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New Fourth Edition of Preferred Stock Investing!
Readers of Preferred Stock Investing learn how to screen, buy and sell the highest quality preferred stocks.
The Fourth Edition is now available at your favorite online retailers (see retailers).
The Fourth Edition of Preferred Stock Investing includes the latest research and updated charts and examples using real preferred stocks.
And Part III "Buying When The Market Favors Buyers" has been completely re-written to focus on the buying conditions that we will be facing throughout 2012. Check out the new Fourth Edition Table of Contents.
The preferred stock investing method explained throughout the book - the "CDx3 Income Engine" - uses three rules and ten selection criteria to accomplish its three objectives: maximize revenue while minimizing risk and minimizing work. The results are itemized in chapter 15 for every qualifying preferred stock issued since January 2001.
A new chapter has also been added (chapter 11, "The Crisis That Keeps On Giving") that describes two specific opportunities for preferred stock buyers. Both of these opportunities were created by the 2007 - 2009 Global Credit Crisis and are expected to remain available well into 2012.
Preferred Stock Investing is one of the highest reader-rated books available at Amazon. Look for your copy of Preferred Stock Investing, Fourth Edition at your favorite online retailer.
The Last Month's CDx3 Investor Results article explains why the coincidental timing of (1) the Global Credit Crisis, (2) its duration, (3) the passage of five years and how that lines up with the call dates of crisis-era preferreds and (4) the unprecedented pre-announcement of future low-to-no interest rates by the Fed, will treat you to a buffet of new preferred stock offerings at a moment when calls make you cash rich. By using a simple technique, preferred stock investors can take advantage of this timing to earn an extra dividend payment. The action has already started. (jump to article)
The Special Announcement article explains how three criteria, when applied to the 1,000+ preferred stocks trading on U.S. stock exchanges, allow you to identify the highest quality issues. The table in this article takes the analysis a step further by itemizing 10 of these high quality issues that can be purchased today for a market price that is less than $25 (par). Secondly, I have summarized some of the research from my book, Preferred Stock Investing, Fourth Edition, and am making it available to brokers, financial planners and investment groups for free. (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. This month's question - "How do I pick the highest quality preferred stocks?" (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 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)
Enjoy this month's issue. I look forward to reporting back to you in next month's issue of the CDx3 Newsletter.
Coincidental Timing To Produce Bumper Crop Of New Preferred Stock Issues
Savvy Investors Can Reap Extra Dividend Payment By Looking In The Right Place
Because of some interesting timing of otherwise unrelated events, preferred stock investors are going to be treated to a large number of new preferred stock issues this year as well as a large number of calls of older issues. These somewhat unique circumstances open the door for preferred stock investors to cash an extra dividend check, receiving five dividends in a year, rather than the usual four.
I'll show you an example in a minute, but all you'll need is a list of high quality preferred stocks sorted by market price such as the table presented here as Figure 1 (for the definition of "high quality" see the Special Announcement article below). Notice that all of the high quality preferred stock purchase candidates shown here are available for less than par ($25 per share).
To protect the values of subscriptions to the CDx3 Notification Service (my preferred stock email alert and research newsletter service), the trading symbols and names of these preferred stocks are obscured here. But the February 2012 issue of the subscriber's newsletter, CDx3 Research Notes, provides this same table, with trading symbols, on page 6. And on the subscriber's exclusive website, the CDx3 Bargain Table HotList button generates the list with current pricing in real-time.
Coincidental Timing "...At Least Until Late-2014"
The Global Credit Crisis plagued our financial system between early-2007 until well into 2009. Companies desperate for cash introduced high quality preferred stocks paying increasingly higher dividend rates all the way up to 9.6% in July 2009.
Those preferred stocks all had five year call dates. That means that these crisis-era preferreds start becoming callable between 2012 (right now) and 2014.
Now here's another data point: the Federal Reserve announced on January 25 that today's low-to-no interest rates are going to be with us "at least until late-2014." Note how that timing lines up perfectly with the call dates of the high dividend paying, crisis-era preferred stocks. All such preferred stocks are going to reach their respective call dates during a period of time, if the Fed has their way, of historically low interest rates.
Here's what that coincidental timing means for us.
Lots Of New High Quality Preferreds On The Way
Companies hate paying out more in dividends than they have to. Frequently, during periods of lower rates companies will issue a new preferred stock and use the proceeds to retire (call) their older, more expensive issues (they refinance).
Since companies will generally be introducing new issues in order to generate the cash needed to call older issues, preferred stock investors are going to see large chunks of cash show up in their brokerage cash accounts (from the call) right when brand new preferred stock issues are being introduced. These circumstances create a "target rich environment" for preferred stock buyers.
And the action has already started.
There were seven new preferred stocks issued during January and, in all cases, some or all of the proceeds generated by these new issues are going toward retiring older preferreds.
Because of the coincidental timing of (1) the Global Credit Crisis, (2) its duration, (3) the passage of five years and how that lines up with the call dates of crisis-era preferreds and (4) the unprecedented pre-announcement of future low-to-no interest rates by the Fed, preferred stock investors are going to be treated to a buffet of new preferred stock offerings at a moment when calls make you cash rich, starting right now.
Five Dividend Payments
Because of the rules that govern the dividend payout of preferred stocks, you can claim an extra dividend payment. Normally, doing this is too much trouble for most buy-and-hold preferred stock investors.
But as it turns out, earning five dividend payments during the same twelve month period is very easy to do during a time when there are lots of new issues and calls; as explained above, that means now.
The best way to explain how this works is by example. Take the case of the Series L preferred stock from Public Storage (PSA-L). Owners of PSA-L shares have an opportunity during February to snag an extra dividend payment. Here's how.
On January 4, 2012 Public Storage announced that it was going to be issuing a new preferred stock and using the proceeds to call PSA-L on February 9, 2012. That means that PSA-L shareholders are going to see a pile of cash show up in their cash account on February 9. The last payment from Public Storage on February 9 will include not just the liquidation price of $25 per share (par), but also a dividend payment for the last (partial) quarter of this security's life to February 9. So those holding PSA-L shares will be paid dividend income that includes the first five weeks or so of 2012.
Now look back at the list of high quality preferred stocks in Figure 1. Notice how two of these purchase candidates are not only available for a market price below par ($25), but also have February 13, 2012 ex-dividend dates.
Holders of PSA-L are going to see a pile of cash show up in their cash account on February 9, just in time to purchase shares of one of these two issues that have February 13 ex-dividend dates.
Preferred stock dividends are paid to whomever owns the shares at the start of trading on the morning of the ex-dividend date. And such shareholders receive the entire quarter's dividend payment (90 days worth regardless of how long you have owned the shares). So those who use the cash from the February 9 call of PSA-L to buy shares of one of these other two high quality preferreds before February 13 will be paid twice for the same period.
The unique timing of the otherwise unrelated events described above has created a preferred stock marketplace that should provide a bumper crop of new preferred stock issues over the next three years, the proceeds from which will be used to retire older shares in many cases. Once a call is announced for your shares, a list of high quality preferred stocks available for less than par can be used to help you make a more informed decision regarding your next purchase.
Frequently, using such a simple technique will allow you to get paid twice for the same period of time - a fifth dividend.
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 new Fourth Edition is 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 CDx3 Preferred Stock Catalog and have access to the CDx3 Discussion Group, the only online forum just for preferred stock investors.
UPDATED: This Month's Under $25 High Quality Preferred Stock List
10 High Quality Preferreds Available For Less Than $25 Per Share, 6.83% Average Yield
There are about 1,000 preferred stocks trading on U.S. stock exchanges. Of these, there are 10 specific issues that are of particular interest this month. Not only are these the highest quality preferred stocks available but they are providing an average annual dividend yield of 6.83% right now.
If that isn't enough, what makes these particular preferred stocks stand out this month is that they are selling for a market price that is below their $25 "par value." Buying your shares for less than par adds a layer of principal protection to your investment.
As explained in the "Last Month's CDx3 Investor Results" article above, the marketplace for high quality preferred stocks is likely to see a high number of calls throughout 2012. When your shares are called by the issuing company, preferred stock investors are often looking for that next purchase in order to keep their cash working for them.
In the event that the issuing company retires (calls) the shares, shareholders will receive the par value ($25 per share) in cash from the company. By purchasing your shares for less than the par value ($25), you position yourself for a nice capital gain to pile on top of the great dividends that these high quality preferreds pay you in the meantime.
To protect the value of subscriptions to the CDx3 Notification Service (my preferred stock email alert and research newsletter service), trading symbols are obscured here. But here's how to find these high performers out of the 1,000+ available candidates.
Applying three simple criteria eliminates the pretenders and the risk and complexity that come with them, leaving us with just the highest quality preferred stocks:
Criteria #1 - Investment Grade: By limiting the choices to those preferred stocks with a Moody’s investment grade rating, we cut the list almost in half in one shot, down to about 600 issues. With 600 investment grade issues to pick from, most risk-averse investors would rather not fool around with “speculative grade” alternatives.
Criteria #2 – Cumulative Dividends: With common stocks, if the company decides not to pay a dividend, you’re out the money. But many preferred stocks have a “cumulative” dividend provision, meaning that if the issuing company misses a dividend payment to you, it still owes you the money downstream (its obligation to pay you accumulates). Limiting our choices to just cumulative dividend preferred stocks eliminates another 200 pretenders.
These two criteria (investment grade and cumulative dividends) are pretty easy for most risk-averse investors to warm up to. We are down to about 400 remaining candidates.
Criteria #3 – Minimum Rate of 6.5%: Historically, the highest quality preferred stocks carry annual coupon rates between 6% and 9%. Not too bad compared to the ~1.3% being paid by bank CDs. But rates go up and down over time and you want to be sure that you always have some breathing room if rates fall too far. A 6% preferred stock (i.e., the bottom of the barrel) can become harder to sell once rates start rising again and higher paying alternatives are introduced. Preferred stock investors can avoid this pitfall by simply sticking with preferreds that offer a fixed dividend rate of at least 6.5%, giving you time to sell once rates bounce off of 6% and begin heading back up. That takes us to about 150 remaining issues.
By applying all ten of the criteria from chapter 7 of my book, Preferred Stock Investing, and then focusing on just those that are available for less than $25 per share, we are left with the high quality issues that you see here. This list was generated using the Preferred Stock List(TM) software tool available to those subscribing to the CDx3 Notification Service (my preferred stock email alert and research newsletter service).
Please consider becoming a subscriber to the CDx3 Notification Service today.
Already a subscriber? The trading symbols of these 10 high quality preferred stocks are listed on page 6 of the February 2012 issue of the subscriber's newsletter, CDx3 Research Notes.
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.
How do I pick the highest quality preferred stocks?
Answering this question, along with gathering the data needed to do so, consumed over a year of research and now occupies chapters 7 and 15 of my book, Preferred Stock Investing. To a certain extent, the answer depends on how we define the phrase "highest quality." What may be high quality to one investor may send another investor running for cover.
For most investors though, the quality of an investment is directly related to its return versus its risk. Most investors would agree that an investment that provides an above-average return with below-average risk is of higher quality than an investment providing the opposite - lower return for higher risk.
Most investors would also agree that an investment that provides no return could be considered to be of low quality. This is where history can help us put boundaries on this question since we can identify such securities by looking at historical data (back to 1926 in my case).
When looking back at the characteristics of preferred stocks that have had their dividends suspended, patterns and consistencies start to emerge. That is, many of these failed securities have had common characteristics.
Similarities also emerge among preferreds that have provided investors with reliable returns without a hiccup since their introduction, despite some historically rocky economic conditions. The highest quality issues are going to be among the ones that share the characteristics of those issues that have consistently paid their dividends without fail.
The question this month for preferred stock investors:How do I pick the highest quality preferred stocks?
The prospectus specifies that the dividends are "cumulative."
(C) The issuing company has a perfect track record of never suspending a preferred dividend.
(D) All of the above.
The correct answer to this question is (D), all of the above.
Notice that neither these criteria, nor any of the remaining CDx3 Selection Criteria from chapter 7 of Preferred Stock Investing, have anything to do with specific industries or types of businesses. We are looking for the highest quality issues regardless of where they come from.
So while relaxing these criteria may provide an investor with a different array of industries from which to choose, doing so increases investor risk.
For example, for preferred stocks from telecommunications or manufacturing to become candidates, you would have to give up the "cumulative" dividend requirement. While there are a few exceptions, preferred stocks issued by companies in these industries are generally "non-cumulative," meaning that if the issuing company misses a dividend payment to you they have no obligation to make it up in the future. Risk averse preferred stock investors are looking for preferred stocks that are "cumulative."
In fact, it is the "cumulative" dividend requirement that saved CDx3 Investors during the Global Credit Crisis more than any other criteria. Looking at the 70 bank-issued preferreds that were trading at the time, the 13 preferreds issued by the banks that were saved from bankruptcy were all "cumulative" (see itemization).
Rating agencies such as Moody's and Standard & Poor's provide creditworthiness ratings for preferred stocks. These ratings have two main categories, investment grade and speculative grade. Preferred stocks that carry the investment grade rating are viewed by the rating agency as being of lower risk than those rated speculative. While the dividend return of a speculative grade preferred stock may be higher than those rated investment grade, the CDx3 Selection Criteria favors lower risk over higher returns.
And looking for preferred stocks that are issued by companies with a solid history of consistent performance is also important when trying to identify the highest quality preferreds. Airlines provide an obvious example. If you had to choose between two preferred stocks, both cumulative and investment grade but one had been issued by a company with a history of bankruptcy and suspended dividends (e.g. Delta Airlines) and the other had not, which would you judge to be the higher quality security?
Having cumulative dividends, an investment grade rating and being issued by a company with a perfect track record of never having suspended preferred stock dividends are just three of the ten CDx3 Selection Criteria from chapter 7 of Preferred Stock Investing. With new issues being introduce, and old issues being retired, the number of preferred stocks trading every day ranges between 1,000 and 2,000. By applying the ten CDx3 Selection Criteria, preferred stock investors are left with the highest quality issues available. The resulting list is available 24/7 to those subscribing to the CDx3 Notification Service.
Preferred Stock Market Research Now Available All Month Long - Free
Automatic Email Delivery Of Preferred Stock Market Research Now Available
Readers do not have to wait until next month's issue of the CDx3 Newsletter to stay plugged into the market for high quality preferred stocks. Preferred stock research articles, marketplace observations and preferred stock news from the financial press and other information are posted to the Preferred Stock Investing Reader's Forum (my "blog") throughout the month.
A separate window from FeedBurner (a Google service) will open on your screen. Enter and verify the email address that you want articles from the Forum to be emailed to as instructed. And don't worry - you'll never receive any spam from me and your email address will not be shared.
By receiving the articles as I post them via email, you do not have to visit the Forum in order to stay plugged into my research regarding the marketplace for the highest quality preferred stocks.
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.
Chapter 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.
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.
Please take a look at www.PreferredStockInvesting.com. And if you know someone who might be interested in simple investing for non-experts please have them send an email message to:
and they will automatically begin receiving this monthly CDx3 Newsletter next month (plus a CDx3 Special Report) - all FREE.
Many Happy Returns,
Doug K. Le Du
Copyright (c) 2012 by Doug K. Le Du
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 Doug K. Le Du. 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.