Excellent search ability with filtering. I can easily see the strengths of preferreds. And the discussion group has become very important to me." Don W., CDx3 Notification Service subscriber   MORE>>

 

In This Issue...

High Quality Preferred Stocks

Preferred Stock News

Special Announcement

Preferred Stock Facts

FREE Special Offer

   
 

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:

CDx3NotificationService@us.emaildirect.com.

 


Quick Summary

This month's High Quality Preferred Stocks article describes how there are still plenty of investment grade preferred stocks available below their $25 par value to pick from. Out of the 946 preferred stocks and exchange-traded debt securities that were trading on U.S. stock exchanges at the end of May 2013, our preferred stock search engine found seventeen specific issues. (jump to article)

The Preferred Stock News article compares the risk tolerance of today's preferred stock investors with that of last January. Using Moody's ratings as a proxy for investment risk, today's preferred stock investors are demanding a 6.15% yield at the Baa3 level. That's 0.28% less than last January for preferred stocks with the same Baa3 rating. As the two charts in this article illustrate, preferred stock investors have become more risk tolerant over the last several months.  (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)

The Free Special Offer article explains how you can now have continuing preferred stock research delivered to you for free. 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. (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.

Doug K. Le Du

I am a preferred stock researcher and author of the book titled Preferred Stock Investing. I also publish three monthly newsletters that describe my ongoing preferred stock research.

My academic background is in economics and statistics. I retired from my position as Managing Director at one of the world's largest management consulting firms in 2002 to focus on preferred stock research. I do not sell preferred stocks nor am I a stock broker or financial adviser. As a researcher, I research the market price behavior of the highest quality preferred stocks and write to you about my observations.

 

   
 

17 Investment Grade Preferreds Available for Less Than $25

New Preferred Stock Search Engine Finds These 17 Out of 946 Alternatives

There were eleven new preferred stocks plus four new exchange-traded debt securities (ETDs) introduced during May bringing the total number of these securities trading on U.S. stock exchanges to 946. Of these 946, seventeen specific issues with Moody's investment grade ratings are trading below their $25 par value (May 29, 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 seventeen 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.

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 June 2013 issue of the subscriber's newsletter, CDx3 Research Notes, that you received on May 30 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 nine 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).

During late May we saw nervous speculators trying to "time the market" with respect to the Federal Reserve's exit from its Quantitative Easing program. For preferred stock investors, this cannot happen soon enough. Income investors have been decimated by the Fed's monetary policies and the sooner we can return to a more normal market the better for us. However, in a recent Bloomberg survey, the majority of primary bond dealers forecast that the Fed will not start to back off of their QE program for another year and that we should not expect a change in the federal funds rate until mid-2015.

Whatever the timing, as the speculators leave the preferred stock market, keep an eye out for sub-$25 buying opportunities such as those listed here. The lower your purchase price, the more principal protection you'll have as the Fed exists the market. 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 June 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.

 

 

 

 

 

Figure 1

Preferred Stock Search Engine

INVESTMENT GRADE

CURRENTLY PRICED BELOW PAR

 

Source: CDx3 Notification Service, www.PreferredStockInvesting.com

 

Click To See Bigger Screen Sample

 

 

 


 

Figure 2

17 Investment Grade Preferreds

PRICED BELOW $25 PAR (May 29, 2013 prices)

 

Source: Preferred Stock List(TM), PreferredStockInvesting.com

 

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(Already a subscriber? For actual symbols see page 6 of the June 2013 issue of the subscriber's newsletter, CDx3 Research Notes).

 

 

   
 

Investment Grade Preferred Stocks At 6.15%, Buyers Become More Risk Tolerant

Preferred Stock Investors Taking Same Risk for 0.28% Lower Yield Since January

Preferred stock investors are accepting more investment risk to receive the same dividend reward when compared to last January. Using Moody's ratings as a proxy for investment risk, preferred stock investors have become more risk-tolerant this year.

Figure 3 illustrates the risk versus reward trade-off that preferred stock investors are currently (ending May) making. Using current yield as a measure of reward, investors are accepting 6.15% at the lowest Moody's investment grade level of Baa3. At the end of January 2013, these investors were demanding a 6.43% return at this same level of risk [1].

Each diamond on this chart represents a preferred stock or exchange-traded debt security trading on the New York Stock Exchange [2].

The Cyprus event that occurred earlier this spring is probably responsible for much of the change since January. When European banking officials announced a new model requiring struggling countries to seize the savings of citizens in order to receive bailout cash (starting with Cyprus), many Eurozone investors fled to U.S. assets. That sudden surge in demand, along with several other factors, pushed up common and preferred stock market prices here, lowering yields across the board.

2.87% Spread at Baa3

The Baa3 risk level is interesting to look at. Moody's ratings come in two flavors - investment grade for the highest quality issues and speculative grade [3]. Within investment grade there are ten sub-categories with Aaa being the highest (hardest to qualify for) and Baa3 being the lowest (still hard but easier than Aaa). Because the investment grade bar is lower at Baa3, there are always more choices to pick from at that level.

The yield spread at Baa3 for May is startling. At supposedly the same risk level, ENJ from Entergy Corporation (ETR) is offering 4.88% (the bottom yellow diamond) while DRU from Dominion (D) is providing a much more respectable 7.75% (the top yellow diamond).

That's a 2.87% spread at the same Baa3 risk level [4].

Why the Disparity?

The huge May spreads that we see at any given Moody's rating are being caused by the fact that Moody's and preferred stock investors are defining risk two different ways.

The article "Moody's And Preferred Stock Investors View Same Market but See Very Different Risks" provides a more complete analysis but, as illustrated by the charts in that article, preferred stock investors are currently more concerned about a call than they are about the company defaulting.

Many of today's preferred stock investors, buying shares above these security's par values, are intending on selling their positions at the first sign of a future price drop (such as what would happen in the event the issuing company calls these issues). So call protection has become more important than default risk to these investors.

For example, at Baa3, ENJ (bottom yellow diamond), with its miserly 4.88% yield, does not become callable until December 1, 2017. DRU (top yellow diamond), on the other hand, is almost certain to be redeemed next year on or near its June 15, 2014 call date.

Call protection is commanding a premium in today's preferred stock market, putting downward pressure on yields and, in turn, causing the diamonds on the above risk versus reward chart to spread out vertically.

In the Sweet Spot

The yellow diamond in the center of the Baa3 stack is CTY from CenturyLink's (CTL) Qwest Corporation. CTY is an exchange-traded debt security trading such that its yield falls right in the center of the pack at the Moody's Baa3 risk level.

Others joining CTY at this point of market equilibrium are PFG-B from Principal Financial Group (PFG), VNO-J from Vornado Realty (VNO), NNN-D from National Retail (NNN) and DLR-F from Digital Realty (DLR), all with call dates several years out.

Compared to January 2013

The blue line in Figure 3 is the "best fit" line. As expected, the best fit line slopes up and to the right, indicating that investors are demanding a higher reward (yield) for higher risk (Moody's rating). No surprise there.

The article "New Preferred Stock From Public Storage Illustrates Trade-Off Between Risk And Reward" includes this same analysis (using the same selection criteria) for preferred stocks and exchange-traded debt securities at the end of January 2013.

Figure 4 compares the best fit line from last January's analysis (gray line) to the best fit line that you see above in Figure 3 for May (blue line). By putting both best fit lines on the same chart, we can see how the risk tolerance of preferred stock investors has changed this year.

The best fit line will be steeper (become more vertical) as investors become more risk-averse; that is, if they demand a higher return for the same risk (during the Global Credit Crisis this best fit line looked like the launch profile of a Polaris missile). Conversely, and as we are seeing this year, a flattening of the best fit line indicates that preferred stock investors have become more risk-tolerant, accepting a lower return for the same risk.

Looking at the Baa3 risk level again, preferred stock investors were commanding a return of 6.43% last January but are now willing to accept a more modest 6.15%, a reduction of 0.28%.

The Federal Reserve's low-to-no interest rate policy has decimated savers; bank CDs are paying 1.1% while investment grade corporate bonds are offering a mere 3.6% [5]. Giving up over 1/4 point in return over the last four months is an indication that investment grade, U.S.-traded preferred stocks and exchange-traded debt securities, at about 6%, continue to provide an attractive alternative to many income-oriented investors.

Footnotes:

[1] Source for all preferred stock data in this article: CDx3 Notification Service database. Disclosure: The CDx3 Notification Service is my preferred stock email alert and research newsletter service and includes the database of all preferred stocks and exchange-traded debt securities traded on U.S. stock exchanges used for this article.

[2] Criteria used to select securities for this article: Call-protected, trading on the NYSE, fixed-rate, non-convertible, Moody's rated, non-zero trading volume. Data date: May 24, 2013.

[3] Moody's Investment Grade: Aaa, Aa1, Aa2, Aa3, A1, A2, A3, Baa1, Baa2, Baa3. Moody's Speculative Grade: Ba1, Ba2, Ba3, B1, B2, B3, Caa1, Caa2, Caa3, Ca, C.

[4] The yield values seen here uses the same current yield formula that you see in your brokerage account or websites that show yield for dividend-paying securities. Current yield does not consider the potential for a future capital gain or loss but, rather, is intended to be used for comparison purposes here. Other yield formulas can be used for this analysis as well (e.g. yield-to-call, yield-to-maturity, effective annual return, etc.). As long as you are consistent and use the same calculation throughout, the results shown here will not change. For more on the strengths and weaknesses associated with the various methods for calculating the return from a preferred stock investment see "Preferred Stock Investors: What Is Your Rate Of Return?"

[5] Sources: www.sec.gov for corporate bond rate; www.bankrate.com for national CD interest rate.
 


More Preferred Stock Research

FROM DOUG K. LE DU

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Figure 3

 

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Figure 4

 

 

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New Preferred Stock Database and Search Engine Now Available

Preferred Stock ListTM System Designed for Do-It-Yourself Investors

Earlier this year, 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 (including alerts when new issues begin trading on the wholesale Over-The-Counter stock exchange), 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!

Group subscriptions are also available for great savings! Please consider subscribing to the comprehensive CDx3 Notification Service or to our Preferred Stock ListTM system, now available separately, 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).

 


 


 

 

 

   
 

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.

To receive articles by email automatically without having to visit the Forum, click here

 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.

Please accept my invitation to receive articles by email and visit the Forum 


 

 

   
   

Learn to screen, buy and sell the highest quality preferred stocks by purchasing 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 offer the CDx3 Notification Service (see reader comments).

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.

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 sign up for this free monthly preferred stock research newsletter at www.PreferredStockInvesting.com. 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.