“I feel very lucky to have learned about CDx3...All financial advisors should learn something from you when it comes to preferred stock investing." - Rich M., CDx3 Notification Service subscriber

Quick Summary

In This Issue...

Last Month's CDx3 Investor Results

Special Announcement

CDx3 Company Spotlight

CDx3 Question Of The Month

FREE Special Offer

Next Month's Sneak Peek

   
 

Just Published: The Third Edition of Preferred Stock Investing is now available!

The Third Edition of Preferred Stock Investing includes all of my latest research regarding the market price behavior of high quality preferred stocks. Five new chapters and 70 additional pages use real preferred stocks to show you how to screen, buy and sell the highest quality issues, even during a Global Credit Crisis.

Chapter 15 lists all qualifying preferred stocks that have been issued since January 2001 and shows you how you would have done by using the investment method described throughout the book for each one. And the book includes all of the web sites and other resources that are used to implement the CDx3 Income Engine on your own.

The Third Edition of Preferred Stock Investing, the manuscript of which was reviewed by several dozen readers and subscribers before going to the publisher, is my most comprehensive work yet and it is now available at your favorite online retailers (see retailers).


Just Posted On The Preferred Stock Investing Reader's Forum: Wouldn't it be frustrating to put in a buy order for a preferred stock that you've had your eye on, only to find out that there are no sellers. The market for such preferred stocks is said to be "illiquid." In an October 17 post to the Preferred Stock Investing Reader's Forum (my "blog") titled "When Does The Market For A Preferred Stock Become Illiquid?" I explain how a preferred stock that may be illiquid to one investor may not be to another and provide you with a rule of thumb that allows you to identify an illiquid preferred stock before putting in your buy order. (jump to Forum)

In June 2007 (pre-Global Credit Crisis), could you have identified the publicly traded Big Banks that were going to go bankrupt? With the bankruptcy of CIT Group on November 1, there have now been eight such Big Banks that, together, issued 57 preferred stocks. In the Last Month's CDx3 Investor Results article I identify these Big Banks and explain how the ten CDx3 Selection Criteria from chapter 7 of my book, Preferred Stock Investing, eliminated each and every one of them, in advance, saving preferred stock investors with a 100% successful track record. Those following the preferred stock investing rules presented throughout Preferred Stock Investing knew to stay away from these 57 preferred stocks to begin with. (jump to article)

Preferred stock research is hard to come by, even for brokers and investment groups. In this month's Special Announcement article I describe new meeting materials for brokers with clients interested in preferred stock investing and for members of investment groups who have grown tired of reviewing the same boring stock reports every month. The all new Preferred Stock Investing Group Materials include a 27-slide slideshow plus a handout with my commentary. Why not learn something new at your next meeting - how to screen, buy and sell the highest quality preferred stocks. (jump to article)

In the CDx3 Company Spotlight article I introduce you to HCP, Inc. HCP owns over 600 healthcare facilities throughout the United States and Mexico. As HCP's chairman and CEO recently put it, HCP is "...the leading real estate investment trust in the largest industry in the largest economy in the world." The population demographics that I provide in this article make it clear that there is an avalanche of business headed toward HCP. (jump to article)

The CDx3 Question of the Month is presented both here and on the Preferred Stock Investing Reader's Forum. If you visit the Forum you can test your knowledge by clicking on your answer to the question. You will receive an automatic email that provides you with the correct answer and my explanation. Or you can just read the answer in the below CDx3 Question of the Month article. This month, I answer the question: "Will the market price of a preferred stock rise or fall to $25 as its call date approaches?" (jump to article)

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. In the Free Special Offer article below I provide you with a link that allows you to receive my posts, and the posts of other preferred stock investors, via an email message rather than having to visit the Forum to see what's new. Any time a new article is posted, you will receive a message in your email inbox automatically - free. (jump to article)

Coming Up For Preferred Stock Investors: The market recovery that we have been experiencing since March has produced a rare opportunity for some preferred stock investors. In the Next Month's Sneak Peek article, I preview a preferred stock investing strategy that takes advantage of current market conditions by using high quality preferred stocks that have exceeded their call dates. A new feature on the CDx3 Notification Service web site supports this rare opportunity by identifying about 100 such preferred stocks for subscribers. (jump to article)

I look forward to reporting back to you in next month's issue of the CDx3 Newsletter.

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.

What Is A "CDx3 Preferred Stock?"

CDx3 Preferred Stocks are regular preferred stocks that are able to meet the ten selection criteria described in chapter 7 of my book, Preferred Stock Investing.

Applying the CDx3 Selection Criteria eliminates about 90% of the regular preferred stocks trading on today's stock market leaving just the highest quality issues.

For example, here are three of the ten CDx3 Selection Criteria:

1. be issued by a company with a perfect record of never having suspended a dividend on a preferred stock;

2. have the "cumulative" dividend requirement, which means that in the unlikely event that the issuing company misses a dividend payment to you (which I have never seen happen with a CDx3 Preferred Stock), they have to make it up to you later; they still owe you the money; and

3. be rated "investment grade" by Moody's Investors Service.

Having specific and consistently applied selection criteria takes the emotion out of your investing decisions and leaves you with the highest quality preferred stocks - "CDx3 Preferred Stocks."

Who Am I?

I am a preferred stock researcher and author of the book titled Preferred Stock Investing. I also publish two 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.

 

   
 

57 Out Of 57, The Ten Criteria That Saved Preferred Stock Investors

Preferred Stock Investors Avoided Companies That Went Bankrupt (Including CIT Group)

On November 1 we were reminded, for the eleventh time since June 2007, that not all preferred stocks are created equal. After telling us what a great opportunity their November 1 bankruptcy is, CIT Group's press release includes the following statement:

"Under the proposed prepackaged plan of reorganization, all existing common and preferred stock will be cancelled upon emergence."

"Cancelled upon emergence" means wiped out. CIT's bondholders will get $0.70 on the dollar, but CIT's common and preferred stockholders should not expect so much as a nice parting gift.

The ten CDx3 Selection Criteria from chapter 7 of my book, Preferred Stock Investing, act as a filter that lets the highest quality preferred stocks through and eliminates the pretenders. I provide you with three of the ten criteria in the sidebar at the top of this CDx3 Newsletter.

Notice that one of the criteria is that a regular preferred stock must have the "cumulative" dividend requirement in order to be considered a "CDx3 Preferred Stock."

If the issuing company of a cumulative preferred stock misses a dividend payment to you, they still owe you the money. Your dividends accumulate with a cumulative preferred stock.

With that in mind, take a look at the official descriptions of CIT's three preferred stock issues that were trading at the time of their bankruptcy:

- 6.350% Non-Cumulative Preferred Stock, Series A

- Non-Cumulative Preferred Stock, Series B

- 8.75% Non-Cumulative Perpetual Convertible Preferred Stock, Series C

No need to read the prospectus here.

Preferred stock investors following the research that I present throughout Preferred Stock Investing knew to stay away from CIT's preferred stocks to begin with.

This table lists the (now) twelve publicly traded Big Banks that have either gone bankrupt or have been acquired since the Global Credit Crisis began in June 2007. The first eight, now including CIT Group, are the ones that went bankrupt while the bottom four are the ones that were acquired by healthier banks.

Owners of the bankrupt bank's preferred stock shares were wiped out in each and every case; the preferred stock dividends from each of these banks have been suspended and the investor's principle has been lost.

On the other hand, those investing in the preferred stocks of the four acquired banks were saved, their dividends have continued to be paid by the acquiring bank on time and in full.

I have made the point in prior issues of this CDx3 Newsletter that throughout this Global Credit Crisis the ten CDx3 Selection Criteria have repeatedly saved preferred stock investors. Looking at the itemization presented in this table, you can see that, just as in the November 1 case of CIT Group, the CDx3 Selection Criteria have filtered out every preferred stock from every failed financial institution since June 2007, and did so in advance.

57 out of 57, one after another, for over two years now, the CDx3 Selection Criteria filtered out the preferred stocks from Lehman Brothers, Fannie Mae, Freddie Mac, New Century, Washington Mutual, Bear Stearns and, this month, CIT Group (IndyMac had no preferred stocks trading at the time of its bankruptcy).

And the same ten CDx3 Selection Criteria let through certain preferred stock issues from National City, Countrywide, Merrill Lynch and Wachovia - the very four that were saved through acquisition. A 100% success record of saving preferred stock investors during the most extreme conditions for over two years straight.

For subscribers to the CDx3 Notification Service, we screen regular preferred stocks to see which ones meet the ten CDx3 Selection Criteria and subscribers are automatically notified by email when a new CDx3 Preferred Stock is about to be introduced to the marketplace. We do all of the research and calculations for you.

While I wish I could say that the effects of the Global Credit Crisis and recession are behind us, the November 1 bankruptcy of CIT Group provides some compelling evidence to the contrary. Invest in the best. Pick up a copy of Preferred Stock Investing (see retailers) and become a subscriber to the CDx3 Notification Service today.

 

 

 

 

 

 

 

 

 

 

 

 

 

   
 

Brokers And Investment Groups: New Meeting Materials Now Available

Plus Two Other New Features For Preferred Stock Investors - No Charge

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 a blank email message to:

InvestmentGroupMaterials@PreferredStockInvesting.com

You will receive an auto-reply email message with current download instructions.

 


Recent Reader Reviews At Amazon.com

If you would like to see what other preferred stock investors think of my book, Preferred Stock Investing, I have provided a link at PreferredStockInvesting.com directly to the reviews that readers have posted on Amazon.com.

I'm particularly proud of these reviews since they are written and posted directly by readers themselves.

Want to see what others think of Preferred Stock Investing? From the PreferredStockInvesting.com home page, click on the link labeled Recent Reader Reviews and see what other preferred stock investors have to say about the book.

And Now You Can LOOK INSIDE! Preferred Stock Investing - Free

If you do not already have your copy of Preferred Stock Investing, you can satisfy your curiosity by using Amazon's Look Inside feature.

Look Inside allows you to view and search the pages of the book. You can see the book's Table of Contents, Index and read a portion of the book itself, all online for free.

To look inside Preferred Stock Investing, just go to the book's product page and click on the book's cover image. Look Inside is fun to use and allows you to look over the book before your purchase it.

 
 

 

 

 

 

 

 

   
 

Who Are These Companies That Issue CDx3 Preferred Stocks?

HCP, Inc. (NYSE: HCP)

Formerly known to as HealthCare Properties, HCP is an $8 billion company founded in 1985 and headquartered in Long Beach, California. HCP develops and operates 682 healthcare related facilities throughout 43 states and Mexico including senior housing, life science, medical office, hospital and skilled nursing facilities.

HCP is incorporated as a Real Estate Investment Trust which means that they are required to distribute 90% of their profits to shareholders (common and preferred). According to HCP's web site, the company "has produced a 15% compounded annual total return to shareholders since its IPO on May 23, 1985 through June 30, 2009."

U.S. Census Bureau estimates show that the percentage of our population in the 75-84 age group will climb from today's 7% to about 45% by 2050. From HCP's 2008 Annual Report: "Senior citizens are the largest consumers of healthcare services. According to CMS, on a per capita basis, the 75-year and older segment of the population spends 76% more on healthcare than the 65 to 74-year-old segment and over 200% more than the population average."

With healthcare expected to be 17.7% of the U.S. GDP in 2010 (Source: Centers for Medicare and Medicaid Services (CMS), based on the National Health Expenditures report released in January 2009), you can see why HCP's chairman and CEO, James Flaherty remarked in March 2009 that HCP is "...the leading real estate investment trust in the largest industry in the largest economy in the world."

To see examples of some of HCP's healthcare facilities, click here.

HCP, Inc. is an issuer of CDx3 Preferred Stock.

Reader Note: The purpose of the CDx3 Company Spotlight article is to give you a sense of the types of companies that issue CDx3 Preferred Stocks. Companies that appear in the CDx3 Company Spotlight either currently, or in the past, have issued CDx3 Preferred Stocks. Since I am not familiar with your financial goals, resources or risk tolerance, my mention of these companies here should not be taken as a recommendation by me for you to buy, or not buy, securities issued by these companies.

 

 

 

 

 

 

 

Source: HCP, Inc. 2008 Annual Report showing U.S. Census Bureau data

   
 

Will the market price of a preferred stock rise or fall toward $25 as the call date approaches? - Preferred Stock Investing Reader's Forum.

I think we can agree that the mother lode of investing is knowing something, anything, about the future market price behavior of your investment. The ten CDx3 Selection Criteria are designed to identify preferred stocks that tend to follow what Preferred Stock Investing refers to as the Three Rules Of Market Price Predictability (Preferred Stock Investing, chapter 3). The answer to the above question combines one of these three rules - the Rule of Call Date Gravity - with a piece of research that I provide in chapter 14 of the book.

CDx3 Preferred Stocks all have a five year life span from the date they are introduced until their "call date" 60 months (five years) later. Until the call date, the issuing company is obligated to pay you the fixed quarterly dividends. But once the call date arrives, the issuing company regains the right to purchase your shares back from you. If they do so, they must pay you $25 per share, regardless of the then-current market price and regardless of what you originally paid. $25 per share; that's what you're going to receive in the event of a call.

If The Market believes that conditions favor the call of a CDx3 Preferred Stock, what do you think the market price of that preferred stock is going to do as the call date approaches?

It's going to trend toward $25 per share, of course.

If conditions favor a call, no one is going to pay you more than about $25 for your shares as the call date gets closer.

By selecting preferred stocks that have a known five year call date, CDx3 Investors know a significant piece of information about the future market price behavior of their CDx3 Preferred Stocks.

How likely is a call? In chapter 14 of Preferred Stock Investing, "Selling To Your Built-In Buyer," I provide the results of a study I did to answer that very question. If dividend rates fall far enough, companies will often introduce a new preferred stock at the lower rate and use the proceeds to call an older issue that has a higher dividend rate, resulting in a savings (like refinancing a mortgage when rates drop). My research shows that if the company can save a mere .375% in dividend expense, there is a 91% chance that they will issue a new preferred stock and use the proceeds to call an older issue.

Since the current market prices of most CDx3 Preferred Stocks are below $25 per share (current average market price is about $22), knowing that certain issues may be well positioned to be called can work to your benefit. If you were to purchase a CDx3 Preferred Stock today at $22 per share, you will realize a $3 per share capital gain in the event of a call, in addition to those great fixed quarterly dividend payments in the meantime.

But as the call date of your CDx3 Preferred Stock approaches, what should you be looking for in terms of its market price behavior?

Once The Market believes that conditions favor a call of your CDx3 Preferred Stock, as its call date approaches the market price of your shares will tend to:

(A) Rise toward $25 per share
(B) Fall toward $25 per share
(C) It's impossible to say in advance, it just depends on the market conditions at the time.

The answer is (B). If The Market believes that conditions favor a call, the market price of a CDx3 Preferred Stock will fall toward $25 per share as the call date approaches. Here's why.

Market conditions will favor a call if the going dividend rate being offered by newly issued CDx3 Preferred Stocks is at least .375% lower than the declared dividend rate being paid by your five year old callable CDx3 Preferred Stock (Preferred Stock Investing, page 218).

Remember that when a new CDx3 Preferred Stock is issued, the issuing company and the underwriters get together and figure out what dividend rate the new issue is going to have to pay in order to command an initial market price of $25 per share. In other words, the dividend rate of all new CDx3 Preferred Stocks is set such that there is a market at $25.

If the going dividend rate for newly issued CDx3 Preferred Stocks is lower than the declared dividend rate of your CDx3 Preferred Stock (at least .375% lower from our prior analysis in order to motivate a call), and new CDx3 Preferred Stocks command a price of $25 per share, you know that the market price of your CDx3 Preferred Stock is therefore going to be higher than $25.

Consequently, when looking at the market price behavior of a CDx3 Preferred Stock that The Market believes is going to be called, you will notice that the market price will approach $25 from above rather than from below; that is, the market price will fall, not climb, toward $25 for a callable CDx3 Preferred Stock as the call date approaches.


 You can submit your own preferred stock question. If your question is used as the CDx3 Question Of The Month you will receive a free copy of the CDx3 Special Report "Dividend Accounting."

Submit your question.

 

 

 

 

   
 

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, questions from readers, 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.

In addition to the daily preferred stock news headlines, the Preferred Stock Marketplace Snapshot chart and other features, the following articles were recently posted on the Preferred Stock Investing Reader's Forum:

October 1 - Trust Preferred Stocks - Why Not Just Issue A Bond?

October 6 - Bargain Table Question (subscriber post)

October 17-When Does The Market For A Preferred Stock Become 'Illiquid?'

October 27-The Ten Criteria That Saved Preferred Stock Investors

October 30-Direction Of Interest Rates (subscriber post)

 

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 confirm the email address that you want articles from the Forum to be emailed to as instructed (don't forget to do the confirmation step). 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.

You are also invited to visit the Forum and comment on my articles or the comments and questions posted by other preferred stock investors.

The new Preferred Stock Investing Reader's Forum is the most comprehensive (and free) news and information source specifically for preferred stock investors anywhere on the web. Please accept my invitation to receive articles by email and visit the Forum 

 
 

 

   
 

Current Market Conditions Provide Rare Opportunity

New Web Site Feature Supports New Preferred Stock Strategy

As the preferred stock market continues its recovery, the market prices of many issues are still less than $25 per share. These market conditions provide a rare investment strategy for some preferred stock investors, using the highest quality preferred stocks.

The idea is to purchase, for less than $25 per share, high quality preferred stocks that have a high likelihood of being called by the issuing company. When the issuing company of a preferred stock "calls" a preferred stock (see related discussion regarding preferred stock call dates in the ...) they are required to pay you $25 per share, regardless of the then-current price and regardless of the price you originally paid.

For this strategy to work, a preferred stock investor needs a list of preferred stocks that (a) are of the highest quality, (b) are beyond their call dates and (c) are likely to be called by the issuing company.

On November 2 we implemented a new feature on the CDx3 Notification Service web site that provides a list of about 100 preferred stocks that have exceeded their call dates to subscribers. These preferred stocks meet every other CDx3 Selection Criteria so they are very high quality issues.

While the trading symbol and description have been grayed out on this screen image to protect subscription values, you can see the example preferred stock that I have circled. Remember that the higher the dividend rate being paid by a preferred stock, the more likely the issuing company is to call it in order to stop the high dividend expense. The 8.750% example that I have circled is just the type of candidate that might be worth investigating if you are a preferred stock investor interested in this strategy.

If you could purchase this example preferred stock at, say, $23 per share, you would set yourself up for a $2 per share capital gain in the event of a call plus be earning a 9.5% annual dividend yield in the meantime.

I will have more to say about this strategy and the new CDx3 Preferred Stock catalog on the CDx3 Notification Service web site in next month's issue of the CDx3 Newsletter

 

 

 

SUBSCRIBE For Trading Symbols

 
   
 

Learn to screen, buy and sell the highest quality preferred stocks by purchasing the third 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.

Chapter 15 of Preferred Stock Investing includes a list of all of the CDx3 Preferred Stocks issued since January 2001 and the investment 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 Third 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-investment experts please have them send an email message to:

CDx3Newsletter@PreferredStockInvesting.com

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) 2009 by Doug K. Le Du

CD Times 3, CDx3, CDx3 Income Engine, CDx3 Investor, CDx3 Portfolio, CDx3 Preferred Stock, CDx3 Perfect Market Index, CDx3 Bargain Table are trademarks of Doug K. Le Du.  All rights reserved.

Company logos are trademarks of the indicated companies. Service Marks (SM) are service marks of the indicated companies.

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 Doug K. Le Du, are solely responsible for your own investment decisions.