One of the highest reader-rated books in the United States.

 

See the new Fifth Edition of Preferred Stock Investing at Amazon!

   
 

CDx3 has worked for me through thick and thin including through the great recession." James T., 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, after three years of being distorted by the Federal Reserve, the market prices of the highest quality preferred stocks have started to return to more normal levels. Out of the 948 preferred stocks and exchange-traded debt securities that were trading on U.S. stock exchanges at the end of September 2013, our preferred stock search engine found 24 specific high quality issues selling below their $25 par value. (jump to article)

The Preferred Stock News article explores the evidence suggesting that concerns about the Federal Reserve backing out of its $85 billion per month Quantitative Easing (QE) bond-buying program have already been "priced in" by preferred stock investors. If QE tapering is going to trigger a preferred stock selloff, why didn't it in early-September when Fed representatives had announced in multiple public forums that they were likely to start doing so at their September 17-18 meeting? (jump to article)

The Special Announcement article announces the availability of the all new 5th Edition of my book, Preferred Stock Investing. The new Fifth Edition of Preferred Stock Investing started shipping in July. I update the book every other year with the most recent preferred stock research, focusing on the conditions that preferred stock investors are expected to be facing (upward pressure on rates). Learn to screen, buy and sell the highest quality preferred stocks. (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 my blog 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 am also a syndicated writer for the popular investing venues Seeking Alpha and Motley Fool. I publish three monthly newsletters that describe my ongoing preferred stock research. One newsletter, titled Preferred Stock List, is published by PortfolioChannel.com while the other two newsletters (CDx3 Newsletter and CDx3 Research Notes) are published by me directly to my readers/subscribers.

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.

 

   
 

24 Investment Grade, 6.5+ Percent Cumulative Preferreds Available Under $25

New Preferred Stock Search Engine Finds These 24 Out of 948 Alternatives

With a sub-$25 average price, the market for the highest quality preferred stocks now favors buyers. Of the twenty-four high quality preferred stocks selling for a sub-$25 market price, six offer a dividend of at least 7 percent.

I define 'high quality' here as securities that are able to meet all ten of the CDx3 Selection Criteria from my book, Preferred Stock Investing. These ten selection criteria have not changed since the first edition of the book was published in 2006.

The search engine parameters seen in Figure 1 look for preferred stocks and exchange-traded debt securities (ETDs) that are currently trading below their $25 par value, pay a minimum annual dividend of at least 6.5 percent, have cumulative dividends and offer investment grade ratings from Moody's Investors Service.

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 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 four arrows highlight the keys for this search. Setting the "Currently priced below par" parameter to "Yes" does the magic here.

In addition to finding the highest quality issues that are currently trading below their $25 par value, this filter also limits the list to issues that have not suspended their dividend payments. Setting the "Dividend rate at least" parameter (center left under the Dividends heading) to 6.500 eliminates securities with very low, 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 October 2013 issue of the subscriber's newsletter, CDx3 Research Notes, that you received on September 29 for symbols.

There were a total of 948 preferred stocks and ETDs trading on U.S. stock exchanges as September 2013 came to a close. Of these 948, 24 specific high quality issues are trading below their $25 par value (September 27, 2013 prices). This list is sorted by dividend rate (coupon) with the highest payers listed first.

The nine 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 15 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).

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. 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 October 2013 issue of the subscriber's newsletter, CDx3 Research Notes.

 

Learn To Screen, Buy and Sell The Highest Quality Preferred Stocks

Preferred Stock Investing is one of the highest reader-rated books in the United States with 68 reviews posted at Amazon.

A new edition of Preferred Stock Investing is published every other year in order to keep up with current market trends and research. The new Fifth Edition addresses selecting, buying and selling the highest quality preferred stocks during the market conditions that we are expected to face throughout the remainder of 2013 and 2014 (upward pressure on rates).

See: Reviews | Table of Contents | Free Excerpt | Paperback | eBook

Preferred Stock Investing includes the information, websites and other resources needed for you to be a very successful preferred stock investor. The Fifth 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, CUMULATIVE DIVIDENDS,

CURRENTLY PRICED BELOW $25 PAR

 

Source: CDx3 Notification Service, www.PreferredStockInvesting.com

 

Click To See Bigger Screen Sample

 

 

 

 


 

Figure 2

The 24 Highest Quality Preferreds

PRICED BELOW $25 PAR (September 27, 2013 prices)

 

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

 

Subscribe For Trading Symbols

 

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

 
   
 

Have Preferred Stock Investors Already Moved Beyond QE?

Prices Stable at Pre-QE Level, Yields Return to Long-Term Average

There is a certain amount of evidence suggesting that concerns about the Federal Reserve backing out of its $85 billion per month Quantitative Easing (QE) bond-buying program have already been "priced in" by preferred stock investors.

Ignoring the possibility of QE "tapering," high quality preferred stock market prices have been relatively stable for almost two months now. In fact, their average market price has returned to pre-QE2 levels closing on Friday, September 27, 2013 at $24.34 (source: CDx3 Notification Service database).

And the share price of the iShares S&P U.S. Preferred Stock ETF (PFF) is now ignoring the threat of tapering as well, increasing consistently since August 19.

Consequently, the average annual current yield of high quality preferred stocks is now at 7 percent, equal to their long-term average.

"High quality" preferred stocks are defined here as those that have a variety of risk-lowering characteristics such as having cumulative dividends and investment grade ratings (Preferred Stock Investing, Fifth Edition, page 132).

September Fed meeting - no price reaction

While high quality preferred stock prices edged slightly lower in the days prior to September's Fed meeting, the drop was nothing like what we saw in June or early-August.

In advance of the Fed's September 17-18 meeting, Fed representatives were hinting very strongly that QE tapering was going to begin, and yet the selling of preferred stock shares that surrounded the prior meetings did not materialize.

Have preferred stock investors already "priced in" a tapering of the Fed's QE program or, unlike pretty much every investor in the world, did preferred stock investors correctly guess in advance that the Fed was not going to take any action in September (despite repeated suggestions to the contrary)?

QE here to stay?

Or are preferred stock investors just starting to doubt that the Fed will ever back out of QE in any meaningful way? I know that sounds odd, but there is an increasing amount of speculation asserting that it will be quite some time (if ever) before the Fed is able to gracefully back out of its Quantitative Easing bond-buying program.

It's an interesting idea and one that may at least partially explain why preferred stock market prices did not fall in any significant way in advance of September's Fed meeting as they had previously - even when the Fed announced in advance that tapering was likely to be on the September agenda.

Inflation - Where is it?

The basic argument for a somewhat permanent QE existence is that there is no real reason to stop the program. Classic economic thinking says that inflation will surely be the result of the QE program. And I get that line of thinking - increasing the money supply lowers the value of that money so it takes more dollars to buy the same thing (aka inflation).

But here's the problem: The classic economic model fails to explain what has actually been happening in the real world. After four years of the Fed's QE program, the feared run-away inflation has not occurred.

And others have seen the same result. The UK has been running a QE program for some time now and guess what - no inflation there, either. And the granddaddy of all QE programs? Japan has had their QE program in place for thirteen years now and the inflation predicted by the classic model is nowhere to be found. If Quantitative Easing by a central bank causes inflation, where is it?

While I understand and agree with the idea that buying $85 billion per month in bonds has to have a significant downside, we will apparently have to look somewhere other than inflation to find it (starting with the income devastation it has levied on savers).

QE offset by increased bank reserves

One explanation of why the U.S. QE program has not produced the expected inflation is that a significant chunk of the new cash is being sequestered in the form of increased bank reserves. After all, the new domestic (Wall Street Reform Act) and international (Basel III) reserve requirements kicked in at just about the same time as the Fed's QE2 (2010).

Putting all of that new cash in the hands of consumers (in the form of increased loans) would certainly drive prices up, but requiring banks to keep it in the vault as increased reserves, not so much.

But that explanation only goes so far. At $85 billion per month, the volume of QE bond-buying far exceeds the increase in bank reserves that we have seen over the last three years.

Tapering already "priced in"

If QE tapering is going to trigger a preferred stock selloff, why didn't it in early-September when Fed representatives had announced in multiple public forums that they were likely to start doing so at their September meeting?

When combined with the fact that high quality preferred stock yields have returned to their long-term QE-free 7 percent average and prices have returned to their pre-QE2 levels, it could be argued that the effects of tapering have already been "priced in" by preferred stock investors.

If that's the case, whatever selloff of high quality preferred stocks was going to happen has already happened.

 


More Preferred Stock Research

FROM DOUG K. LE DU

Click any headline

 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   
 

Fifth Edition of Preferred Stock Investing is Now Shipping!

Learn How to Screen, Buy and Sell the Highest Quality Preferred Stocks

Preferred Stock Investing is one of the highest reader-rated books in the United States with 68 reviews posted at Amazon.

A new edition of Preferred Stock Investing is published every other year in order to keep up with current market trends and research. The new Fifth Edition addresses selecting, buying and selling the highest quality preferred stocks during the market conditions that we are expected to face throughout the remainder of 2013 and 2014 (upward pressure on rates).

See: Reviews | Table of Contents | Free Excerpt | Paperback | eBook

The preferred stock market is finally starting to return to a market favoring buyers - higher dividend income available for lower prices. The new Fifth Edition has 21 chapters organized into six Parts over 334 pages.

Here are some highlights:

- Part I, "The Preferred Stock Market," introduces a new suite of charts and metrics specifically designed to measure and track the preferred stock marketplace.

- Part III, "Buying the Highest Quality Preferred Stocks," includes several new chapters such as "Buying 'Fed-Free' Preferred Stocks," "Keeping Up with Increasing Interest Rates" and "Buying Less-Than-Perfect Preferred Stocks."

- And chapter 8, "Managing the Risks," has been completely rewritten and expanded to include risks that are unique to preferred stocks during the increasing rate environment that awaits us.

You can pick up a copy of the new Fifth Edition of Preferred Stock Investing at your favorite online retailer such as Amazon (paperback) or directly from BookLocker, the book's publisher (BookLocker provides paperback and PDF eBook formats).


 

 

Figure 4

Average Effective Annual Return

USING THE CDx3 INCOME ENGINE (2001 - 2012)

 

Chapter 17 provides the investing results for every qualifying preferred stock issued since January 2001

   
 

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 new Fifth 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 17 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.