"I just finished reading the CDX3 Preferred Stock Investing book. I thought it was excellent. I have always been interested in preferred stocks, but I could never figure out the best time to buy or sell them." - Domenic V.

Thanks to all of the new subscribers for your interest in Preferred Stock Investing.  This is your first issue of the CDx3 Newsletter, a free monthly newsletter devoted to the interests of preferred stock investors.

In the Last Month's CDx3 Investor Results article below, I'll tell you about the newest CDx3 Preferred Stock, just introduced last week.  This new issue pays an annual dividend rate of 8.50% and meets all of the CDx3 Selection Criteria, making it one of the highest quality preferred stocks on the market - a "CDx3 Preferred Stock."

Subscribers to the CDx3 Notification Service have their own exclusive web site.  This web site provides subscribers with the resources that are important to those investing in CDx3 Preferred Stocks.

There has never been a case where a non-subscriber has gotten to take a tour of this exclusive web site - until now.

This month's Special Announcement article tells you how you can take a free tour of the subscriber's web site and see the resources that investors in CDx3 Preferred Stocks have available to them, all from one web site.

This month's CDx3 Company Spotlight article features Bank of America - very much in the press right now.  In January, BofA announced its intentions to acquire Countrywide Financial.  CDx3 Investors who own Countrywide's CDx3 Preferred Stock (CFC-B) are rightly interested to know what usually happens in such a case.   I'll describe a nearly identical previous example from November 2005 where BofA did the same thing - acquired an issuer of CDx3 Preferred Stock - and we'll see what happened in that case.

If I gave you a date five years from now, could you tell me what the market price of a new CDx3 Preferred Stock was going to be on that date (within a few pennies)?  Well, CDx3 Investors can and in this month's CDx3 Question Of The Month article, I'll show you how and why the market price of a CDx3 Preferred Stock behaves this way and you will learn why this is important to you as a preferred stock investor.  Three minutes from now, you too are going to be able to tell me what the market price of a new CDx3 Preferred Stock is going to be, five years from now, on January 31, 2013.

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.

There has never been a CDx3 Preferred Stock that pays a 9% dividend rate.  The closest we have gotten was in December 2002 when Hospitality Properties offered their Series B CDx3 Preferred Stock at 8.875%, 1/8 of a percent away from 9.0%.  We are currently enjoying market conditions that favor CDx3 Preferred Stock dividend rates, seeing them climb from 7.5% to 8.5% just within the last few months.  Could a 9%'er be very far away?  I'll be anxious to report back to you in next month's CDx3 Newsletter.

CDx3 Preferred Stock Dividends Go Up Once Again

Newest Investment Grade Issue Pays 8.500%; Average Now At 8.075%

2008 is off to a great start with the January introduction of the highest paying CDx3 Preferred Stock that has been issued since December 16, 2002.

The new issue, paying an annual dividend of 8.500%, raises the three month moving average dividend rate being paid by CDx3 Preferred Stocks to 8.075%.  This is only the third time that this index has climbed this high in the last seven years.

Subscribers to the CDx3 Notification Service received a CDx3 Buyer's Notification email message that alerted them to this spectacular new issue.

And it is not just the great dividend rate that makes this issue so attractive.  This issue, like all CDx3 Preferred Stocks, is one of the highest-quality, lowest-risk preferred stocks available.

How can I say that?  During the years that I spent researching Preferred Stock Investing, I continually refined the selection criteria of the preferred stocks that I was running through the CDx3 Income Engine, as it was being developed.  The goal was to find a combination of selection criteria that maximized revenue while minimizing risk.

Now, as you might guess, if you tighten down the criteria too much, you are not left with any preferred stocks to invest in.

Similarly, if you make the criteria too loose, the revenue goes up, but you start taking a level of risk that CDx3 Investors are just not comfortable with. 

Two Streams Of Income: I was looking for a model that was as close to "CD-like" risk as I could get, but still have enough preferred stocks left to pick from that would generate two streams of income - dividends plus capital gains.

The result was the ten CDx3 Selection Criteria that are documented in Chapter 1 of Preferred Stock Investing.

These ten CDx3 Selection Criteria, and the research than went into identifying them, allow me to refer to CDx3 Preferred Stocks as among the highest-quality and lowest-risk.

Just Three: Take a look at just three of the ten CDx3 Selection Criteria, and I think you'll see what I mean; all CDx3 Preferred Stocks, including the new one with its 8.500% dividend rate, must:

1. be issued by a company that has never suspended dividends on a preferred stock (and, in most cases, these are decades-old, multi-billion dollar companies);

2. be "cumulative," which is a legal requirement that, in the event that the issuing company misses a dividend payment to you (which I have never seen happen with a CDx3 Preferred Stock), they still owe you the money and are obligated to make it up to you later; and

3. carry the much sought after Moody's credit worthiness rating of "investment grade," as opposed to "speculative grade."

CDx3 Investors continue to not only improve their dividend income position, but are also positioning themselves for a substantial capital gain opportunity downstream.  Here's how:

What do you think is going to happen to the market price of this 8.5% CDx3 Preferred Stock when rates start heading back down again? 

According to the Rule of Rate/Price Opposition (Preferred Stock  Investing, page 61), as rates come down, market prices go up - rates and prices work in opposition to each other.

$27 Per Share?: So, it would not be unusual for the market price of this new CDx3 Preferred Stock to climb above $27 per share, especially if rates fall to somewhere, say, in the 6.75% neighborhood (which is where they were just twelve month's ago).

The FDIC tells us that the majority of the remaining subprime mortgages are scheduled to wash through the financial system by July of this year.  At that point, the billions that large, institutional investors (pensions) have on the sidelines should start to come back into the market.  Historically, high-quality, low-risk investments, such as CDx3 Preferred Stock, are among the first to benefit.

Please consider becoming a subscriber to the CDx3 Notification Service.  The credit crisis has created a very unique set of circumstances, positioning CDx3 Investors for huge dividend income now plus substantial capital gains downstream.

New Subscriber's Preferred Stock Investing "Portal" Goes On Tour

First Time Ever, Non-Subscribers Get To Look Inside - Free

I'm going to take you on a tour of the exclusive CDx3 Notification Service web site.  The resources found on this web site are only available to subscribers to the CDx3 Notification Service.

There has never been a case where a non-subscriber was able to tour the site (legally) - until now. 

Just Curious?: If you are interested in becoming a subscriber to the CDx3 Notification Service, or are just curious about the resources that subscribers have available to them at the click of the mouse, you'll want to see this.

Preferred Stock Investing teaches readers what they need to know in order to be successful CDx3 Investors - completely on their own.  All of the  formulas, techniques, web sites and other resources are presented within the book.

But, the fact is that some people have other priorities in their busy lives and, while they would like the benefits of investing in CDx3 Preferred Stocks (maximum revenue, minimum risk, minimum work), they need to spend their time on other important matters.

The CDx3 Notification Service is specifically designed for these people.  Subscribers to the CDx3 Notification Service receive a simple email alert whenever there is an upcoming buying or selling opportunity.  All of the research and calculations are done for them.

CDx3 Research Notes: Plus, subscriber's receive their own monthly newsletter called CDx3 Research Notes that allows subscribers to "look over my shoulder" as my preferred stock research continues.

The exclusive subscriber's web site serves as a repository for that information and much more.  For example, from within the subscriber's web site, a subscriber can:

- see new CDx3 Preferred Stocks that are currently trading on the Over-The-Counter stock exchange, get a current price quote and review their CDx3 Preferred Stock Spec Sheets;

- review updates to the CDx3 Do-Not-Buy List, the list of companies that have a history of suspending preferred stock dividends, originally presented on page 24 of Preferred Stock Investing;

- directly access key external resources and web sites that CDx3 Investors frequently use, such as the Over-The-Counter bulletin board, PinkSheets, the New York Stock Exchange, the American Stock Exchange, Yahoo Finance and all of the resources that these sites provide that are relevant to CDx3 Investors;

- directly access the current CDx3 Seller’s Calendar and all previously issued CDx3 Seller’s Calendars, from the CDx3 Seller’s Calendar archive;

- shop at the CDx3 Investor Quick-Buy Store where you can renew your subscription or purchase additional 4-Member Packs for growing investment groups;

- see the CDx3 Preferred Stock catalog that lists the latest, and historical, CDx3 Preferred Stocks along with a CDx3 Preferred Stock Spec Sheet on each one;

- access helpful tools such as the CDx3 Effective Annual Return calculator (that now includes a yield calculator), a dictionary of investment terminology and Moody’s Investors Service to check the current Moody’s rating of CDx3 Preferred Stocks;

- see past issues of CDx3 Research Notes, the monthly newsletter just for subscribers to the CDx3 Notification Service;

- visit the Preferred Stock Investing Reader’s Forum where you can post discussions with other CDx3 Investors or read past issues of the monthly CDx3 Newsletter;

- and much, much more…

Site Simulator:  Here is an example of what you are going to see when you take the tour of the subscriber's web site:

This is the CDx3 Tutorial web page for the home page of the subscriber's web site.  Notice how each page includes an image of the screen being described.  Explanatory narrative and other helpful tips appear below the screen image.

Here's the best part: the buttons and links that you see on the screen images within the CDx3 Tutorial are active; you can click on them just like you were using the real thing.  This is what we call "site simulation."

And the Site Map/Tutorial Guide on the right of each screen image keeps track of where you are.  Simple.

You will start your tour at the sign in tutorial page.  Just click on the Sign in padlock in the upper right corner and you'll be on your way (the CDx3 Tutorial is not password protected, this just simulates signing in).

Start Tour

Who Are These Companies That Issue CDx3 Preferred Stocks?

Bank of America Corporation (NYSE: BAC)

There are very few people on the planet who have never heard of Bank of America (NYSE: BAC).

This $192 billion pillar of American finance was founded in 1874 and is headquartered in Charlotte, North Carolina.  BofA has over 5,700 retail banking locations plus about 17,000 ATM machines worldwide.

BofA generated global interest on January 11, 2008 when it agreed to acquire the largest mortgage lender in the United States - Countrywide Financial Corporation (NYSE: CFC).

In past issues of the CDx3 Newsletter, I have referred to Countrywide as "ground zero" of the current subprime mortgage mess.  Countrywide, also an issuer of CDx3 Preferred Stock, has had huge exposure to these mortgages.

Good Deal For Both?  In need of cash, Countrywide did a $2 billion deal with BofA last August.  In return, BofA received preferred stock, with the right to convert them to Countrywide common stock, at $18 per share, after 18 months.  CFC was trading at about $22 at the time, so this seemed like a good deal for both parties.

But as delinquency rates and foreclosures continued to increase, Countrywide's stock fell to about $4 per share, down from about $45 a year earlier, losing about 90% of its value.  It was becoming clear (certainly to BofA) that CFC might not be around in 18 months.

By purchasing Countrywide, BofA not only protected its earlier investment, but now finds itself (after regulatory approval, expected this summer) owning the largest mortgage portfolio in the country, the majority of which has already seen its subprime losses (not that there is no more blood letting left to be done).

What About CFC-B?  On November 3, 2006, Countrywide introduced their Series B CDx3 Preferred Stock (CFC-B) that pays a 7.000% annual dividend.  After reaching a high of $25.63 per share in February 2007, the market price of this CDx3 Preferred Stock plunged to $6.65 on January 9, 2008, as speculation started to circulate that Countrywide might not make it.  Then, two days later, BofA announced their purchase of Countrywide and CFC-B shot above $18 in a couple of hours (and still trades at about that point).

CDx3 Investors who own CFC-B started wondering what was going to happen to their shares once BofA owned Countrywide.  While the precise disposition will be determined by the various legal and contractual requirements involved in this acquisition, the fact that the market price shot up so aggressively would certainly imply that some big investors out there are convinced that owning CFC-B is a pretty good investment, going forward.

Déjà Vu All Over Again: Also, there is a precedent that we can look at.  On November 3, 2005 the stockholders of MBNA Corporation (another large financial institution) approved a merger proposal with Bank of America.  What makes this 2005 acquisition of MBNA by Bank of America of interest to CDx3 Investors is that, at the time, just like the case now with Countrywide, MBNA had an outstanding CDx3 Preferred Stock (trading under the symbol KRB-E). 

KRB-E, introduced on November 25, 2002, pays an 8.1% annual dividend.  This 8.1% number becomes important for the CDx3 Question Of The Month article below.

What did BofA do about those who held shares of KRB-E when it acquired MBNA?  Nothing.  KRB-E continued trading, even under the same trading symbol, and is still trading today (click here).

While anything is possible before the deal is done, it would be unusual for BofA to treat CFC-B any differently than it did KRB-E back in 2005.

Why have no CDx3 Preferred Stocks been "called" recently? - Kip O.

Here's an opportunity to impress your friends by telling them that you can correctly predict the market price of a new CDx3 Preferred Stock five years in advance (within a small margin of error).

After explaining how, I'll show you a chart of the Series E CDx3 Preferred Stock from MBNA (KRB-E, now part of Bank of America), the same one that we discussed in the CDx3 Company Spotlight article above,  so that you can see how this works.

5-Year Call Date: CDx3 Preferred Stocks have a five year lifespan; that is, five years after they are issued to the marketplace, the issuing company regains the right to buy your shares back from you - for $25.00 per share (regardless of what you originally paid).  The precise date that the issuing company regains the right to purchase your shares back from you is referred to as the "call date."  If the issuing company does so, the CDx3 Preferred Stock is said to have been "called."

So, what do you think happens to the market price of a CDx3 Preferred Stock as the call date approaches (five years after its introduction)?  It tends toward $25, of course.  No one is going to pay you much more than that once the issuing company regains the right to purchase the shares back at that price, right?  This is the Rule of Call Date Gravity (Preferred Stock Investing,  page 75) - starting about three years after a CDx3 Preferred Stock is first introduced, its market price will tend toward $25 as the call date approaches (your friends will be surprised and justifiably impressed).

But, to Kip's question, why have no CDx3 Preferred Stocks been called recently?

Refinancing: When a company calls a preferred stock, it needs a bunch of cash so that they can buy your shares from you. The company usually raises this cash by issuing a new preferred stock, then takes the cash that the new issue generates for them, and uses that cash to purchase the older issue from its current holders (you).  Preferred Stock Investing refers to this mechanism as “refinancing” (Preferred Stock Investing,  page 54).

However, this only makes sense to do if the current “going dividend rate” on new issues of preferred stock is less than the dividend rate they are paying on the old issue.

Example:  For example, if the XYZ Corporation issued a 6.5% preferred stock five years ago, and today’s going dividend rate is 8% on new preferred stocks, why would they issue a new preferred stock that obligates them to start paying out dividends at 8% in order to stop paying dividends at the 6.5% of the older issue?  They wouldn't.

So, during periods of time when the going dividend rate being offered on new CDx3 Preferred Stocks is higher than it was five years ago (like it is now - 8.1%), there will be very few, if any, calls.  Once rates fall below 8.1% (later this year?), you will see calls pick up.

In the meantime, the market price of five year old CDx3 Preferred Stocks, especially ones that pay a dividend right around 8.1%, is going to be right around $25.00 (with occasional, short-term fluctuations), since everyone on the planet knows that the issuing company could call the issue at any time (and just might).

Real Example: The current average dividend rate being paid by CDx3 Preferred Stocks is 8.1%.  Five years ago, the Series E CDx3 Preferred Stock from MBNA Corporation (KRB-E) was introduced at 8.1% - the same as today's average going rate.  As discussed in the CDx3 Company Spotlight article above, Bank of America now owns MBNA and is considered the "issuing company" of KRB-E.

Take a look at this five year market price chart for KRB-E from MarketWatch (click here).  Note how the market price for KRB-E trends toward $25.00, beginning about three years after its introduction - just like the Rule of Call Date Gravity says it should.  And now you know why.

Thanks to Kip O. 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.

CDx3 Preferred Stocks: 8.5%; Bank CDs: 4.8%

Can The First 9% CDx3 Preferred Stock Be Very Far Away?

Starting about two months ago, financial columnists and writers starting jumping onto the preferred stock bandwagon.  I mentioned Merrill Lynch and Richard Young in last month's CDx3 Newsletter; the latest entry is hedge fund manager Jonathan Hoenig writing for SmartMoney:

"In the last few weeks, I've developed an interest in preferred stock, which I last highlighted back in 2005" (thanks to Reagan G. for passing this along).

Preferred Stock Investing explains how to do it.  For those who would rather not take the time, the CDx3 Notification Service does the work for you, sending you an email message when there is an upcoming buying or selling opportunity.

All agree that the current buyer's market, characterized by huge dividend rates being paid on new issues and low market prices, cannot last much longer (there are currently CDx3 Preferred Stock paying 7.5% dividends selling for under $24 per share).  With government leaders implementing very aggressive and complementary monetary and fiscal policy measures during January, the market conditions that have allowed the average dividend rate being paid by new CDx3 Preferred Stocks to soar above 8%, while comparable bank CDs are paying about 4.8% (24-month, $10,000; source: bankrate.com), are likely to subside in the coming quarters.

Will we see a 9% CDx3 Preferred Stock in February or shortly thereafter?  I'll report back to you in the March 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 a economics and statistics background who has developed a simple way to earn a respectable return at "CD-like" 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.

Please take a look at http://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

P.S.: If you do not want to receive news regarding Preferred Stock Investingjust send an email message to OptOut@PreferredStockInvesting.com and you will be automatically removed from my address list.  Best wishes to you.

Copyright (c) 2008 by Doug K. Le Du
CD Times 3, CDx3, CDx3 Income Engine, CDx3 Investor, CDx3 Portfolio, CDx3 Preferred Stock are trademarks of Doug K. Le Du.  All rights reserved.
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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 and goals before investing. You, and not Doug K. Le Du, are solely responsible for your own investment decisions.