and I...are self managing our IRA...We love your book. You
are the first person to make sense of preferreds."
- Gayle S.
A special welcome to all of the
new CDx3 Newsletter subscribers from the February 18 Barron's
article titled "How To Play Financial Stocks -- Safely."
We were pleased to be included in such company. This is your first issue of the CDx3 Newsletter, a free monthly newsletter devoted
to the interests of CDx3 Preferred Stock investors.
"CDx3 Preferred Stocks" are
preferred stocks that meet the ten CDx3 Selection Criteria
presented in Chapter 1 of the book Preferred Stock Investing.
For example, CDx3 Preferred Stocks must (1) be issued by a
company that has never suspended dividends on a preferred stock,
(2) have a Moody's rating of "investment grade," and (3) have
the "cumulative" dividend provision that, in the event of a
missed dividend payment (which I have never seen happen with a
CDx3 Preferred Stock), requires the issuing company to make it
up to you down stream. And there are seven more criteria
beyond these three, all of which must be met in order for a
regular preferred stock to be considered a CDx3 Preferred Stock.
The ten CDx3 Selection Criteria eliminate about 90% of the
preferred stocks that are issued every month, leaving the
lowest-risk, highest-quality preferred stocks - CDx3
Month's CDx3 Investor Results article below marks an
important event that occurred during February - the annual
inflation rate (4.28%) exceeded the average annual interest rate
paid by bank Certificates of Deposit (3.7%). Two charts
clearly show how this event has generated enormous interest in
low-risk CDx3 Preferred Stocks, which are now paying an average
dividend rate of 8.1%.
The current "buyer's market" for
CDx3 Preferred Stocks (high dividend payers available for low
market prices) started last June. Much of my
research activities last year focused not so much on what was
causing the buyer's market (subprime mortgage/credit mess), but
rather on developing a method for measuring it.
In this month's Special
Announcement article, I present the results of that research
- the CDx3 Perfect Market Index. The chart that I will
present clearly shows how, when and the order of magnitude that
the market for CDx3 Preferred Stocks changed during 2007.
This month's CDx3 Company Spotlight article
uses a CDx3 Preferred Stock issued by Health Care Properties,
Inc. (HCP) to illustrate how CDx3 Investors can create a 16.7%
opportunity for themselves by buying it now and selling it
later. When later? August 15, 2008; and receive two
dividend checks from HCP in the mean time.
Bonds and preferred stocks have a
lot in common, but there are some important differences too.
In this month's CDx3 Question Of The
Month article, I'll show you how one such difference
determines the best time to buy and sell 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
When the Federal Reserve Board
lowered interest rates in late
January, the result for those
investing in bank CDs was swift and
stunning. The average bank CD
interest rate (24 months, $10k)
plunged 1.1% during February,
leaving CD investors wondering where
to turn. The
research that I have documented
throughout Preferred Stock
Investing describes a solid
alternative. The Fed meets
again on March 18 to consider
another rate reduction.
are a bank CD investor, I strongly
encourage you to familiarize
yourself with the benefits of
low-risk preferred stocks by reading
Preferred Stock Investing
for non-investment experts in plain
English. Just click on the
Purchase Preferred Stock
Investing link at the top of
this CDx3 Newsletter.
Stock Dividends More Than Double Bank CDs
Inflation Rate Wipes Out Bank CD Interest Income
- Preferred Stocks Offer Alternative
happened. During February, the inflation
rate leaped past the average interest rate being
paid by bank Certificates of Deposit (CDs). That
means that, even before you pay the income tax
on the CD's interest, you're losing money.
The Consumer Price
Index reached 4.28% during January and is
expected to be reported at about the same level
for February, while the
average interest rate on bank CDs (24 month,
$10k) fell to 3.7%.
Certificates of Deposit (CDs) have their place,
what I really object to is that they are
promoted to bank customers as some kind of
income-generating machine, when the fact is that
they are not, and never have been.
By the time you
subtract inflation and income taxes, you are
frequently losing money with bank CDs.
you put $1,000 into a 24-month bank CD that pays
the current national average rate of 3.687% per
year (source: bankrate.com). So, at the end of the first year you
have made $36.87 in interest income. Now
let's say you have to pay 40% (federal plus
state) of that interest income to taxes, so you
lose $14.75 of your $36.87. You're down to
$22.12 in earnings so far. But remember,
your original $1,000 also loses to inflation
over that year. The current 4.28% annual
inflation hit on your $1,000 is $42.80.
Subtracting that off of your remaining $22.12,
and you are upside down by $20.68. That's
a $20.68 annual loss for every $1,000 you invest in
this bank CD.
October 2007 issue
of the CDx3 Newsletter I explained the
relationship between interest rates in the U.S.
economy (as managed by the Federal Reserve
Board) and inflation. Lowering interest
rates is inflationary.
The Fed found themselves
in a tough spot last summer, having to choose
between lowering rates to help out the
cash-starved financial markets or fighting off
inflation. The Fed sided with the
financial markets and began lowering interest
rates; inflation predictably started upward.
Now For The Good News:
Normally, there is some consistency between the
movement of various interest rates within the
U.S. economy. But, at the moment, we are
in exceptional times; times that have created an
enormous opportunity for CDx3 Investors.
The average annual
dividend rate now being paid by newly issued
CDx3 Preferred Stocks is now more than double
the average bank CD interest rate (24 months,
And that's just
the dividend income (paid to you quarterly by
CDx3 Preferred Stocks). Preferred Stock
Investing teaches you how and when to
capture additional capital gain income as well,
which is another advantage over bank CDs.
Notice how, prior
to June 2007, CDx3 Preferred Stock dividend
rates (top line) and bank CD rates were moving
more or less together, as usual. When the
Fed started lowering interest rates, CDs
followed along, but not CDx3 Preferred Stocks.
In fact, the lower the Fed pushed interest
rates, the higher the dividend rates being paid
by CDx3 Preferred Stocks went. And that is
likely to continue to be the case for many more
CDx3 Preferred Stocks:
To understand why, one has to understand the
reason that the Fed has been lowering
interest rates. The reason, of course, is
because the financial sector of our economy, and
everything attached to it, is under enormous
pressure. To help out, the Fed has been
lowering the cost of money (rates); but, at the
same time, cash-strapped banks have had to
sweeten the deal on new CDx3 Preferred Stocks in
order to attract investors (you).
So, a set of
circumstances has presented itself where
interest rates are low (and getting lower),
while, at the same time, dividend rates being
paid by newly issued CDx3 Preferred Stocks are
The three-month average dividend rate being paid
by newly issued CDx3 Preferred Stocks continued
to increase during February, reaching an annual
rate of 8.142%. Up from January's 8.075%
mark, CDx3 Preferred Stocks continue to outpace
most other low-risk, fixed-income investments,
such as bank CDs.
Low-Risk? What makes CDx3
Preferred Stocks such low risk? CDx3
Preferred Stocks meet the ten CDx3 Selection
Criteria presented in Chapter 1 of Preferred
Stock Investing. Three of the ten criteria
that CDx3 Preferred Stocks must meet are that
they (1) are issued by a company that has never
suspended dividends on a preferred stock, (2)
are rated "investment grade" by Moody's
Investors Service and (3) are "cumulative,"
meaning that if a dividend is skipped, the
issuing company is obligated to make it up to
How To Get Started:
Preferred Stock Investing provides the resources
(formulas, web sites, techniques) that you need
to be a successful CDx3 Investor. For
those who would rather not take the time, but
still want the benefits, there is the
Notification Service. In addition to
having direct access to my ongoing research,
their own web site with tons of preferred stock
investing resources and a separate monthly
preferred stock research newsletter, subscribers to the
CDx3 Notification Service receive an email
message whenever there is an upcoming buying or
selling opportunity for CDx3 Preferred Stocks;
weeks in advance too.
If you are a CD
investor looking for an alternative, I would
encourage you to read Preferred Stock
Investing and consider subscribing to the
CDx3 Notification Service. The Federal
Reserve Board meets to consider lowering
rates again on March 18.
CDx3 Investor Web Site Includes New 'CDx3 Perfect
New Research Shows Direction And
Strength Of Market For CDx3 Preferred Stocks
In early February, new
research was presented to subscribers to the
CDx3 Notification Service that is able to quantify
the behavior of the market for CDx3 Preferred Stocks.
With the new "CDx3 Perfect
Market Index," CDx3 Investors can now actually see on a
chart the direction and strength of the market for CDx3
A value above 100
indicates a "buyer's market" while a value below 100
indicates a "seller's market" (100 indicates a "perfect
The CDx3 Income Engine
takes advantage of a well known characteristic of the
market for preferred stocks - the direction of dividend
rates and market prices move in opposite directions.
This is what Preferred Stock Investing refers to
as the Rule of Rate/Price Opposition (page 61) - rates
up, prices down, and vice versa.
High Dividend Income Now: If you have been
reading the CDx3 Newsletter for the past several
months, you have seen my references to the "buyer's
market" that we entered last June. A buyer's
market is characterized by the availability of unusually
high dividend paying CDx3 Preferred Stocks at unusually
low market prices. It is during a buyer's market
that CDx3 Investors focus on scooping up these high
dividend payers; the CDx3 Income Engine generates
relatively high dividend income during such market
Plus Capital Gain Income Later:
Conversely, during a "seller's market" CDx3 Preferred
Stock dividend rates are falling, but market prices
climb. This is when CDx3 Investors sell, for a
nice capital gain, the CDx3 Preferred Stocks that they
had purchased earlier during the buyer's market.
For this reason, during a seller's market, the CDx3
Income Engine favors capital gain income, rather than
For CDx3 Investors, it is
therefore important to know which direction the market
for CDx3 Preferred Stocks is heading in. Are more
buying opportunities on the way, or should we be looking
for selling opportunities on the horizon?
No More Guessing: The CDx3 Perfect
Market Index takes the guessing out of determining the
nature of the market for CDx3 Preferred Stocks.
The CDx3 Perfect Market Index is updated each month and
provided to subscribers to the CDx3 Notification
Service. To learn more about becoming a
These Companies That Issue CDx3 Preferred
Health Care Properties,
Inc. (NYSE: HCP)
last month's issue of the
CDx3 Newsletter, I
described how CDx3 Preferred
Stocks have a five year lifespan
due to their five year "call
date." After five years
from introduction, the issuing
company of a CDx3 Preferred
Stock regains the right to
purchase your shares back from
you, but they must pay you
$25.00 per share, regardless of
what you originally paid and
regardless of the then-current
market price. $25.00 -
that's what you're going to get.
you might guess, knowing what
the price is going to be way in
advance provides CDx3 Investors
with an opportunity. If
you purchase a CDx3 Preferred
Stock for less than $25.00, and
it is "called" (bought back from
you) by the issuing company, you
not only make great quarterly
dividend income along the way,
but you realize a profit
(capital gain) on the call date
to add to your dividend
Example: I will use a
CDx3 Preferred Stocks from HCP,
Inc. to illustrate how this
works, then you can decide if,
within the context of your
resources, goals and risk
tolerance, this approach is for
you. If nothing else, I
think you will agree that this
mechanism is very interesting.
But first, a little bit about
million Americans started
retiring last year. That's
almost one out of every four
people. Health care, the
largest single sector within the
U.S. economy, is about to get a
HCP, founded in 1985, invests in
health care-related facilities
by purchasing them and leasing
them to health care providers.
HCP, a $6.2 billion company
headquartered in Long Beach,
California, owns about $11
billion worth of facilities used
for senior housing, medical
offices, life sciences,
hospitals and skilled nursing
centers throughout the United
States and Mexico.
looking back five years, CDx3
Investors can see CDx3 Preferred
Stocks that are now candidates
for being called. HCP
issued two CDx3 Preferred Stocks
during 2003, HCP-E (7.25%) and
HCP-F (7.10%). Let's talk
2008: HCP-E has a
call date of August 15, 2008. As
last month's issue of the CDx3
Newsletter, if the average
dividend rate being paid by newly
issued CDx3 Preferred Stocks falls
from its current level of 8.1% down
below 7.25% by August, it would be
unusual for HCP not to call (buy
back from you at $25 per share) HCP-E.
am writing this, HCP-E is selling
for a market price of $23.12.
If you were to purchase HCP-E at
that price, your yield (the rate
that you are actually earning on the
money you have invested) would be
7.84%, not 7.25%. HCP-E pays
its quarterly dividends using the
calendar quarter, so you are going
to receive two quarterly dividend
payments (March 31 and June 30) from
HCP prior to the August call date.
At $0.45 per quarter, that's $0.90
in dividend income per share to you.
Secondly, if HCP calls HCP-E on
August 15, 2008 (and pays you $25
per share), you would realize a
capital gain of $1.88 per share (the
$25.00 they'll pay you minus the
$23.12 you paid today). So,
prior to the August 15 call date,
you make $0.90 in dividend income
plus $1.88 in capital gain income
(assuming that HCP calls HCP-E; if
not, you just keep collecting more
dividend income each quarter at
7.84% until they do).
CDx3 Investors who purchase HCP-E
now for $23.12 per share, would
collect two quarters worth of
dividend income, then sell back to HCP in August for $25 per share,
earning an effective annual return
of 16.7% on their money. If HCP
waits a year to call HCP-E (until August
2009), your effective annual return
is still 11.6%.
do not take my use of HCP-E here as
a recommendation to buy, or not to
buy. HCP-E provides a great
example of how CDx3 Investors can
use the call date to their advantage.
where can you find a list of CDx3
Preferred Stocks that were issued
during 2003 and now face an upcoming
call date? Preferred Stock
Investing, page 129 lists all 21
of them including their trading
symbols and dividend rates.
When I purchase a CDx3
Preferred Stock, do I get to
keep the entire quarterly
dividend or do I have to split
it with the seller like bonds? -
In the CDx3 Company
Spotlight article above, I explain how CDx3
Investors can use the characteristics of CDx3
Preferred Stocks to position themselves for a nice
return. Using an approaching call date during
a buyer's market to collect nice dividend income
plus a capital gain should the issuing company call
(buy back from you) your shares.
But there are many more aspects of preferred stock
investing that allow CDx3 Investors to (1) earn
respectable returns with (2) very little risk or (3)
work - the three objectives of the CDx3 Income
Engine as explained throughout Preferred Stock
Marilyn's question is one that I frequently receive
from those who have experience investing in bonds.
Once I explain the answer, you will see what an
incredible opportunity exists with CDx3 Preferred
Bonds are often compared to preferred stocks since
both can offer a low-risk investment alternative.
They both pay a fixed, periodic dividend and both
bond holders and preferred stock holders get to
stand in line before common stock holders in the
unlikely event that the issuing company has a
Bond dividends are usually paid every six months as
compared to the quarterly dividends paid by CDx3
Preferred Stocks. But there is a major
difference between the rules governing bond
dividends and those governing CDx3 Preferred Stock
dividends, a difference that adds substantial fuel
to the CDx3 Income Engine.
Here's The Deal With Bonds: Let's say
that you purchase a bond two months into its six
month dividend period; that is, the seller owns this
bond for two months and then you own it for four
months. When the issuing company pays the
dividend for that six month period, they send the
money to your broker. Your broker is required
to then send one-third of that dividend cash back to
the seller's broker. In other words, with
bonds, you only get to keep the amount of dividend
income that is proportional to the amount of time
you owned the bond during the dividend period.
There is a "post-sale reconciliation" that goes on
between your broker and the broker of the person who
sold the bond to you.
You Keep The Money:
Now compare that to the case of CDx3 Preferred Stock
dividends. Each quarter, the stock exchange
announces a magic date (called the Ex-Dividend
Date), just prior to when the quarter's dividends
are paid out. With CDx3 Preferred Stocks,
whoever owns the issue on the morning of the
Ex-Dividend Date will receive the dividend for that
quarter from the issuing company - and you get to
keep it; all of it. That's right; with CDx3
Preferred Stocks, there is no "post-sale
reconciliation." Even if you were to purchase the
CDx3 Preferred Stock one day prior to the
Ex-Dividend Date, you will receive the entire
quarter's worth of dividend income.
As you might guess, this characteristic of CDx3
Preferred Stocks creates quite an opportunity for
those "in the know." Preferred Stock
Investing provide all of the formulas, methods,
web sites and other resources that you need to be a
successful CDx3 Investor entirely on your own.
But for those who would rather not take the time,
subscribers to the
CDx3 Notification Service receive an automatic
email message whenever there is an upcoming buying
or selling opportunity, the timing of which is often
known well in advance. With bonds, there is no
such opportunity due to the post-sale reconciliation
of dividends; with CDx3 Preferred Stocks, there is
substantial opportunity with little risk or work.
Thanks to Marilyn P. for
the great question. You will receive a
complementary copy of the CDx3 Special Report
Special Report Also Has Free Companion Excel
See How To Correctly Calculate Your
Effective Annual Return - FREE
The Preferred Stock Investing Reader's Forum provides a
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.
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
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,
March Fed Policy Could Create CDx3 Landslide - For Good
Worthless Bank CDs Create Opportunities For CDx3 Investors
The average interest rate (APY) paid by bank CDs
(24 months, $10k) fell from January's 4.8% to
3.7% by the end of February (source:
bankrate.com); a drop of more than
1% in one month. This drop was largely due
to the aggressive reduction in interest rates by
the Federal Reserve Board during late January.
The Fed is scheduled to meet again to consider
another rate reduction on Tuesday, March 18.
If you would like to place a wager on which way
the Fed will go, and by how much, the Chicago
Board of Trade offers a "futures market" where
you can do just that. At the moment, the
smart money says that the Fed will lower the
federal funds rate by 1/2 percent on March 18.
In that event, the interest rate on bank CDs
will likely drop even further and inflation will
receive another upward boost - perfect
conditions for an increase in demand for CDx3
Don't be left out of these unique circumstances.
Subscribers to the
CDx3 Notification Service receive a
Buyer's Notification email message when there is
an upcoming buying opportunity, and a Seller's
Notification message when there is an upcoming
selling opportunity. We do all of the work
for you. Be on the receiving end.
I will report the Fed's actions, and what it
means to CDx3 Investors, 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 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
Newsletters interesting, and
will consider learning more by
purchasing my book, Preferred
take a look at
http://www.PreferredStockInvesting.com. And don't forget
FREE SPECIAL OFFER.
someone who might be interested in simple,
low-risk investing for non-investment
experts? Have them send an email
they will automatically
begin receiving this monthly CDx3
next month (plus a
CDx3 Special Report) - all FREE.
Then they can make up their own mind.
Many Happy Returns,
Doug K. Le Du