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For New Readers...
Welcome to all of the new CDx3 Newsletter readers who signed up over the last month. This is your first issue of the CDx3 Newsletter, a free monthly newsletter devoted to the interests of CDx3 Preferred Stock investors.
To be sure that you continue to receive the CDx3 Newsletter each month, please remember to add the following email address to your email address book safe sender list:
This month's High Quality Preferred Stocks article describes how preferred stock market prices may be starting to fall back toward their more normal levels. Two months ago there were 18 investment grade preferreds selling for a market price below their $25 par value. Last month, the number jumped up one to 19. Now there are 24. Falling preferred stock market prices mean more choices offering higher yields, which is great news for buyers. (jump to article)
The Preferred Stock News article explains why the market prices of preferred stocks are substantially less volatile than those of the same company's common stock, a characteristic of preferred stocks that was on full display during November. In addition to having more stable prices, preferred stocks usually pay a higher dividend than the same company's common stock; a case where the lower risk alternative provides a greater return to investors. (jump to article)
The Special Announcement article announces the availability of a new preferred stock search engine. The Create Your Own Filter page allows preferred stock investors to instantly search all preferred stocks and exchange-traded debt securities trading on U.S. stock exchange using up to nineteen key parameters. (jump to article)
The Preferred Stock Facts article is presented both here and on the Preferred Stock Investing Reader's Forum. Test your knowledge by clicking on any preferred stock question to see the multiple-choice answers. You will receive an automatic email that provides you with the correct answer and my explanation. (jump to article)
In the Free Special Offer article I offer to provide you with some of the research from my book, Preferred Stock Investing, Fourth Edition. I am making it available to brokers, financial planners and investment groups for free. (jump to article)
Enjoy this month's issue. I look forward to reporting back to you in next month's issue of the CDx3 Newsletter.
24 Investment Grade Preferreds Available for Less Than $25
Falling Preferred Stock Prices Push December Count to 24
Two months ago there were 18 investment grade preferreds selling for a market price below their $25 par value. Last month, the number jumped up one to 19. Now there are 24. More evidence that preferred stock market prices may be starting to fall back toward their more normal levels. Falling preferred stock market prices mean more choices offering higher yields, which is great news for buyers.
Even in this high-priced market, there are still investment grade choices priced below their $25 par value. Out of the 987 preferred stocks and exchange-traded debt securities that were trading on U.S. stock exchanges at the end of November 2012, 24 specific issues with Moody's investment grade ratings were trading below their $25 par value (November 30, 2012 prices).
Figure 1 shows the complete filter used to find these gems. Of the nineteen parameters that can be set, the two arrows highlight the keys for this search. Setting the "Currently priced below par" parameter to "Yes" does the magic here.
This is a very powerful tool used by those subscribing to the CDx3 Notification Service (my preferred stock email alert and research newsletter service). In addition to finding securities with Moody's investment grade ratings that are currently trading below their $25 par value, this filter also limits the list to just issues that are trading on the New York Stock Exchange (NYSE) and have not suspended their dividend payments.
Setting the "Dividend rate at least" parameter (center left under the Dividends heading) to a 1 eliminates securities with variable or adjustable dividend rates. And by setting "Today's price, at least" to $0.01 and "Today's volume, at least" to 1 share the filter will exclude less liquid issues (securities that have not traded today).
This is just one example. Click on the filter image to see another one along with a more detailed explanation.
Figure 2 shows the results when this search is applied to our Preferred Stock ListTM database (please note that to protect the values of subscriptions to the CDx3 Notification Service, trading symbols are obscured here). Already a subscriber? See page 6 of the December 2012 issue of the subscriber's newsletter, CDx3 Research Notes, that you received on November 30 for symbols.
The three securities shown in green font are ETDs (bonds that trade on the stock exchange rather than the bond market and are very similar to preferred socks) while the remaining 21 securities listed are preferred stocks. All have a current market price (seen in the Last Price column) that is below their $25 par value (as shown in the Liquid Price column) and enjoy an investment grade rating from Moody's (the Moody's column).
Purchasing shares below $25 is an important consideration for many preferred stock investors. In the event that your shares are redeemed (bought back from you) by the issuing company, shareholders will receive the security's par value in cash in exchange for their shares. By purchasing shares below their par value ($25 in most cases and in all of the 24 cases shown here), preferred stock investors are able to add a layer of principal protection to their investment while also positioning themselves for a downstream capital gain in the event of a future call.
Many, including the Federal Reserve, think that rate increases are likely to still be a ways off and that any such future increase is likely to be extremely gradual. If you feel that they are probably right, then the preferred stocks and ETDs listed in Figure 2 are offering some of the best choices available to you as an income investor.
Please consider becoming a subscriber to the CDx3 Notification Service today.
Already a subscriber? The trading symbols for this example are provided on page 6 of the December 2012 issue of the subscriber's newsletter, CDx3 Research Notes.
Learn To Screen, Buy and Sell The Highest Quality Preferred Stocks
Preferred Stock Investing includes the information, websites and other resources needed for you to be a very successful preferred stock investor. The Fourth Edition is now available at your favorite online retailer. For those who would rather someone else do the research and calculations, I offer the CDx3 Notification Service. Subscribers to the CDx3 Notification Service receive an email alert when there are buying and selling opportunities coming up. Subscribers also receive their own non-promotional preferred stock research newsletter every month, have their own website that hosts the Preferred Stock ListTM database and have access to the CDx3 Discussion Group, the only online forum just for preferred stock investors.
Invest in the best. Subscribe to the CDx3 Notification Service today.
Price Stability of Preferred Stocks on Display During November
Lower Risk Preferreds Offering Less Volatility and Higher Returns
The market prices of investments that have a known return do not tend to bounce around as much as the market prices of alternatives with lesser known returns. With a known return, the speculators - those fairly certain that they know something that is unknown to others - are removed from the market.
Preferred stocks, for example, tend to show less market price volatility than common stocks for this very reason. In almost all cases, preferred stocks pay a dividend of a known amount on a known schedule.
As intuitively obvious as this seems, we rarely have an opportunity to directly measure it, but one such opportunity presented itself during November.
In the aftermath of the November 6 elections the S&P 500 Index of common stock prices fell by 5.25% (November 15) but has gradually regained most of that loss over the subsequent weeks. By plotting the movement of preferred stock market prices over the same period, we have a rare opportunity to directly compare the volatility of preferred stocks to common stocks in response to a known event.
As Figure 3 illustrates, over the last three weeks of November the market prices of preferred stocks, as reflected by the iShares US Preferred Stock ETF (PFF), followed the same pattern. But note how much less volatile the market prices of preferred stocks were over this period. While common stock prices dropped 5.25%, preferred stock prices fell less than half of that amount (-2.08% on November 15).
Preferred Dividends Versus Common Dividends
Common stocks have shown no overall price appreciation over the last thirteen years (with a couple of spectacular exceptions during 2003 and 2009). Similarly, preferred stock prices have been flat as well but for very different reasons. In addition to having a known return, another reason that preferred stocks show less price volatility is due to their 'par' value (usually $25 per share). This is the amount that a shareholder will receive in the event that the issuing company calls the security (buys the shares back from shareholders). Since a preferred stock's par value is published in the security's prospectus and is therefore known to investors, preferred stock prices generally do not venture too far away, especially if the market believes that a call is likely.
Having little in the way of price appreciation to brag about brings investors back to the dividend opportunity offered by these two alternatives. And keep in mind that preferred stock shareholders are always paid first before holders of the same company's common stock, lowering the preferred stock investor's risk.
Common stocks have paid an average annual dividend of about 2% while preferred stocks are currently paying about 6% (about 1% below their 7% long-term average).
Real Estate Investment Trusts (REITs) tend to be a bit more generous. Figure 4 compares the dividend yields currently offered by REIT preferred stock versus the same company's common stock dividend yield. Each diamond represents a specific REIT company.
There are currently 42 high quality preferred stocks trading on U.S. stock exchanges issued by 14 REITs ("high quality" preferreds are those that meet the ten preferred stock selection criteria from my book, Preferred Stock Investing). In 11 out of these 14 cases, the company's preferred stocks are offering an annual dividend yield that outpaces the same company's common stock yield (as of November 30, 2012).
The three exceptions that you see above the Equal Yield Line are PS Business Parks (PSB), Public Storage (PSA) and Hospitality Properties (HPT). In each of these three cases, the current yield being offered by these companies' common stock dividend exceeds that available from the average dividend yield of their preferred stock offerings.
Rare Case: Lower Risk Offering Higher Return
Given the choice between two alternative investments - one with little price volatility, zero value appreciation but a current average 6% annual dividend payout versus a second alternative that has substantial price volatility, zero overall value appreciation over the last thirteen years and an average 2% annual dividend payout that you only receive after those who pick the first alternative are paid in full, which would you choose?
As evidenced by the millions of common shares that trade very day, there are certainly reasons that one would invest in common stocks rather than preferreds, but overall price appreciation performance, dividend payout and risk reduction do not appear to be among them.
More Preferred Stock Research
FROM DOUG K. LE DU
Click any headline
New Preferred Stock Search Engine Now Available
'Create Your Own Filter' Page Includes Current Market Price Searching
We recently added a very powerful feature to our Preferred Stock ListTM software application. The Create Your Own Filter page allows subscribers to the CDx3 Notification Service to define their own filter when searching our Preferred Stock ListTM database of preferred stocks and exchange traded debt securities (ETDs). The CDx3 Notification Service is my preferred stock email alert and research newsletter service.
The Create Your Own Filter page includes nineteen characteristics that you can tailor to find just the preferred stocks and ETDs that you are looking for including current market price, today's trading volume and current dividend yield. And you can save your filters for later use, too.
The sample filter seen here generates a list of Moody's investment grade, cumulative REIT preferreds and exchange-traded debt securities that are not yet callable, are trading on the NYSE and are currently priced below their $25 par value. The combinations are endless.
Here's another feature: The new Create Your Own Filter page also includes a very powerful feature called "Stock Check" that you can use to not just see the characteristics of a particular security, but also see a list of upgrade candidates for the security you specified. The upgrading technique allows you to "trade in" a low dividend paying preferred stock for a higher paying one and have cash left over when you're done (not familiar with "upgrading" a preferred stock? See the August 2012 issue of the CDx3 Newsletter for an example).
The CDx3 Notification Service is the most comprehensive resources available for preferred stock investors. And the new Create Your Own Filter page is the most powerful preferred stock search engine available anywhere. Please consider subscribing to the CDx3 Notification Service today.
Test Your Knowledge With These Preferred Stock Facts!
There's a lot to like about preferred stocks. And many aspects of selecting, buying and selling the highest quality issues are misunderstood. Here are a few frequently asked questions that illustrate some of the more subtle points of preferred stock investing.
Clicking on any of the below questions will open a new window on your screen. Each question is presented with multiple-choice answers. Test your knowledge by submitting your best guess and I will automatically email you my analysis with the correct answer (and no spam, ever).
Brokers And Investment Groups: Free 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 an email request to:
You will receive an auto-reply email message with current download instructions.
to screen, buy and sell the highest
quality preferred stocks by
the Fourth Edition of my book, Preferred
Stock Investing (see
retailers). The book identifies
the resources that you need to be a very
successful CDx3 Investor completely on
your own. If you would rather we do the
research and calculations for you I
CDx3 Notification Service
15 of Preferred Stock Investing
includes a list of all of the CDx3
Preferred Stocks issued since January
2001 and the investing results you
would have achieved had you invested in
them using the CDx3 Income Engine.
readers also receive free periodic
updates to the preferred stock lists in
chapter 15 as long as the Fourth Edition
of the book is in print.
take a look at
And if you
someone who might be interested in simple
for non-experts please have them send an email
they will automatically
begin receiving this monthly CDx3
next month (plus a
CDx3 Special Report) - all FREE.
And readers also receive free periodic updates to the preferred stock lists in chapter 15 as long as the Fourth Edition of the book is in print.
Many Happy Returns,
Doug K. Le Du
Copyright (c) 2012 by Del Mar Research, LLC.
Preferred Stock List, CD Times 3, CDx3, CDx3 Income Engine, CDx3 Investor, CDx3 Portfolio, CDx3 Preferred Stock, CDx3 Perfect Market Index, CDx3 Bargain Table are trademarks of Del Mar Research, LLC. All rights reserved.
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 Del Mar Research, LLC, are solely responsible for your own investment decisions.