"The book is great Doug - and the CDx3 Notification Service is amazing.  Thank you!!" - Johnathan S.

A special welcome to all of the new CDx3 Newsletter subscribers who signed up during March. This is your first issue of the CDx3 Newsletter, a free monthly newsletter devoted to the interests of CDx3 Preferred Stock investors.

Of the thousands of investment book titles sold on Amazon.com, Preferred Stock Investing hit number 35 during March.   As a special thank you to readers of Preferred Stock Investing, the Last Month's CDx3 Investor Results article below presents a summary of my latest research into the market price behavior of CDx3 Preferred Stocks.  The CDx3 Bargain Table uses 21 real CDx3 Preferred Stock to show you how to take advantage of a period of increasing dividend rates such as what we are currently experiencing during this "credit crisis."

The April 2008 update to Preferred Stock Investing has been published and it goes way beyond merely updating the preferred stock lists found in Chapter 9 of the book. In this month's Special Announcement article, read about the special bonus material that is included in this year's update and how you can get a hold of your free copy (if you haven't already).

During America's industrialization, not to mention the great California gold rush of the mid-1800's, banks were springing up everywhere across the country, some of which are still in business today.  This month's CDx3 Company Spotlight article is about 137 year old Citizen's Republic Bancorp, originally founded in 1871 and issuer of CDx3 Preferred Stock.

During this period of increasing dividend rates on newly issued CDx3 Preferred Stocks, the Rule of Rate/Price Opposition from Preferred Stock Investing tells us that market prices will tend to drop; and drop they have to the bargain basement levels that I have been writing to you about since last summer.  But does purchasing the CDx3 Preferred Stock with the lowest market price always provide you with the best rate of return?  What about the downstream capital gain opportunity?  This month's CDx3 Question Of The Month article tackles the difference between dividend "yield" and the "effective annual return" that takes into account the capital gain potential of CDx3 Preferred Stocks.

For our new readers, there is a free calculator available to you that allows you to correctly calculate the effective annual return of preferred stock investments.  The Free Special Offer article below provides you with a download link.  Keep an eye on this monthly CDx3 Newsletter for announcements of future promotions of CDx3 products and services.

The Federal Reserve Board continues its aggressive moves to help deal with the credit crisis facing our financial system.  The efforts that they embarked on last fall may be starting to show results as several articles in the financial press have started to speculate that the tide has turned.  But according to the FDIC, the remaining subprime mortgages that triggered this mess are not scheduled to wash through the system until July of this year.  Time will tell if the optimism that we are starting to see is well founded, or just wishful thinking.  Either way, I will report back to you in next month's issue of the CDx3 Newsletter.

New Research Shows How To Take Advantage Of "Credit Crisis"

New "CDx3 Bargain Table" Returns 11.84% Using CDx3 Preferred Stocks

New research shows how to use CDx3 Preferred Stocks to generate double-digit returns during the current "credit crisis."  For the month ending March 2008, the average effective annual return reached 11.84% using the highest-quality, lowest-risk preferred stocks - CDx3 Preferred Stocks.

This new research is very exciting and I am anxious to tell you about it; but a little background is needed first for our new readers.

Highest-Quality, Lowest-Risk: To be considered a "CDx3 Preferred Stock," regular preferred stocks must meet all ten of the CDx3 Selection Criteria (as described throughout Chapter 1 of Preferred Stock Investing).  Here is a sample of just three of the ten CDx3 Selection Criteria; CDx3 Preferred Stocks must:

1.  be rated "investment grade" by Moodys;

2. be issued by a company with a perfect record of never having suspended a dividend on a preferred stock; and

3.  have the "cumulative" dividend requirement, which means that in the unlikely event that the issuing company misses a dividend payment to you (which I have never seen happen with a CDx3 Preferred Stock), they have to make it up to you later; they still owe you the money.

I've written many articles regarding how, during this credit crisis, the dividend rates being paid by CDx3 Preferred Stocks have been steadily increasing.

Rates Up, Prices Down: Preferred Stock Investing explains how, when rates are rising, the market prices of previously issued CDx3 Preferred Stocks will tend to fall; that is, rates and prices tend to move in opposite directions.  This is called the Rule of Rate/Price Opposition, one of the three Rules of Market Price Predictability explained within Chapter 5 of Preferred Stock Investing.

Such conditions create a "buyer's market" where you can purchase relatively high dividend paying CDx3 Preferred Stocks at bargain basement prices.

 Here's an update to the chart that I showed you last month illustrating how the average dividend rate being paid by CDx3 Preferred Stocks has now exceeded 8.1%, while the interest rate being paid by your average bank Certificate of Deposit (CD) has tanked (and is actually now below the annual inflation rate).

New Research Shows Top Candidates: With dividend rates climbing, there must be some real bargains available at low market prices; but, from the vast sea of CDx3 Preferred Stocks, how does a CDx3 Investor identify the strongest candidates?  And when does the market price tend to be at its lowest; that is, when is the best time to buy?

These are questions that the most recent research into the market price behavior of CDx3 Preferred Stocks answers.  This new research, just released to CDx3 Notification Service subscribers on April 1st (no fooling), provides a structured method for identifying the CDx3 Preferred Stocks each month that are most likely to provide the highest returns during a buyer's market (now).

Each month, a CDx3 Investor can apply this method (or just subscribe to the CDx3 Notification Service and let us do it for you) to identify not only the best candidates to consider purchasing, but also the best time to look for the lowest market price.

 Here are the 21 candidate CDx3 Preferred Stocks that were identified on March 28, 2008 (remember, this list is different every month so this is just an example):

When CDx3 Preferred Stocks are first issued, they cost $25.00 per share.

Using the Three Rules of Market Price Predictability from Preferred Stock Investing, March 28, 2008 was a good date to look up the market prices for these CDx3 Preferred Stocks.   The average market price of this list of 21 CDx3 Preferred Stocks was $21.96 per share on that day.

You can clearly see the effect of the Rule of Rate/Price Opposition on the market price of these CDx3 Preferred Stocks.  As dividend rates have increased (see above chart, top line), the market prices have decreased well below $25 - creating a very strong "buyer's market."

Because CDx3 Preferred Stocks pay you a fixed dividend amount every quarter, and the dividend amount is based on $25.00, the return on your investment actually goes up when you purchase CDx3 Preferred Stocks for less than $25.00 (called "yield").

Low Prices Mean High Yields: Here is the dividend yield for each of our 21 ending-March candidates (using the March 28 purchase prices):

But the best part is yet to come.

Those of you who have read Preferred Stock Investing know that the investment method that is described therein - the CDx3 Income Engine - derives its spectacular results from producing a combination of both dividend income plus capital gain income (the profit that you make when you sell your CDx3 Preferred Stock down-stream for a higher price than what you purchased it for).

Let's see what happens when we add the potential capital gain onto these dividend yields.

Rates Down, Prices Up: As rates fall from the current average of 8.1% (the highest that we have enjoyed in years) back down to, say, 6.75%, what do you think that the average market price of today's 8.1%-ers is going to do? 

Companies that issue CDx3 Preferred Stocks are absolutely itching for the slightest excuse to start lowering these relatively high dividend rates that they are having to pay on CDx3 Preferred Stocks. Just as market prices tend to decrease when rates are going up, the opposite is equally true; market prices tend to increase when rates come back down.  This mechanism provides you with the potential for a spectacular downstream capital gain, in addition to the great dividend income that you'll be earning in the mean time.  Dividends plus capital gains - the CDx3 Income Engine at work.

Built-In Buyer:  What if I were to tell you that there was, within a reasonable doubt, an excellent chance that someone was going to buy your CDx3 Preferred Stock downstream for $25 per share, regardless of what you originally paid? And, sitting here today, I can even tell you who it might be.

CDx3 Preferred Stocks, by definition, have a five year lifespan.  Five years after they are first issued, the issuing company of your CDx3 Preferred Stock regains the right to purchase your shares back from you and, if they do so, they are required to pay you $25.00 per share.  CDx3 Preferred Stocks that are issued during a period of relatively high dividend rates are very likely to be "called" (read why).

3.3 Times Bank CDs: Now, if the market price goes above $25.00 before the five years are up (called the "call date"), it is going to be very tempting to sell your CDx3 Preferred Stock shares and collect your profit (capital gain).  But let's see what your return would be if you held onto your shares until the call date and the issuing company "calls" the issue (buys it back from you at $25 per share).  Here are our 21 candidates again, but now I have added a column that shows how adding a capital gain improves the return on your investment (as measure by the effective annual return) above and beyond the dividend yield alone:

In the event that the issuing company calls the issue on the call date, the CDx3 Income Engine would produce an average effective annual return across our 21 candidates of 11.84%.  That's 3.3 times what you would earn by investing in the average bank CD available during March 2008 (see chart at left, bottom line); and now you also know where the CDx3 (CD times 3) Income Engine gets its name.

CDx3 Bargain Table: This table, with a few additional columns, is called the CDx3 Bargain Table.  The candidates change from month to month. During "buyer's market" conditions, subscribers to the CDx3 Notification Service receive the CDx3 Bargain Table in each monthly issue of the subscriber's newsletter - CDx3 Research Notes.  We do all of the work for them.

If you would like to learn how to produce the monthly CDx3 Bargain Table on your own, there is an instructional document that has been posted for readers of Preferred Stock Investing.  Chapter 9 of Preferred Stock Investing tells readers how to obtain periodic updates and the April 2008 update, now available, provides a step-by-step description of how to produce the CDx3 Bargain Table yourself each month.

To purchase Preferred Stock Investing, click here.  If you would like to subscribe to the CDx3 Notification Service, click here.  If you already have a copy of Preferred Stock Investing, check out Chapter 9 and follow the update instructions - the instructional document that you will receive is free to you.

By using the Three Rules of Market Price Predictability from Preferred Stock Investing in a specific way, CDx3 Investors can turn the "credit crisis" to their advantage as the CDx3 Bargain Table shows you where the bargains really are.

Disclaimers and Caveats: In addition to the Disclaimer at the bottom of this CDx3 Newsletter, please remember that the results shown here will vary with changes in market price.  You should obtain current market prices and update the calculations presented here prior to making investment decisions.

The market prices presented here are provided by a third-party service provider that does not warrant or guarantee accuracy; therefore, I offer no such warrant or guarantee.  I reserve the right to update the information seen here at any time without notice.

Also remember that there is no guarantee that the issuing company of a CDx3 Preferred Stock will exercise their right to call the issue in the future.

Please do not take this explanation as a recom-mendation to buy, or not to buy. Deciding whether or not to purchase any of these candidate CDx3 Preferred Stocks is consistent with your personal financial resources, goals and risk tolerance is a decision that only you can make.

Investing with the issuing companies indicated here may not be consistent with your risk tolerance; it is always a good idea to do your homework before you invest.  You can use the Yahoo Finance web site, among others, to research company information, recent headlines and upgrade/downgrade announcements.

April 2008 Update To Preferred Stock Investing Now Available

Update Includes 2007 CDx3 Preferred Stock Lists And New "CDx3 Bargain Table"

Unlike many investment books, Preferred Stock Investing provides the reader with the results of the investment method described throughout the book.  When I wrote Preferred Stock Investing, I did not want to ask the reader to "take my word for it."  Where most investment books present a few carefully chosen examples to illustrate how their investment method works, Chapter 9 of Preferred Stock Investing presents the investment results for every CDx3 Preferred Stock issued between January 2001 and December 2006 - six years; all of them.

And to make sure that the data presented within Preferred Stock Investing does not become obsolete, and to protect the reader's investment in my book, there are instructions within Chapter 9 of Preferred Stock Investing that explain how the reader can obtain periodic updates to the annual preferred stock data tables found there.

Since June 2007, when Preferred Stock Investing was first published in paperback, readers have been signing up to receive the update to the data tables presented within Chapter 9.

On April 2, 2008 their patience was rewarded.  Specifically, the April 2008 update to Preferred Stock Investing was published and includes the following:

1. the data table showing the new CDx3 Preferred Stocks issued during 2007 for page 132;

2. an update to the CDx3 Key Rate Chart from page 53;

3. an update to the appearance of the CDx3 Seller's Calendar example from pages 142, 161 and 198; and

4. an addition to Chapter 7 that provides step-by-step instructions for using the CDx3 Bargain Table to identify longer-term capital gain opportunities during a period of increasing dividend rates (such as those we are currently facing).

If you own Preferred Stock Investing, and would like to receive the April 2008 update, just follow the instructions on page 124.

If you are a subscriber to the CDx3 Notification Service, the April 2008 update is posted in the CDx3 Investor library on the subscriber's web site.

Otherwise, purchase Preferred Stock Investing and/or subscribe to the CDx3 Notification Service to learn how the CDx3 Bargain Table identifies the strongest CDx3 Preferred Stock bargains during the current "buyer's market."

Who Are These Companies That Issue CDx3 Preferred Stocks?

Citizens Republic Bancorp (NASDAQ: CRBC)

If I had to name the single CDx3 Preferred Stock that I receive the most email about, it would have to be the Series A CDx3 Preferred Stock  issued by Citizens Republic Bancorp on September 28, 2006 (CTZ-A: quote).

There are over 8,500 banks in the United States.  Over 90 percent of them, like Citizens, are "regional banks," serving individual communities more closely than many of the larger financial institutions, although  Citizens is the 41st largest bank holding company in the country.

Both regional banks and the large internationals have a role to play, but at a local level, most people have more interaction with regional banks than with the big guys.

Citizens Republic Bancorp is a $1 billion regional bank founded over 135 years ago in 1871 as Citizens Commercial & Savings Bank.  The company was then, and is now, headquartered in Flint, Michigan providing banking services throughout Michigan, Ohio, Wisconsin and Indiana and in Iowa as F&M Bank.  Citizens serves their communities with 238 offices and 265 ATMs, according to their web site.

As default rates on home and commercial construction loans have increased during the current "credit crisis," federal regulations require banks to reserve more of their cash.  The large international banks are able to seek investors from all over of the world in order to replace this cash, but regional banks rarely have that luxury.  To offset the higher cash reserve requirement, regional banks are often stuck with hard choices - sell off more of their company through a new stock  offering, sell off other assets or lower the dividends that they are paying out on their common stock.

Citizens chose the latter option, lowering their common stock dividend on February 22, 2008.  This choice keeps more cash in the company and does not dilute the company's ownership as a new stock offering would.

And on February 25, 2008, recognizing Citizens move to save cash by lowering its common stock dividend, JP Morgan upgraded its rating of Citizens from underweight to neutral. 


So why do you suppose that I receive so much email regarding CTZ-A that was issued back in 2006?

First, CTZ-A, when it was issued in September 2006, was a very bold offering.  At a time when new CDx3 Preferred Stocks were paying a dividend rate of about 6.6%, CTZ-A offers a whopping 7.5%.  If you look at the entry for CTZ-A in the Last Month's CDx3 Investor Results article above, you can see that CTZ-A is still a strong contender.  If called on its call date in 2011, CTZ-A will provide today's CDx3 Investors with an effective annual return exceeding 21% (please see Disclaimers and Caveats above).

Secondly, given that the average dividend being paid by today's new CDx3 Preferred Stocks is 8.1%, CDx3 Investors can purchase CTZ-A for $17.50 per share (as of March 28). That means that your annual dividend yield on a share of CTZ-A, if you were to purchase at this price, would be 10.71%.

Citizens also has other things going for it: Institutional Shareholder Services, a corporate governance rating company, ranks Citizens better than 83.3% of Russell 3000 companies and 88.4% better than bank companies (source: Yahoo Finance) as of April 1, 2008. 

With all of that said though, regional banks are facing unprecedented challenges at the moment; even banks that are 135 years old. 

Citizens is a very interesting company with a very interesting history serving its customers and shareholders.  By the volume of email that I receive regarding CTZ-A, CDx3 Investors have taken an interest as well.

What is the difference between yield and effective annual return? Why not just chase the highest yield? - John C.

Basing a purchasing decision on the CDx3 Preferred Stock with the highest dividend yield at any point in time is one (very simple) method of choosing an investment, but may lead  to a decision that you would later regret; especially if you found out that there was an even better opportunity available to you at the time.

Depending on your personal investment objectives, focusing just on dividend yield may lead you to a  purchase that turns out to be second best.  You may be leaving money on the table without even knowing it; and that's where the effective annual return value comes in, as presented on the CDx3 Bargain Table.

Let's look at a real example.  Here are two CDx3 Preferred Stocks from the CDx3 Bargain Table presented in the Last Month's CDx3 Investor Results article above:



These two CDx3 Preferred Stocks are both issued by the same company - Citigroup (NYSE: C).  Those who have not read Preferred Stock  Investing or who are not subscribers to the CDx3 Notification Service might be tempted to purchase C-F, since it pays the higher dividend rate of the two.  Notice how the dividend yield is higher than the declared dividend rate in both cases, since we would be paying less than $25.00 per share for either of these candidates (using the March 28 market price indicated here).

The dividend yield calculation considers two variables: (1) the current market price of your CDx3 Preferred Stock and (2) the declared dividend rate.  But what about the capital gain income that you would be earning if you chose to sell your CDx3 Preferred Stock downstream?

If the issuing company "calls" the issue (buys it back from you for $25.00 per share on the call date), you are going to make a nice capital gain.  Shouldn't that be considered too?

The rate of return that you realize on this type of investment that includes your capital gain income is called the "effective annual return."  Let's take a look at our two examples again, but this time with the effective annual return (last column):

If we were simply chasing dividend yield, we would have purchased C-F (7.88% compared to C-O's 7.74%), but once we consider the capital gain earnings (in the event of a call), C-O would actually provide a substantially higher return on our investment.  Would it be enough to sway your decision in favor of C-O, even though C-F provides a higher dividend yield?  That is a question that only you can answer since the decision would depend on your personal financial resources, goals and risk tolerance.

This is a simple example of how the CDx3 Bargain Table can help CDx3 Investors with varying investment objectives - highest yield versus higher overall return potential - identify their alternatives and make investment decisions that are much more informed.

Thanks to John C. for the great question.  You will receive a complementary copy of the CDx3 Special Report Dividend Accounting.

If you have a question regarding the CDx3 Income Engine, just send an email message to FAQ@PreferredStockInvesting.com or visit the Preferred Stock Investing Reader's Forum, join the group (using an anonymous nickname) and post your question there for others to see.

Free CDx3 Special Report Also Has Free Companion Excel Calculator

See How To Correctly Calculate Your Effective Annual Return - FREE

The Preferred Stock Investing Reader's Forum provides a free special Excel spreadsheet calculator that you can use to calculate the effective annual return (EAR) of your preferred stock investments.  The calculator allows you to just plug in a few parameters from your preferred stock (such as purchase date, purchase price, sell price, etc.) and see what your effective annual return really is, or will be if you sell.

When you initially download the EAR calculator, it is set up using the Series A CDx3 Preferred Stock from Dominion Re-sources (D-A) as an example.  This is the same CDx3 Preferred Stock that is used as an example through-out the CDx3 Special Report titled "Calculating Your Rate Of Return."

As a recipient of this monthly CDx3 Newsletter, you are entitled to a FREE copy of "Calculating Your Rate Of Return."   So, get them both - FREE - and use them together to learn how to correctly calculate your rate of return on this type of investment.  To download your free copy of Calculating Your Rate Of Return, just click on the following email address:


No need to type anything in the body of the message, just click the Send button.  You will receive an auto-reply email message with download instructions for your free CDx3 Special Report.

To see the entire library of useful and educational CDx3 Special Reports, including three sample pages from each one, click here.

Analysts Are Starting To Say That The Worst Is Over

Is It Reality Or Wishful Thinking?

During March, an article in the financial press actually went so far as to declare that the credit crisis is over.  While this is probably optimistic, financial analysts are starting to sound more positive than they have in many months.

The Federal Reserve Board left little doubt that they are completely committed to protecting our financial system when they financially backed the JP Morgan take over of Bear Stearns early in the month.  With the Fed essentially insuring against losses related to mortgage-backed securities, this move was not just very creative but also provided an huge confidence booster to large investors who have had their cash parked elsewhere since last summer.

The CDx3 Income Engine continually trades one form of income for another, moving back and forth over time between the generation of high dividend income (such as now) and high capital gain income.  The CDx3 Income Engine always favors one over the other, depending on several factors, including the direction of interest and dividend rates within the U.S. economy.

Fed policies are important to CDx3 Investors because they impact how much financial institutions have to "sweeten the deal" by increasing the dividend rate being offered by their new CDx3 Preferred Stocks.  Once issuers of CDx3 Preferred Stocks feel like they can start lowering dividend rates, the market prices of previously issued CDx3 Preferred Stock will tend to rise; the "buyer's market" that we have been enjoying since last summer will turn toward a "seller's market" once again.  And the CDx3 Income Engine will move from favoring dividend income to favoring capital gain income.

But are these financial analysts correct or are they being overly-optimistic?  I will report back to you in next month's issue of the CDx3 Newsletter.

Remember, I'm not a stock broker; I'm not trying to sell preferred stocks to you; and I don't sell investment advice.  I'm an investment researcher with an economics and statistics background who has developed a simple way to earn a respectable return at very low risk.  And I've written it down in Preferred Stock Investing.  I'm hopeful that you find these monthly CDx3 Newsletters interesting, and will consider learning more by purchasing my book, Preferred Stock Investing or by subscribing to the CDx3 Notification Service.

Please take a look at www.PreferredStockInvesting.com.  And don't forget about my FREE SPECIAL OFFER.

Know someone who might be interested in simple, low-risk investing for non-investment experts?  Have them send an email message to CDx3Newsletter@PreferredStockInvesting.com and they will automatically begin receiving this monthly CDx3 Newsletter next month (plus a CDx3 Special Report) - all FREE.  Then they can make up their own mind.

Many Happy Returns,
Doug K. Le Du

Copyright (c) 2008 by Doug K. Le Du
CD Times 3, CDx3, CDx3 Income Engine, CDx3 Investor, CDx3 Portfolio, CDx3 Preferred Stock and CDx3 Bargain Table are trademarks of Doug K. LeDu.  All rights reserved.
Company logos are trademarks of the indicated companies.
Service Marks (SM) are service marks of the indicated companies.
DISCLAIMER: The content of this CDx3 Newsletter is to be regarded as educational, rather than advisory.  There can always be exceptions to trends and/or generalizations that may be discussed herein.  Consider your financial resources, goals and risk tolerance before investing. You, and not Doug K. Le Du, are solely responsible for your own investment decisions.