“I must tell you I own many of the stocks that have come up on the Bargain Table since I started subscribing to your excellent service. I am a true believer..." - Martin H., CDx3 Notification Service subscriber

Quick Summary

Last Month's CDx3 Investor Results

Special Announcement

CDx3 Company Spotlight

CDx3 Question Of The Month

FREE Special Offer

Next Month's Sneak Peek

The Third Edition of Preferred Stock Investing is now available!

The Third Edition of Preferred Stock Investing, published a few months ago, includes all of my latest research regarding the market price behavior of high quality preferred stocks. Five new chapters and 70 additional pages use real preferred stocks to show you how to screen, buy and sell the highest quality issues.

Chapter 15 lists all qualifying preferred stocks that have been issued since January 2001 and shows you how you would have done by using the investing method described throughout the book for each one. And the book includes all of the websites and other resources that are used to implement the CDx3 Income Engine on your own.

The Third Edition of Preferred Stock Investing, the manuscript of which was reviewed by several dozen readers and subscribers before going to the publisher, is my most comprehensive work yet and it is now available at your favorite online retailers (see retailers | see reader reviews).

Just Posted On The Preferred Stock Investing Reader's Forum: Rating agencies (Moodys, Standard & Poor's, Fitch) lost a certain amount of credibility when their rating models failed to accommodate the fragile state of the U.S. real estate market in 2007 and everything connected to it. Since the lawsuits starting piling up, these companies have been stumbling all over each other to see who can issue the most (now belated) downgrades. In a January 22 post to the Preferred Stock Investing Reader's Forum (my "blog") titled "Fitch Goes After REIT Preferred Stocks But Does Anybody Care?" I break down Fitch's new REIT preferred stock rating methodology and show you why, despite media reports to the contrary, it means very little if anything to preferred stock investors. (jump to Forum)

The Last Month's CDx3 Investor Results article presents two charts - the first shows you how the market price recovery for the highest quality preferred stocks (now at 107% since March 9, 2009) has outpaced the recovery of common stocks by almost double  (now at 59% over the same period); the second chart shows the remaining upside of the market price of CDx3 Preferred Stocks. The market prices for CDx3 Preferred Stocks, as impressive as their increases have been, have another $1.85 per share to go before the crisis-caused excess yield is finally squeezed out of the system. (jump to article)

A few weeks ago, subscribers to the CDx3 Notification Service (my email alert service for preferred stock investors) got a new, updated website (see reader comments). In this month's Special Announcement article I describe some of the new site's features and provide you with a link to take a tour. The new subscriber's website is the most comprehensive resource for preferred stock investors anywhere by far. (jump to article)

In the CDx3 Company Spotlight article I introduce you to Kimco Realty Corporation (KIM), the country's largest neighborhood and community shopping center owner. Kimco has a strategy that has maintained occupancy rates in excess of 90% while actually increasing rents and overall revenue. While a lot has been written about upcoming due dates for real estate company bond debt, Standard & Poor's concludes in a January 30, 2010 debt analysis that "...We believe that the company has sufficient liquidity to meet its obligations."  (jump to article)

The CDx3 Question of the Month is presented both here and on the Preferred Stock Investing Reader's Forum. If you visit the Forum you can test your knowledge by clicking on your answer to the question. You will receive an automatic email that provides you with the correct answer and my explanation. Or you can just read the answer in the below CDx3 Question of the Month article. I use this month's question to explain why preferred stock investors may want to hold off a few weeks before filing their 2009 tax return.  (jump to article)

Why wait until next month's CDx3 Newsletter to find out what is going on in the preferred stock marketplace? Throughout the month I post regular research articles on the Preferred Stock Investing Reader's Forum and make them available to you for free. In the Free Special Offer article below I provide you with a link that allows you to receive my posts, and the posts of other preferred stock investors, via an email message rather than having to visit the Forum to see what's new. Any time a new article is posted, you will receive a message in your email inbox automatically - free. (jump to article)

Coming Up For Preferred Stock Investors: The Next Month's Sneak Peek article at the bottom of this CDx3 Newsletter presents the estimated unemployment rate that the President's 2011 budget proposal will produce. The proposal is very positive for preferred stock investors but for what many will view as all the wrong reasons. It dismally estimates reducing our current 10.0% unemployment rate to 9.2% by the end of 2011; this while inflation jumped above the Fed's 2% upper limit to 2.72% during December 2009. How does the Fed increase interest rates to combat inflation without causing more layoffs? (jump to article)

I look forward to reporting back to you in next month's issue of the CDx3 Newsletter.

Highest Quality Preferred Stock Prices Up Almost Double The S&P 500

Any Upside Left? Two Charts Show $1.85 Per Share Yet To Come

Since the March 9, 2009 lows, the average market prices for the highest quality preferred stocks are now up 107%. That's approaching twice the recovery that common stocks have seen as measured by the S&P 500 index. The S&P 500 index is up 59% over the same period (see Chart 1).

As dramatic as the price recovery in the preferred stock market has been, there is still more upside left before the crisis-caused excess yield has been squeezed out. Specifically, as of the end of January 2010, market prices for the highest quality issues have to increase another $1.85 per share before we can say that investors are pricing such shares at their pre-Global Credit Crisis levels (May 2007).

How Did I Get That Number?

Economic recoveries generally happen in three broad phases - (1) market recovery then (2) real estate recovery then (3) jobs recovery. Investors are motivated to get in early so the market usually recovers first. But jumpy investors usually start with the lowest-risk alternatives first; namely, the highest quality bonds and preferred stocks.

As I illustrated in the December 2009 issue of the CDx3 Newsletter, this recovery has been no different. As Chart 1 here clearly shows, investors returning their cash to the market have favored high quality preferred stocks over common stocks (as measured by the S&P 500).

While Chart 1 shows us how far preferred stock market prices have come since the recovery started on March 9, 2009, we need to look at another chart to see how much market price upside is still left (i.e. how much of the crisis-caused excess yield still exists in the marketplace for preferred stocks).

The CDx3 Perfect Market Index is a proprietary metric that allows us to directly observe four aspects of the marketplace for the highest quality preferred stocks: (1) the type of market (one favoring buyers or sellers), (2) the depth of the market (how far away we are from a baseline "perfect market"), (3) the direction of the market (heading away from or closer to a perfect market) and (4) the speed with which the market for the highest quality preferred stocks is moving in that direction.

The CDx3 Perfect Market Index moves in the same direction as yield, so when prices go down the Index goes up. The Index will have a value of 100 when the average market price for the highest quality preferred stocks ("CDx3 Preferred Stocks" - see the sidebar at the top of this CDx3 Newsletter) is $25.00 per share (par value, a perfect market).

You can clearly see the onset of the Global Credit Crisis in Chart 2.

The pre-crisis (late May 2007) average market price for CDx3 Preferred Stocks was $25.00 per share. At the end of January 2010, the average price was $23.15 per share. While the price recovery since March 9, 2009 has been spectacular, we're not done yet. For the average market price of CDx3 Preferred Stock shares to reach $25.00 (their pre-crisis level), prices have to come up another $1.85 per share (average).

What's Ahead?

So there is still crisis-caused excess yield (artificially low market prices) in the market for the highest quality preferred stocks. Unless the policies of the Federal Reserve (monetary policy) and/or Congress (fiscal policy) alter the direction of the market, the average market prices of such issues should return to their pre-crisis levels by increasing an average of another $1.85 per share.

It is the timing of the Fed's efforts to control inflation that now deserves our attention. Even though the Fed stated just a couple of weeks ago that they do not intend on increasing interest rates for "an extended period," the Bureau of Labor Statistics reported on January 15 that inflation has now exceeded the Fed's 2% ceiling.

December's inflation value came in at 2.72%.

If the Fed starts increasing interest rates it is likely that yields on bank CDs, corporate bonds and preferred stocks will follow suit, especially if the crisis-caused excess yield has been eliminated by the time the Fed acts.

Until the Fed starts increasing interest rates, which many analysts are not expecting until late-2010 at the earliest, the crisis-caused excess yield should continue to be taken out of the market for the highest quality preferred stocks (i.e. continued price increases).

When average market prices are less than $25.00, preferred stock investors are scooping up high quality preferred stocks at bargain prices. The current $23.15 average market price represents a buyer's market so preferred stock investors are currently building their preferred stock portfolios with high yielding, high quality issues at dirt cheap prices (the ending January 2010 average annual yield of CDx3 Preferred Stocks was 7.9%).

My book, Preferred Stock Investing (see retailers | see reader reviews), explains how to select, buy and sell the highest quality preferred stocks. All of the websites and other resources that you need to do so are included in the book plus a list of all CDx3 Preferred Stocks that have been issued since January 2001.

If you would rather someone else do the research, I offer the CDx3 Notification Service (see reader comments). Subscribers to the CDx3 Notification Service receive an email message when there are buying and selling opportunities coming up. We do the research and calculations, you make the decisions. To ride the recovery wave using the highest quality preferred stocks please consider subscribing to the CDx3 Notification Service today.

Version 3.0 Aggregates Company, Preferred Stock And Marketplace Information In One Place

A few weeks ago subscriber's to the CDx3 Notification Service (my preferred stock research and email alert service) received the latest version of their exclusive website. Version 3.0 of the subscriber's website provides subscribers with the most comprehensive resource available for preferred stock investors.

The design of the new subscriber's website is a direct result of specific input from subscribers through our Continuous Improvement Program.

The subscriber's website is the vault within which I keep research information regarding selecting, buying and selling the highest quality preferred stocks ("CDx3 Preferred Stocks"), the companies that issue them and the marketplace that they trade within.

Once a subscriber signs onto the subscriber's website, the CDx3 Preferred Stock Market Dashboard is presented (the CDx3 Preferred Stock identities on the Dashboard image at right have been obscured to protect subscription values). The Dashboard provides these seven feature boxes, each of which provide their own focused information, both current and historical:

Take A Tour: The new website's Tutorial has several components to it, including a description of the site's features. I have made a copy of the website's feature tutorial available to you. Click on the below link to take a quick tour of the new subscriber's website Dashboard.

Click here to view the new subscriber website's feature Tutorial

Preferred stock research is very hard to come by. The service is intended for individual investors as well as groups (investing clubs, brokers, families or groups of friends) and all information is provided in plain English for non-experts. If you want to get serious about your preferred stock investments, maybe it's time for you to subscribe to the CDx3 Notification Service too (see reader comments).

Brokers And Investment Groups: New Meeting Materials Now Available

As the most comprehensive research service available for the highest quality preferred stocks, all of the large, and many smaller, brokerage firms subscribe to the CDx3 Notification Service.

My Preferred Stock Investing Group Materials are intended for brokers with a group of clients or self-directed investment groups that are interested in learning something about preferred stock investing.

The Preferred Stock Investing Group Materials include a slide show (27 slides, PowerPoint Show format) and an accompanying handout that provides my commentary for each slide. The handout is available in color and black and white (PDF format) for easy printing.

The materials include my tips regarding how to select, buy and sell the highest quality preferred stocks and summarize much of the research from my book, Preferred Stock Investing. Specifically, the materials are organized into three parts:

Part 1: Approach and Objectives To Preferred Stock Investing

Part 2: How and When To Buy and Sell Preferred Stocks

Part 3: Preferred Stock Investing Resources

To request the Preferred Stock Investing Group Materials just send a blank email message to:

InvestmentGroupMaterials@PreferredStockInvesting.com

You will receive an auto-reply email message with current download instructions.

Who Are These Companies That Issue CDx3 Preferred Stocks?

Kimco Realty Corporation  (NYSE: KIM)

Kimco Realty is the nation's largest publicly traded owner and operator of neighborhood and community shopping centers. Kimco is a $4.8 billion Real Estate Investment Trust (REIT) founded in 1960 and is headquartered in New Hyde Park, New York.

Kimco's strategy is focused on domestic shopping centers located in densely populated areas with limited available land for competition. Internationally, most of Kimco's growth is a result of several successful acquisitions.

Kimco's centers are anchored by established tenants with long-term leases. Kimco's top five tenants are Home Depot, TJX Companies (TJ Maxx), Kmart/Sears Holdings, Kohl's and Wal-Mart. Wal-Mart's continued expansion of its business during this economic slowdown has helped Kimco increase its total revenues 12% during 2008 and 1.3% during 2009 while many of its competitors saw reductions.

While occupancy at Kimco centers has fallen slightly to about 92.3% (91.9% in the U.S.) from 95.3%, 2009 rents on new and renewal leases actually increased by 1.3%. At the end of 2008, Kimco had interests in 1,950 properties, totaling approximately 182.2 million square feet of gross leasable area located in 45 states, Canada, Mexico, Puerto Rico, Brazil, Chile and Peru.

Kimco's neighborhood and community shopping center properties are designed to attract local area customers and typically are anchored by a discount department store, a supermarket or a drugstore tenant offering day-to-day necessities rather than high-priced luxury items.

Regarding its debt, an analysis by Standard & Poor's published January 30, 2010 concluded:

"In early April 2009, management announced a series of steps that we think will greatly enhance the trust's liquidity and lessen concerns about its near-term debt maturities. At the end of the third quarter, Kimco had $317.3 million and $673 million (including its pro rata share of joint venture debt) of debt maturing in the remainder of 2009 and in 2010, respectively. We believe that the company has sufficient liquidity to meet its obligations. Sources of liquidity include about $360 million in cash at the end of the third quarter, availability under its credit facility as well as proceeds from debt and/or equity issuances. Further, we believe that management could potentially sell properties to its investment partnerships."

To see if you shop at a Kimco shopping center click here.

Kimco held its Q4/2009 financial results conference call yesterday (February 3, 2010). Press reports including the results should be available by the time you read this. You can see more information regarding Kimco Realty Corporation, including recent press coverage, by clicking here.

Reader Note: The purpose of the CDx3 Company Spotlight article is to give you a sense of the types of companies that issue CDx3 Preferred Stocks. Companies that appear in the CDx3 Company Spotlight either currently, or in the past, have issued CDx3 Preferred Stocks. Since I am not familiar with your financial goals, resources or risk tolerance, my mention of these companies here should not be taken as a recommendation by me for you to buy, or not buy, securities issued by these companies. Companies can issue multiple series of preferred stocks, some of which may meet the CDx3 Selection Criteria while others do not.

Preferred stock distributions that you receive from a REIT throughout the year are taxed as what kind of income? - Preferred Stock Investing Reader's Forum.

If you hold preferred stock shares issued by a REIT you should not be too quick to file your tax return because the answer to our question is (D).

When a REIT makes distributions to you throughout the year, they have no way of knowing what the composition of their earnings is going to be come year-end (they might sell a building on the last day of the year and realize a big capital gain).

So, as distributions are made each quarter to you they are temporarily classified as "ordinary dividends" and reported to you as such by your broker throughout the year.

But once the REIT puts their end-of-year financial statements and tax returns together, they have to go back and reclassify the quarterly distributions that they made to you to reflect where the REIT's earnings actually came from for the year (see example from Kimco Realty). The amount of money you earned does not change, just how that money is classified for tax purposes.

Your broker is required to provide you with a 1099-DIV form by February 1. But be aware that many times your broker will not have all of the information from all REITs by then. In that event, they may issue a preliminary 1099-DIV form by the February 1 deadline, then issue you a corrected version a few weeks later. Finalized 1099-DIV forms are not due from the issuer to the IRS until March 15 (assuming that they are submitting them electronically).

Because REITs have until March 15 to finalize their 1099-DIV information, it is not unusual for preferred stock investors to receive a preliminary 1099-DIV by February 1 then receive a corrected version several weeks later. If you already filed your taxes using the original preliminary version, you may have to file an amended tax return. To avoid having to do so, you should discuss the notion of delaying your tax return until mid-March with your tax advisor.