finished reading the CDX3 Preferred Stock Investing book. I
thought it was excellent. I have always been interested in
preferred stocks, but I could never figure out the best
time to buy or sell them."
- Domenic V.
Thanks to all of the new
subscribers for your interest in
Preferred Stock Investing. This is your first issue
of the CDx3 Newsletter, a free monthly newsletter devoted
to the interests of preferred stock investors.
In the Last
Month's CDx3 Investor Results article below, I'll tell you
about the newest CDx3 Preferred Stock, just introduced last
week. This new issue pays an annual dividend rate of 8.50%
and meets all of the CDx3 Selection Criteria, making it one of
the highest quality preferred stocks on the market - a "CDx3
Subscribers to the
Notification Service have their own exclusive web site.
This web site provides subscribers with the resources that are
important to those investing in CDx3 Preferred Stocks.
There has never been a case where
a non-subscriber has gotten to take a tour of this exclusive web
site - until now.
This month's Special Announcement article
tells you how you can take a free tour of the subscriber's web
site and see the resources that investors in CDx3 Preferred
Stocks have available to them, all from one web site.
This month's CDx3 Company Spotlight article
features Bank of America - very much in the press right now.
In January, BofA announced its intentions to acquire Countrywide
Financial. CDx3 Investors who own Countrywide's CDx3
Preferred Stock (CFC-B) are rightly interested to know what
usually happens in such a case. I'll describe a
nearly identical previous example from November 2005 where BofA
did the same thing - acquired an issuer of CDx3 Preferred Stock
- and we'll see what happened in that case.
If I gave you a date five years
from now, could you tell me what the market price of a new CDx3
Preferred Stock was going to be on that date (within a few
pennies)? Well, CDx3 Investors can and in this month's CDx3 Question Of The
Month article, I'll show you how and why the market price of
a CDx3 Preferred Stock behaves this way and you will learn why
this is important to you as a preferred stock investor.
Three minutes from now, you too are going to be able to tell me
what the market price of a new CDx3 Preferred Stock is going to
be, five years from now, on January 31, 2013.
For our new readers, there is a free calculator available
to you that allows you to correctly calculate the effective annual return of
preferred stock investments. The Free Special Offer
article below provides you with a download link. Keep an eye on this monthly CDx3 Newsletter
for announcements of future promotions of CDx3 products and
There has never been a CDx3
Preferred Stock that pays a 9%
dividend rate. The closest we
have gotten was in December 2002
when Hospitality Properties offered
their Series B CDx3 Preferred Stock
at 8.875%, 1/8 of a percent away
from 9.0%. We are currently
enjoying market conditions that
favor CDx3 Preferred Stock dividend
rates, seeing them climb from 7.5%
to 8.5% just within the last few
months. Could a 9%'er be very
far away? I'll be anxious to
report back to you in next month's
Stock Dividends Go Up Once Again
Newest Investment Grade Issue
Pays 8.500%; Average Now At 8.075%
2008 is off to a
great start with the January introduction of
the highest paying CDx3 Preferred Stock that has
been issued since December 16, 2002.
The new issue,
paying an annual dividend of 8.500%, raises
the three month moving average dividend rate
being paid by CDx3 Preferred Stocks to 8.075%.
This is only the third time that this index has
climbed this high in the last seven years.
the CDx3 Notification Service received a
CDx3 Buyer's Notification email message that
alerted them to this spectacular new issue.
And it is not just the great dividend rate that
makes this issue so attractive. This
issue, like all CDx3 Preferred Stocks, is one of
the highest-quality, lowest-risk preferred
How can I say that?
During the years that I spent researching
Preferred Stock Investing, I continually refined
the selection criteria of the preferred stocks
that I was running through the CDx3 Income
Engine, as it was being developed. The
goal was to find a combination of selection
criteria that maximized revenue while minimizing
Now, as you might
guess, if you tighten down the criteria too
much, you are not left with any preferred stocks
to invest in.
Similarly, if you make the
criteria too loose, the revenue goes up, but you
start taking a level of risk that CDx3 Investors
are just not comfortable with.
Two Streams Of Income: I was looking for
a model that was as close to "CD-like" risk as I
could get, but still have enough preferred
stocks left to pick from that would generate
two streams of income - dividends plus capital
The result was the
ten CDx3 Selection Criteria that are documented
in Chapter 1 of Preferred Stock Investing.
These ten CDx3 Selection Criteria, and the
research than went into identifying them, allow
me to refer to CDx3 Preferred Stocks as among
the highest-quality and lowest-risk.
Take a look at just three of the ten CDx3
Selection Criteria, and I think you'll see what
I mean; all CDx3 Preferred Stocks, including the
new one with its 8.500% dividend rate, must:
be issued by a company that has never suspended
dividends on a preferred stock (and, in most
cases, these are decades-old, multi-billion
be "cumulative," which is a legal requirement
that, in the event that the issuing company
misses a dividend payment to you (which I have
never seen happen with a CDx3 Preferred Stock),
they still owe you the money and are obligated
to make it up to you later; and
carry the much sought after Moody's credit
worthiness rating of "investment grade," as
opposed to "speculative grade."
continue to not only improve their dividend
income position, but are also positioning
themselves for a substantial capital gain
opportunity downstream. Here's how:
What do you think
is going to happen to the market price of this
8.5% CDx3 Preferred Stock when rates start
heading back down again?
According to the
Rule of Rate/Price Opposition (Preferred
Stock Investing, page 61), as rates
come down, market prices go up - rates and
prices work in opposition to each other.
$27 Per Share?:
So, it would not be unusual for the market price of
this new CDx3 Preferred Stock to climb above $27 per share,
especially if rates fall to somewhere, say, in
the 6.75% neighborhood (which is where they were
just twelve month's ago).
The FDIC tells us
that the majority of the remaining subprime
mortgages are scheduled to wash through the
financial system by July of this year. At
that point, the billions that large,
institutional investors (pensions) have on the
sidelines should start to come back into the
market. Historically, high-quality,
low-risk investments, such as CDx3 Preferred
Stock, are among the first to benefit.
becoming a subscriber to the
Service. The credit crisis has created a
very unique set of circumstances, positioning
CDx3 Investors for huge dividend income now plus
substantial capital gains downstream.
New Subscriber's Preferred Stock Investing "Portal"
Goes On Tour
First Time Ever, Non-Subscribers
Get To Look Inside - Free
I'm going to take you on a
tour of the exclusive CDx3 Notification Service web
site. The resources found on this web site are
only available to subscribers to the
There has never been a
case where a non-subscriber was able to tour the site
(legally) - until now.
Just Curious?: If you are interested in
becoming a subscriber to the
or are just curious about the resources that subscribers
have available to them at the click of the mouse, you'll
want to see this.
Preferred Stock Investing
teaches readers what they need to know in order to be
successful CDx3 Investors - completely on their own.
All of the formulas, techniques, web sites and
other resources are presented within the book.
But, the fact is that some
people have other priorities in their busy lives and,
while they would like the benefits of investing in CDx3
Preferred Stocks (maximum revenue, minimum risk, minimum
work), they need to spend their time on other important
The CDx3 Notification
Service is specifically designed for these people.
Subscribers to the
Service receive a simple
email alert whenever there is an upcoming buying or
selling opportunity. All of the research and
calculations are done for them.
CDx3 Research Notes: Plus,
subscriber's receive their own monthly newsletter called
CDx3 Research Notes that allows subscribers to
"look over my shoulder" as my preferred stock research
The exclusive subscriber's
web site serves as a repository for that information and
much more. For example, from within the
subscriber's web site, a subscriber can:
- see new CDx3 Preferred
Stocks that are currently trading on the
Over-The-Counter stock exchange, get a current price
quote and review their CDx3 Preferred Stock Spec
- review updates to the
CDx3 Do-Not-Buy List, the list of companies that
have a history of suspending preferred stock
dividends, originally presented on page 24 of Preferred Stock Investing;
- directly access key
external resources and web sites that CDx3 Investors
frequently use, such as the Over-The-Counter
bulletin board, PinkSheets, the New York Stock
Exchange, the American Stock Exchange, Yahoo Finance
and all of the resources that these sites provide
that are relevant to CDx3 Investors;
- directly access the
current CDx3 Seller’s Calendar and all previously
issued CDx3 Seller’s Calendars, from the CDx3
Seller’s Calendar archive;
- shop at the CDx3
Investor Quick-Buy Store where you can renew your
subscription or purchase additional 4-Member Packs
for growing investment groups;
- see the CDx3 Preferred
Stock catalog that lists the latest, and historical,
CDx3 Preferred Stocks along with a CDx3 Preferred Stock
Spec Sheet on each one;
- access helpful tools
such as the CDx3 Effective Annual Return calculator
(that now includes a yield calculator), a dictionary
of investment terminology and Moody’s Investors
Service to check the current Moody’s rating of CDx3
- see past issues of CDx3 Research Notes,
the monthly newsletter just for subscribers to the
- visit the Preferred
Stock Investing Reader’s Forum where you can post
discussions with other CDx3 Investors or read past
issues of the monthly CDx3 Newsletter;
- and much, much more…
Site Simulator: Here is an example of
what you are going to see when you take the tour of the
subscriber's web site:
is the CDx3 Tutorial web page for the home page of the
subscriber's web site. Notice how each page
includes an image of the screen being described.
Explanatory narrative and other helpful tips appear
below the screen image.
Here's the best part: the buttons and links
that you see on the screen images within the CDx3
Tutorial are active; you can click on them just
like you were using the real thing. This is what
we call "site simulation."
And the Site Map/Tutorial
Guide on the right of each screen image keeps track of
where you are. Simple.
You will start your tour
at the sign in tutorial page. Just click on the
Sign in padlock in the upper right corner and you'll be
on your way (the CDx3 Tutorial is not password
protected, this just simulates signing in).
These Companies That Issue CDx3 Preferred
Bank of America
Corporation (NYSE: BAC)
There are very few people on the
planet who have never heard of
Bank of America (NYSE: BAC).
This $192 billion pillar of
American finance was founded in
1874 and is headquartered in
Charlotte, North Carolina.
BofA has over 5,700 retail
banking locations plus about
17,000 ATM machines worldwide.
BofA generated global interest
on January 11, 2008 when it
agreed to acquire the largest
mortgage lender in the United
States - Countrywide Financial
Corporation (NYSE: CFC).
past issues of the CDx3
Newsletter, I have referred
to Countrywide as "ground zero"
of the current subprime mortgage
mess. Countrywide, also an
issuer of CDx3 Preferred Stock,
has had huge exposure to these
Deal For Both?
In need of cash, Countrywide did
a $2 billion deal with BofA last
August. In return, BofA
received preferred stock, with
the right to convert them to
Countrywide common stock, at $18
per share, after 18 months.
CFC was trading at about $22 at
the time, so this seemed like a
good deal for both parties.
But as delinquency rates and
foreclosures continued to
increase, Countrywide's stock
fell to about $4 per share, down
from about $45 a year earlier,
losing about 90% of its value.
It was becoming clear (certainly
to BofA) that CFC might not be
around in 18 months.
purchasing Countrywide, BofA not
only protected its earlier
investment, but now finds itself
(after regulatory approval,
expected this summer) owning the
largest mortgage portfolio in
the country, the majority of
which has already seen its
subprime losses (not that there
is no more blood letting left to
About CFC-B? On
November 3, 2006, Countrywide
introduced their Series B CDx3
Preferred Stock (CFC-B) that
pays a 7.000% annual dividend.
After reaching a high of $25.63
per share in February 2007, the
market price of this CDx3
Preferred Stock plunged to $6.65
on January 9, 2008, as
speculation started to circulate
that Countrywide might not make
it. Then, two days later,
BofA announced their purchase of
Countrywide and CFC-B shot above
$18 in a couple of hours (and
still trades at about that
CDx3 Investors who own CFC-B
started wondering what was going
to happen to their shares once
BofA owned Countrywide.
While the precise disposition
will be determined by the
various legal and contractual
requirements involved in this
acquisition, the fact that the
market price shot up so
aggressively would certainly
imply that some big investors
out there are convinced that
owning CFC-B is a pretty good
investment, going forward.
All Over Again: Also,
there is a precedent that we can
look at. On November 3,
2005 the stockholders of MBNA
Corporation (another large
financial institution) approved
a merger proposal with Bank of
America. What makes this
2005 acquisition of MBNA by Bank
of America of interest to CDx3
Investors is that, at the time,
just like the case now with
Countrywide, MBNA had an
outstanding CDx3 Preferred Stock
(trading under the symbol KRB-E).
KRB-E, introduced on November
25, 2002, pays an 8.1% annual
dividend. This 8.1% number
becomes important for the
CDx3 Question Of The Month
What did BofA do about those who
held shares of KRB-E when it
acquired MBNA? Nothing.
KRB-E continued trading, even
under the same trading symbol,
and is still trading today (click
While anything is possible
before the deal is done, it
would be unusual for BofA to
treat CFC-B any differently than
it did KRB-E back in 2005.
Why have no CDx3 Preferred
Stocks been "called" recently?
- Kip O.
Here's an opportunity
to impress your friends by telling them that you can
correctly predict the market price of a new CDx3
Preferred Stock five years in advance (within a
small margin of error).
After explaining how,
I'll show you a chart of the Series E CDx3 Preferred
Stock from MBNA (KRB-E, now part of Bank of
America), the same one that we discussed in the
CDx3 Company Spotlight article above, so
that you can see how this works.
5-Year Call Date: CDx3 Preferred
Stocks have a five year lifespan; that is, five
years after they are issued to the marketplace, the
issuing company regains the right to buy your shares
back from you - for $25.00 per share
(regardless of what you originally paid). The
precise date that the issuing company regains the
right to purchase your shares back from you is
referred to as the "call date." If the issuing
company does so, the CDx3 Preferred Stock is said to
have been "called."
So, what do you think
happens to the market price of a CDx3 Preferred
Stock as the call date approaches (five years after
its introduction)? It tends toward $25, of
course. No one is going to pay you much more
than that once the issuing company regains the right
to purchase the shares back at that price, right?
This is the Rule of Call Date Gravity (Preferred
Stock Investing, page 75) - starting about
three years after a CDx3 Preferred Stock is first
introduced, its market price will tend toward $25 as
the call date approaches (your friends will be
surprised and justifiably impressed).
But, to Kip's
question, why have no CDx3 Preferred Stocks been
Refinancing: When a company calls a
preferred stock, it needs a bunch of cash so that
they can buy your shares from you. The company
usually raises this cash by issuing a new preferred
stock, then takes the cash that the new issue
generates for them, and uses that cash to purchase
the older issue from its current holders (you).
Preferred Stock Investing refers to this
mechanism as “refinancing” (Preferred Stock
Investing, page 54).
However, this only
makes sense to do if the current “going dividend
rate” on new issues of preferred stock is less than
the dividend rate they are paying on the old issue.
Example: For example, if the XYZ
Corporation issued a 6.5% preferred stock five years
ago, and today’s going dividend rate is 8% on new
preferred stocks, why would they issue a new
preferred stock that obligates them to start paying
out dividends at 8% in order to stop paying
dividends at the 6.5% of the older issue? They
So, during periods of
time when the going dividend rate being offered on
new CDx3 Preferred Stocks is higher than it was five
years ago (like it is now - 8.1%), there will be very
few, if any, calls. Once rates fall below 8.1%
(later this year?), you will see calls pick up.
In the meantime, the
market price of five year old CDx3 Preferred Stocks,
especially ones that pay a dividend right around
8.1%, is going to be right around $25.00 (with
occasional, short-term fluctuations), since everyone
on the planet knows that the issuing company could
call the issue at any time (and just might).
The current average dividend rate being paid by CDx3
Preferred Stocks is 8.1%. Five years ago, the
Series E CDx3 Preferred Stock from MBNA Corporation
(KRB-E) was introduced at 8.1% - the same as today's
average going rate. As discussed in the
CDx3 Company Spotlight article above, Bank of
America now owns MBNA and is considered the "issuing
company" of KRB-E.
look at this five year market price chart for KRB-E
from MarketWatch (click
here). Note how the market price
for KRB-E trends toward $25.00, beginning about
three years after its introduction - just like the
Rule of Call Date Gravity says it should. And
now you know why.
Thanks to Kip O. for
the great question. You will receive a
complementary copy of the CDx3 Special Report
Special Report Also Has Free Companion Excel
See How To Correctly Calculate Your
Effective Annual Return - FREE
The Preferred Stock Investing Reader's Forum provides a
Excel spreadsheet calculator that you can use to
calculate the effective annual return (EAR) of your
preferred stock investments. The calculator allows
you to just plug in a few parameters from your preferred
stock (such as purchase date, purchase price, sell
price, etc.) and see what your effective annual return
really is, or will be if you sell.
you initially download the EAR calculator, it is set up
using the Series A CDx3 Preferred Stock from Dominion
Re-sources (D-A) as an example. This is the same CDx3
Preferred Stock that is used as an example through-out the CDx3
Special Report titled "Calculating Your Rate Of
recipient of this monthly CDx3 Newsletter,
you are entitled to a FREE copy of "Calculating Your
Rate Of Return." So, get
them both - FREE - and use them together to
learn how to correctly calculate your rate
of return on this type of investment. To download your free copy
of Calculating Your Rate Of Return, just click on
the following email address:
No need to type anything in the body of the
message, just click the Send button.
You will receive an auto-reply email message
with download instructions for your free
CDx3 Special Report.
To see the entire library of useful and
educational CDx3 Special Reports, including
three sample pages from each one,
CDx3 Preferred Stocks: 8.5%; Bank CDs: 4.8%
Can The First 9% CDx3 Preferred Stock Be Very Far Away?
Starting about two
months ago, financial columnists and writers
starting jumping onto the preferred stock
bandwagon. I mentioned Merrill Lynch and
Richard Young in last month's CDx3 Newsletter;
the latest entry is hedge fund manager Jonathan Hoenig writing for SmartMoney:
"In the last few
weeks, I've developed an interest in preferred
stock, which I last highlighted back in 2005"
(thanks to Reagan G. for passing this along).
Investing explains how to do it. For
those who would rather not take the time, the
Service does the work for you,
sending you an email message when there is an
upcoming buying or selling opportunity.
All agree that the
current buyer's market, characterized by huge
dividend rates being paid on new issues and low
market prices, cannot last much longer (there are
currently CDx3 Preferred Stock paying 7.5% dividends
selling for under $24 per share). With
government leaders implementing very aggressive and
complementary monetary and fiscal policy measures
during January, the market conditions that have
allowed the average dividend rate being paid by new
CDx3 Preferred Stocks to soar above 8%, while
comparable bank CDs are paying about 4.8% (24-month,
$10,000; source: bankrate.com), are likely to
subside in the coming quarters.
Will we see a 9% CDx3
Preferred Stock in February or shortly thereafter?
I'll report back to you in the March issue of the
Remember, I'm not a stock broker;
I'm not trying to sell preferred
stocks to you; and I don't sell
investment advice. I'm an
investment researcher with a
economics and statistics
background who has developed a
simple way to earn a respectable
return at "CD-like" risk. And I've
written it down in
Preferred Stock Investing.
I'm hopeful that you find these
Newsletters interesting, and
will consider learning more by
purchasing my book, Preferred
take a look at
http://www.PreferredStockInvesting.com. And don't forget
FREE SPECIAL OFFER.
someone who might be interested in simple,
low-risk investing for non-investment
experts? Have them send an email
they will automatically
begin receiving this monthly CDx3
next month (plus a
CDx3 Special Report) - all FREE.
Then they can make up their own mind.
Many Happy Returns,
Doug K. Le Du
P.S.: If you do not want to receive news
send an email message to
and you will be automatically removed
from my address list. Best wishes to