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

 

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

   
 

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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:

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Quick Summary

This month's High Quality Preferred Stocks article describes how the market for the highest quality preferred stocks now favors buyers. Of the 25 high quality preferred stocks selling for a sub-$25 market price, seven offer a dividend of at least 7 percent. Out of the 933 preferred stocks and exchange-traded debt securities that were trading on U.S. stock exchanges at the end of January 2014, our preferred stock search engine found 25 specific high quality issues selling below their $25 par value. (jump to article)

The Preferred Stock News article uses a snapshot of the U.S. preferred stock market to identify specific preferred stocks that would appeal to two very different preferred stock investors: those looking for long-term income versus those looking for a nice place to park some shorter-term cash. Four preferred stocks from CenturyLink and Bank of America stand out. (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 last summer. 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 write 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.

 

   
 

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

Preferred stock search engine finds these 25 out of 933 alternatives

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

As rates and prices move up and down over time, buyers buy when rates increase and prices fall below par ($25 per share in this case). Sellers sell those shares when rates fall again, pushing prices back above their original purchase price, enjoying 7 percent (long-term average) dividends in the meantime.

This is why preferred stock investing is long-term investing, taking advantage of the known inverse relationship between rates and prices over time.

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.

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.

Currently priced below par

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.

Results

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 2014 issue of the subscriber's newsletter, CDx3 Research Notes, that you received on January 30 for symbols.

There were a total of 933 preferred stocks and ETDs trading on U.S. stock exchanges as January 2014 came to a close. Of these 933, 25 specific high quality issues are trading below their $25 par value (January 27, 2014 prices). This list is sorted by dividend rate (coupon) with the highest payers listed first.

The ten 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 February 2014 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 72 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 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 25 Highest Quality Preferreds

PRICED BELOW $25 PAR (January 27, 2014 prices)

 

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

 

Subscribe For Trading Symbols

 

(Already a subscriber? For actual symbols see page 6 of the February 2014 issue of the subscriber's newsletter, CDx3 Research Notes).

 
   
 

CenturyLink and Bank of America Preferreds for Different Investors

Long-term income versus shorter-term cash storage

For different reasons, four specific preferred stocks stand out among the crowd as January comes to a close. Preferred stock prices increased during January to an average of $23.79 per share, up from December's $23.05. That's a significant increase in just one month but still below these securities' $25 par value. Purchasing shares below the par value of a preferred stock adds a layer of principal protection to your investment because, in the event of a downstream call, shareholders will receive the par value in cash from the issuing company.

Many preferred stock investors also consider agency ratings an important indicator of risk. Moody's classifies preferred stocks in two categories -- investment grade and speculative grade -- with the investment grade category having 10 subcategories: Aaa, Aa1, Aa2, Aa3, A1, A2, A3, Baa1, Baa2, and Baa3.

Figure 3 gives us a look at the U.S. market for preferred stocks as of January 24, 2014. Using these preferred stocks' market price (either above or below $25) and Moody's rating (investment grade or speculative grade), the chart is divided into four quadrants. Each diamond represents a U.S.-traded preferred stock. The criteria used to include and exclude securities for the chart are provided in the footnote below the table.

Sensitive to the upside

On January 10 we got a good look at how sensitive preferred stock investors still are to negative economic news. The U.S. economy needs to generate about 200,000 new jobs per month to break even. The horrible December jobs report, tallying only 74,000 new jobs, triggered a rush to purchase high-quality preferred stock shares, with investors fearing that the bad news would motivate the Fed to postpone its Quantitative Easing "tapering."

We saw the same sensitivity a few days later when China reported a manufacturing slowdown. By the end of January, average preferred stock prices had increased by $0.74 per share.

What does $25 buy?

The diamonds on the chart provide examples (not to be taken as recommendations) of preferred stocks from each quadrant, all of which are trading at, or very near, $25 per share. The dividend rate (a.k.a. coupon) offered by each security is also indicated.

CenturyLink's (NYSE: CTL) CTQ and CTW offerings would interest preferred stock investors looking for competitive, multi-year income production with relatively low investment risk. These two securities, issued within three months of each other in 2011, are nearly identical and both offer Baa3 investment grade ratings.

CTQ, issued on June 2, 2011, cannot be redeemed by CenturyLink until June 1, 2016. This security offers a 7.375% annual dividend (coupon), paying $0.46 per share each quarter. CTQ closed at $24.98 on January 24. About three months after CTQ began trading, CenturyLink introduced CTW, with a 7.5% coupon. CTW typically trades very close to its $25 par value as well.

The real bonus with these two securities is that they are actually exchange-traded debt securities, rather than preferred stocks. ETDs, often mistaken for preferred stocks and frequently listed as such on brokerage statements, are actually bonds (and are therefore recorded as debt, rather than equity, on the company's books). As bonds, ETDs are viewed as having less risk than the company's preferred stocks.

A place to park some short-term cash

On the speculative grade side of the chart, two preferred stocks from Bank of America (NYSE: BAC) are indicated. While CTQ and CTW would attract long-term income investors, BofA's MER-M and BAC-Z would be interesting to those with a shorter-term cash-storage need.

Those who have some excess cash on hand and want a place to park it for, say, six months to a year are hardly impressed with today's 1% bank CD interest rates. But what about 6% or so?

Bank-issued trust preferred stocks, or TRUPS, have mostly been redeemed due to changes to reserve formulas imposed by the 2010 Wall Street Reform Act. Those TRUPS that are still trading are highly likely to be called sooner rather than later, with shareholders receiving $25 per share in cash. Because of the high likelihood of a call, market prices of the remaining TRUPS stay close to these securities' $25 par value, so the risk of losing principal is relatively low, especially if you purchase TRUPS shares below $25.

Faced by a mountain of litigation, Bank of America has been unwilling or unable to redeem its TRUPS, even though replacing them with traditional preferred stocks would substantially ease the bank's Tier 1 reserve compliance burden. But that just changed.

As reported by Reuters on January 15, Bank of America reported a stunning quarterly profit increase of almost $3 billion. And over the last 12 months, the bank has slashed its mortgage losses by about 70% from $3.7 billion to $1.1 billion. With those kinds of numbers, the prospect that the bank will catch up on its TRUPS redemptions soon becomes more real.

MER-M is a TRUPS originally introduced by Merrill Lynch in April 2007. MER-M pays a modest 6.45% annually and has a Ba1 Moody's rating (one notch below investment grade). Similarly, BAC-Z, issued by Bank of America in August 2005, offers a miserly 6% coupon. While this is cheap money for the bank, it is not the low dividend expense that matters; rather, it is the bank's need to meet its Tier 1 reserve requirement.

For preferred stock investors looking for a place to store some short-term cash without much risk to principal, betting that Bank of America will redeem these TRUPS within the next year delivers a 6%-plus percent return in the meantime.

What does $25 buy? Whether you are a long-term income investor or are looking for a place to park some shorter-term cash, today's preferred stock market has something to offer a wide variety of investors.

 


More Preferred Stock Research

FROM DOUG K. LE DU

Click any headline

 


 

 

 

 

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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 72 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 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 5

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) 2014 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.