What makes you think that the government would save GEO from default? The 4/1/23 bonds are trading at a YTM of 12.4% and are rated CCC. Moody's stated in it's latest report:

"GEO Group, Inc.--Outlook revised to negative from stable RATINGS RATIONALE The downgrade of GEO's corporate family rating and senior unsecured debt ratings to Caa1 reflects the company's announcement of a potential restructuring of its capital structure, which -- if executed -- would be viewed by Moody's as a distressed exchange, which would imply a moderate loss for its current bond holders and have the effect of helping to avoid a likely eventual default. GEO's outstanding senior unsecured notes include $259 million due 2023, $225 million due 2024, and $580 million due 2026. Additionally, outstanding amounts totaling approximately $1.5 billion under its senior secured revolving credit facility come due in 2024. The proposed transaction will result in material refinancing (assuming full consent to the restructuring from existing bond holders) through a combination of par exchanges, maturity extensions and ranking changes. Moody's regards the transaction, which could lead to diminished value for existing bond holders, as a means for GEO to address the refinancing of upcoming maturities and to avoid a disorderly default on its current debt structure, given uncertainty related to access to capital."

 

[aja8888]

Income

Two income stocks left in my portfolio after selling almost all my preferred issues over the last 6 months:

CHSCM
EP/PRC

Well, I have a few oil/MLP stocks bought years ago (XOM, EPD, FENY, WM) and those are paying well.

If the FED raises interest rates "significally", I will load up on treasuries.

Bonds are not in my vocabulary these days.

 

[pb4uski]

^^^ +1 the only thing I have left is WTREP, which seems to be unsalable.

While it ws a good ride, the downdraft was more than I could bear. Actually, being out of internet service on a camping trip at the wrong time cost me a bit as well.

I'm dabbling a bit at writing OTM 2-week to one month puts on some dividend aristocrat or blue-ship stocks that I wouldn't mind owning at 20% below current trading prices. Thus far, it seems like a reasonable way to generate fixed income on dry powder.

 

[aja8888]

^^^ +1 the only thing I have left is WTREP, which seems to be unsalable.

While it ws a good ride, the downdraft was more than I could bear. Actually, being out of internet service on a camping trip at the wrong time cost me a bit as well.

I'm dabbling a bit at writing OTM 2-week to one month puts on some dividend aristocrat or blue-ship stocks that I wouldn't mind owning at 20% below current trading prices. Thus far, it seems like a reasonable way to generate fixed income on dry powder.

It was a good ride and with interest rates heading higher, I'm just doing what you are with options. I have a few hundred shares of Verizon that I have selling covered calls and puts when I lose them. Also puts on FCX and the legacy autos. I also have a sizable hunk of SCHB which I have collected in pieces over the last 18 months and add a few shares when it sinks, kind of like DCA'ing it.

With the Ukraine action and the FEDs inflation playing game going on, I am holding a bunch of dry powder and waiting and watching. With this last correction going on, in which I am not down at all (thanks energy), anything can cause a negative event.

 

[Mulligan]

^^^ +1 the only thing I have left is WTREP, which seems to be unsalable.

While it ws a good ride, the downdraft was more than I could bear. Actually, being out of internet service on a camping trip at the wrong time cost me a bit as well.

I'm dabbling a bit at writing OTM 2-week to one month puts on some dividend aristocrat or blue-ship stocks that I wouldn't mind owning at 20% below current trading prices. Thus far, it seems like a reasonable way to generate fixed income on dry powder.

That is a good thing, PB. It pays over 7.5% and price cant go down! Plus if Libor gets over 1% the yield increases by that amount. Libor has recently quickly climbed to .94% ish as of Friday.
If you had been in new issues it would have been a blood bath,but I have avoided them. I have owned mostly the Libor, term dated, and above market yield issues like MER-K. Not a good time to own perpetuals.

 

[tizod]

What makes you think that the government would save GEO from default? The 4/1/23 bonds are trading at a YTM of 12.4% and are rated CCC. Moody's stated in it's latest report:

"GEO Group, Inc.--Outlook revised to negative from stable RATINGS RATIONALE The downgrade of GEO's corporate family rating and senior unsecured debt ratings to Caa1 reflects the company's announcement of a potential restructuring of its capital structure, which -- if executed -- would be viewed by Moody's as a distressed exchange, which would imply a moderate loss for its current bond holders and have the effect of helping to avoid a likely eventual default. GEO's outstanding senior unsecured notes include $259 million due 2023, $225 million due 2024, and $580 million due 2026. Additionally, outstanding amounts totaling approximately $1.5 billion under its senior secured revolving credit facility come due in 2024. The proposed transaction will result in material refinancing (assuming full consent to the restructuring from existing bond holders) through a combination of par exchanges, maturity extensions and ranking changes. Moody's regards the transaction, which could lead to diminished value for existing bond holders, as a means for GEO to address the refinancing of upcoming maturities and to avoid a disorderly default on its current debt structure, given uncertainty related to access to capital."

Well, no proof of it but the prisons can't "close". BK could happen and prision operate, but the political pressure is better avoided. A guess on my part. I think the Moody info is well known, and factored in. Thats the risk for some payout and I think it's not bad, especially as bonds and others that have no cap gain will be stress as inflation rates go up. So I thought the rate plus possible gain worth it, and I think (guess) the gov't will be a silent but supportive ally.

 

[youbet]

Youbet, most K-1 one preferreds generate very little UBTI. But I have heard over and over CEPQ- generates a ton. Most of it is UBTI from everything I read.
I guess it nots the end of the world to go over $1000. But your tax rate will be alot higher and I hear many brokerages charge up to $300 for that processing fee.

Just thought I'd bump this discussion regarding SPLP/PRC and UBTI since we've all received our k-1's.

I hold SPLP/PRC in two accounts: TIRA and Roth. My UBTI for the TIRA was $671 and for the Roth was $278 for a total of $949. I was a bit concerned (for future years) because the combined $949 was approaching the $1k limit. But, a call to Schwab informed me that the $1k limit was on a "per account" basis, so there is still some room.

If I had exceeded the $1k limit in either account, Schwab would have filed the form 990t for me and paid the tax due out of the account with no processing fee.

I was also informed that Schwab is able to retrieve the MLP K-1 data directly and there is no need for me to send them that information.

Bottom line: no UBTI issues.

 

[aja8888]

Just thought I'd bump this discussion regarding SPLP/PRC and UBTI since we've all received our k-1's.

I hold SPLP/PRC in two accounts: TIRA and Roth. My UBTI for the TIRA was $671 and for the Roth was $278 for a total of $949. I was a bit concerned (for future years) because the combined $949 was approaching the $1k limit. But, a call to Schwab informed me that the $1k limit was on a "per account" basis, so there is still some room.

If I had exceeded the $1k limit in either account, Schwab would have filed the form 990t for me and paid the tax due out of the account with no processing fee.

I was also informed that Schwab is able to retrieve the MLP K-1 data directly and there is no need for me to send them that information.

Bottom line: no UBTI issues.

Exactly, this is how Schwab has been handling my K-1's for a decade now.

 

[Mulligan]

Exactly, this is how Schwab has been handling my K-1's for a decade now.

I have a couple in taxable I get to do this year….Self serve. I guess I will see in time how forgiving IRS is if I screw it up.