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|In This Issue...|
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, despite an uptick in preferred stock market prices during January, there are still bargains to be had. Out of the 976 preferred stocks and exchange-traded debt securities that were trading on U.S. stock exchanges at the end of January 2013, 16 specific issues with Moody's investment grade ratings were trading below their $25 par value. (jump to article)
The Preferred Stock News article takes a look at the current crop of variable rate preferred stocks. As explained in the article, the higher dividend payout that many are looking forward to from today's variable rate preferred stocks is unlikely to ever materialize. (jump to article)
The Special Announcement article announces a new and very powerful subscription program for preferred stock investors. Our Preferred Stock ListTM database and search engine, long enjoyed by subscribers to our comprehensive CDx3 Notification Service, is now available as a separate subscription for do-it-yourself investors. The database includes last trade price, today's trading volume, current yield, ex-dividend dates and much more, all of which can be sorted, downloaded and printed at any time. You can create and save your own filters and watchlists of trading symbols, too. (jump to article)
The Preferred Stock Facts article is presented both here and on the PreferredStockInvesting.com website. 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.
16 Investment Grade Preferreds Available for Less Than $25
Despite Uptick in Prices, Preferred Stock Search Engine Still Finds Bargains
Out of the 976 preferred stocks and exchange-traded debt securities (ETDs) that were trading on U.S. stock exchanges at the end of January 2013, 16 specific issues with Moody's investment grade ratings were trading below their $25 par value (January 30, 2013 prices).
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 16 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.
After falling a bit during November and December, preferred stock market prices followed their common stock cousins during January, inching back up throughout the month.
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.
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 CDx3 Notification Service subscriber? See page 6 of the February 2013 issue of the subscriber's newsletter, CDx3 Research Notes, that you received on January 31 for symbols.
The eight 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 eight 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).
Many, including the Federal Reserve, think that rate increases are likely to still be a ways off (2015?) 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 February 2013 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 whenever a new preferred stock or exchange-traded debt security is introduced. 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.
Variable Rate Preferred Stock Shares Unlikely To Beat Fixed Rate Returns
Today's Variable Rate Preferreds are more Likely to be Redeemed than Deliver Higher Returns
Variable rate preferred stocks sound like a good idea, especially during a period of low rates. The idea is that preferred stock investors will be able to ride the wave up when rates start to rise in the future.
In addition to increasing income, this mechanism also offers a degree of principal protection since such securities would theoretically maintain their value as rates go higher.
It is for these reasons that the top four movers each traded more than 250,000 shares when the data for this article was collected on Friday, January 18, 2013  - GS-A and GS-D from Goldman Sachs, USB-H from U.S. Bancorp and MS-A from Morgan Stanley. And almost two-thirds of the variable rate preferreds now trading on U.S. stock exchanges traded more than 10,000 shares that day.
But the higher dividend payout that many are looking forward to from today's variable rate preferred stocks is unlikely to ever materialize.
There are currently 34 variable rate preferred stocks trading on U.S. stock exchanges . These 34 securities were issued between May 1994 (HBA-D from HSBC) and March 2007 (BML-L issued originally by Merrill Lynch now by Bank of America).
Most of these 34 issues are from banks and insurance companies (domestic and foreign), although Southern California Edison's SCEDN, issued in April 2005, is still trading.
18 of the 34 enjoy investment grade ratings from Moody's while 18 are rated as investment grade by S&P.
Determining the Dividend Rate
While it would be great for investors if variable rate preferred stocks used a standard method for determining the dividend payout that is unfortunately not the case.
Variable rate preferreds generally offer a dividend rate that is pegged to an index such as the 1-month or 3-month LIBOR rate (currently at 0.30%) or a specific U.S. Treasury Bill rate. They also frequently (but not always) offer a minimum dividend rate (usually around 4%) and a maximum rate that is either a stated amount (such as 10%) or derived by a formula. The formula can also change for different periods of time.
If you have one of those jobs where you have to fly a lot, you've learned not to ever ask how your airfare is calculated. Doing so results in a dull, blank stare from the counter attendant since every passenger sitting on your plane has paid a different amount for their ticket. Same goes for the rate calculation of many variable rate preferreds.
Here are a couple of typical examples.
ZB-A from Zions Bancorporation puts it pretty plainly right on page 1 of its prospectus (see ZB-A prospectus): the dividend rate will be "...equal to the greater of (1) 0.520% above three-month LIBOR on the related LIBOR determination date or (2) 4.000%."
Compare that to the rate calculation specified in the prospectus of HBA-D from HSBC: "The dividend rate on the Preferred Stock for the dividend period ending on June 30, 1994 will be 6.05% per annum, which is equivalent to $0.16 per Depositary Share. Thereafter, the dividend rate on the Preferred Stock will be equal to 81% of the Effective Rate (as defined below) in effect from time to time, but in no event less than 4 1/2% or more than 10 1/2% per annum. The Effective Rate for each quarterly dividend period will be the highest of the Treasury Bill Rate, Ten Year Constant Maturity Rate and the Thirty Year Constant Maturity Rate determined in advance of such dividend period." (see HBA-D prospectus)
Depending on how thinly the issuing company is trying to limit their exposure to increasing rates, prospectus language that describes the rate calculation varies from the fairly straightforward to the exceedingly mind-bending.
But figuring out the currently applicable dividend rate of a variable rate preferred stock is not the real problem facing today's buyers (of which there does not seem to be a shortage).
Once rates start heading up again (2015?), those holding shares of variable rate preferred stocks are going to be in the chips. That, of course, is what today's buyers are counting on. These buyers are passing up two years (if the Federal Reserve has their way) of 6+% dividend income currently available from today's fixed-rate preferreds in order to position themselves for the glory of a future run up in rates.
But it is unlikely that those purchasing shares of today's variable rate preferred stocks are ever going to see such glory.
The most recently issued variable rate preferred stock was Bank of America's BML-L introduced on March 16, 2007 (originally by Merrill Lynch). These securities have a typical five year call period after IPO. What it appears that today's buyers of variable rate preferred are missing is that all 34 of the variable rate preferred stocks trading on today's U.S. stock exchanges have already exceeded their respective call dates.
The issuing companies of today's variable rate preferreds are currently getting away with paying the minimum allowed by the prospectus. While many of these securities have a minimum rate of about 4% (such as the ZB-A and HBA-D examples provided earlier), several have no such minimum whatsoever.
Since all of these issues are now callable, what do you think the issuing companies of these securities are likely to do when rates start heading up some day?
While it is not possible to know the answer to that question in advance, it seems unlikely that if future rates were to increase to a level that would make today's miserly returns worth the wait that these companies would just pay up. It is much more likely that today's variable rate preferred stocks will be redeemed at the first sign of increased dividend expense to these companies, leaving today's buyers will little to show for their patience.
Most risk-averse preferred stock investors avoid variable rate preferred stocks since there is no way to know the likely return on your investment. In addition to an unknown return, today's variable rate preferred stocks are unlikely to deliver their primary benefit (an increasing dividend rate) that current buyers are banking on.
 Excludes: those with zero daily
trading volume on Friday, January 18, 2013, GNE-A from Genie Energy
that was issued as part of a common stock exchange offer and GLD-B
which was issued pursuant to a closed-end ETF (GDL). ABV from AMBEV
(ABV.C) and CTWSP from Connecticut Water Service were also excluded
since they have no prospectus available.
More Preferred Stock Research
FROM DOUG K. LE DU
Click any headline
New Preferred Stock Database and Search Engine Now Available
Preferred Stock ListTM System Designed for Do-It-Yourself Investors
On January 1, 2013 our all new PreferredStockInvesting.com website introduced a new and very powerful subscription program for preferred stock investors.
Our Preferred Stock ListTM database and search engine, long enjoyed by subscribers to our comprehensive CDx3 Notification Service, is now available as a separate subscription for do-it-yourselfers. The database includes all preferred stocks and exchange-traded debt securities trading on U.S. exchanges while the Create Your Own Filter search engine feature allows you to define your own filters when looking for specific issues. You can even save your filters for later use.
Our database includes last trade price, today's trading volume, current yield, ex-dividend dates and much more, all of which can be sorted, downloaded and printed at any time. You can create and save your own watchlists of trading symbols, too.
And the Preferred Stock ListTM system, now available as a separate subscription, runs completely within your web browser which means there is no software to install onto your computer whatsoever (Windows or Mac).
The Create Your Own Filter search engine is extremely powerful. The sample 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.
Our two subscription programs as described in detail at PreferredStockInvesting.com now include:
(1) our comprehensive CDx3 Notification Service - includes the Preferred Stock ListTM system, email alerts of new preferred stocks and exchange-traded debt securities, one-click Hotlists of the highest quality preferred stocks, monthly subscriber's newsletter, access to experts through our online discussion group and much more; and
(2) the Preferred Stock ListTM system itself - includes our Preferred Stock ListTM database and search engine. This new subscription program is great for do-it-yourselfers!
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.
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) 2013 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.