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April 2011 Update to Preferred Stock Investing Now Available!
Readers of Preferred Stock Investing, Third Edition, are entitled to free periodic updates to the preferred stock tables presented throughout chapter 15 of the book as long as the Third Edition is in print. Providing free periodic updates helps keep readers of Preferred Stock Investing up to date.
The April 2011 update to Preferred Stock Investing is now available!
Specifically, the April 2011 update to the Third Edition of Preferred Stock Investing includes updates to the following chapters:
Chapter 4, "The Global Credit Crisis": how the CDx3 Income Engine performed during the Global Credit Crisis for CDx3 Investors;
Chapter 15, "Results - How You Would Have Done": the list of CDx3 Preferred Stocks issued during 2009 and 2010 plus an update to the tables of previously issued CDx3 Preferred Stocks that were sold during 2010 when the market for CDx3 Preferred Stocks returned to one favoring sellers; and
Chapter 18, "The CDx3 Notification Service": five new preferred stock investing resources have been provided to subscribers to the CDx3 Notification Service (my preferred stock email alert and research newsletter service) since the Third Edition was published.
Preferred Stock Investing, Third Edition is one of the most highly reader-rated books of any kind available for sale in the United States (Amazon 4 stars). To receive the free April 2011 update to Preferred Stock Investing, Third Edition just follow the instructions on the first page of chapter 15 in the book.
If you have yet to pick up your copy of Preferred Stock Investing, Third Edition you can do so at any of your favorite online retailers (see retailers | see reader reviews). Please pick up your copy today then follow the instructions on the first page of chapter 15 to download the free April 2011 update.
Just Posted On The Preferred Stock Investing Reader's Forum: On April 21, 2011 BB&T Corporation CEO Kelly King stood in front of an audience of shareholders at their annual meeting and announced that BB&T would be retiring its trust preferred stocks (TRUPS) in order to comply with the 2010 Wall Street Reform Act. My post on the Preferred Stock Investing Reader's Forum (my blog) explained why this under-reported announcement is very important to preferred stock investors. (jump to Forum)
The Last Month's CDx3 Investor Results article explains how a unique sequence of events that started in 2003 has resulted in a swollen inventory of high quality preferred stocks available to preferred stock buyers. The article itemizes 32 high quality preferred stocks that are available right now (April 29) for under $25 per share. (jump to article)
The Special Announcement article provides you with more details regarding BB&T Corporation's April 21 announcement that the Big Bank will be calling all of its trust preferred stocks (TRUPS) as the issues become callable starting in 2013. The announcement makes BB&T the first Big Bank to officially deliver the Big Bank TRUPS opportunity first described in the July 2010 issue of this CDx3 Newsletter. This month's list of Big Bank TRUPS identifies seven of the highest rated, highest quality trust preferred stocks still trading for less than $25 per share. Secondly, I have summarized some of the research from my book, Preferred Stock Investing, Third Edition, and am making it available to brokers, financial planners and investment groups for free. (jump to article)
In the CDx3 Company Spotlight article I introduce you to BB&T Corporation, a $19 billion regional bank that traces its beginning back to post-Civil War recovery efforts in 1872. BB&T has become the nation's ninth largest bank through an incredible acquisition strategy. This article provides BB&T's impressive list of acquisitions since 1997. (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's question - "What is a trust preferred stock?" (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 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: 36 new preferred stocks issued by a wide range of businesses have been issued so far this year. The highest rated, highest quality issues have come from real estate-related companies (REITs) but it is starting to look like banks are about to re-enter the preferred stock market. With TARP repayment and regulatory uncertainty fading in the rear view mirror, look for regional banks to issue new high quality preferred stocks as soon as next month. (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.
32 High Quality Preferred Stocks Now Available For Less Than $25
Fewer Share Calls Boosts Preferred Stock Choices For Buyers
Thanks to a very unique sequence of events market conditions have not favored calls since 2003 so investors are treating callable preferred stocks no differently than issues that are not yet callable. Almost every high quality preferred stock issued since 2003 is still trading, increasing the number of choices available to preferred stock buyers.
The lack of call conditions has provided preferred stock buyers with this list of 32 high quality preferred stocks available right now for less than $25 per share (note that in order to protect the value of subscriptions to the CDx3 Notification Service, my preferred stock email alert and research newsletter service, trading symbols are not provided here. But this is real data gathered on April 29).
All of these preferred stocks are issued by companies that have never suspended a preferred stock dividend, are rated investment grade and have the 'cumulative' dividend provision (meaning that in the unlikely event that the issuing company skips a dividend payment to you, they still owe you the money; their obligation to you accumulates).
Preferred stocks become callable by the issuing company five years after they are introduced. Conditions will favor calls when today's "going dividend rate" is lower than preferred stock dividend rates from five years ago. That would allow the issuing company to issue a new preferred stock at today's lower rate and use the proceeds to call (buy back from you at $25 per share) the older more expensive issue. They "refinance."
But take a look at the interesting sequence of events that has unfolded over the last several years. These events have produced an dramatic increase in the choices available to preferred stock buyers.
The high quality preferred stocks that were issued during 2001 became callable five years later in 2006. Looking at this chart, you can see that the average dividend rate in 2006 was much less than the 2001 rate so almost all of the high quality preferreds issued during 2001 were called during 2006.
Same for 2002 issues; dividend rates in 2007 were low enough to trigger calls for 17 of the 27 high quality preferred stocks issued during 2002. But that’s where it ended.
2003 and 2004 issues became callable in 2008 and 2009, respectively, right in the teeth of the Global Credit Crisis when dividend rates hit record highs. No calls there.
2005 issues, with an average dividend rate of about 6.9% became callable in 2010, but, looking at the chart, rates came back down in 2010 to 6.8%. Issuing a new preferred stock at 6.8% in order to retire an older issue costing the issuing company 6.9% did not generate enough savings to trigger calls of the 2005 preferred stocks.
Because of this unique multi-year sequence of events, almost every high quality preferred stock issued since 2003 remains available.
For that to change, today's "going dividend rate" of 6.9% has to fall before we start seeing more calls. But, with the federal funds rate currently at zero, nobody is talking about interest rates going any lower. So preferred stock buyers should continue to have an inflated inventory to pick from such as this list of 32 high quality issues selling for less than $25 per share.
Subscriber's to the CDx3 Notification Service (my preferred stock email alert and research newsletter service) were provided with this same list, including the trading symbols, on page 4 of this month's issue of the subscribers' newsletter, CDx3 Research Notes. Please consider becoming a subscriber to the CDx3 Notification Service today (take a tour of the all new Version 4 subscriber's website, implemented during April 2011).
Learn To Screen, Buy and Sell The Highest Quality Preferred Stocks
Preferred Stock Investing includes the information, websites and other resources needed for you to be a very successful preferred stock investor. 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 when there are buying and selling opportunities coming up. Subscribers also receive their own non-promotional preferred stock research newsletter every month, have their own website that hosts the CDx3 Preferred Stock Catalog and have access to the CDx3 Discussion Group, the only online forum just for preferred stock investors.
BB&T Becomes First To Deliver On 'Big Bank TRUPS' Opportunity
7 Big Bank TRUPS Still Available For Less Than $25 Per Share, 7% Average Yield
The Big Bank Trust Preferred Stock (TRUPS) opportunity first reported to you here in July 2010 is starting to come to fruition as our Big Banks are starting to turn their unofficial statements into official announcements to shareholders.
Triggered by the 2010 Wall Street Reform Act, there are actually three opportunities here for preferred stock investors. And it is not too late to participate as the seven Big Bank TRUPS listed in this table illustrate (note that in order to protect the value of subscriptions to the CDx3 Notification Service, my preferred stock email alert and research newsletter service, trading symbols are not provided here. But this is real data gathered on April 29).
If you are unaware of the Big Bank TRUPS opportunity created by the 2010 Wall Street Reform Act please read this article from the July 2010 issue of the CDx3 Newsletter for the whole story. The short version is that the Act changes the formula of a key measurement of bank reserves called Tier 1 Capital, effective January 1, 2013. Starting on that day, Big Banks (assets greater than $15 billion) will no longer be able to count TRUPS that they have issued toward this key metric of reserves. Since boosting that reserve calculation was the primary reason that these Big Banks issued these TRUPS to begin with, the Act makes it extremely likely that these Big Banks will retire (buy back from shareholders) these TRUPS as their call dates arrive, beginning January 1, 2013. In that event, shareholders will receive $25.00 per share from the issuing bank.
Opportunities Created By The Act
By limiting your purchase candidates to just the highest quality preferred stocks to begin with (i.e. those Big Bank TRUPS that are able to meet the ten CDx3 Selection Criteria from chapter 7 of my book, Preferred Stock Investing), the Act created the following opportunities for preferred stock investors who are able to purchase shares today for less than $25.00 (such as the seven itemized in this table):
(1) added principal protection for preferred stock investors purchasing Big Bank TRUPS shares for less than $25.00 per share (since the Act makes a call more likely, the risk of principal loss is less likely for such investors);
(2) adding a capital gain to the great dividend income once the issuing Big Bank calls the issue and purchases your shares back from you (in the event of a call, all shareholders who paid less than $25 per share will earn a capital gain); and
(3) a wave of brand new, very high quality, traditional preferred stocks beginning in early 2013 for preferred stock buyers to pick from (banks will most likely issue new traditional preferreds, which the Act still allows, and/or bonds in order to raise billions in cash for these calls).
During April we received the first public confirmation that the Big Bank TRUPS opportunity first described in our July 2010 newsletters (this free CDx3 Newsletter and the subscriber's newsletter, CDx3 Research Notes) is starting to come to fruition.
Update - BB&T Corporation Makes It Official
On April 21, 2011 BB&T Corporation, our ninth largest bank, announced that, to comply with the 2010 Wall Street Reform Act, it will be calling its $3.2 billion worth of trust preferred stocks as their call dates start to arrive in 2013. The announcement (summarized in this Bloomberg article) makes BB&T the first Big Bank to deliver on the Big Bank TRUPS opportunity created by the Act.
BB&T will be paying shareholders of their TRUPS $25.00 per share as the call dates for these securities arrive, beginning in 2013 (dividends will continue to be paid every quarter until then).
The preferred stock investing method described throughout my book, Preferred Stock Investing, shows how preferred stock investors are able to purchase preferred stock shares for less than $25.00 per share. If you own shares of BB&T trust preferred stocks and paid less than $25.00 for them, congratulations! As their call dates arrive, you are going to be piling a nice capital gain on top of the great dividend income that these securities provide.
Time To Start Paying Attention
If you paid more than $25 for your shares, it is time to start paying attention to the market price. Be very careful here. The Rule of Call Date Gravity (Preferred Stock Investing, page 59) states that if market conditions favor a call, the market price of a CDx3 Preferred Stock will tend toward $25.00 per share as the call date approaches. You do not want to get caught flatfooted and end up taking a capital loss that offsets the dividend income that you've been earning.
Pay particular attention to the market price of these securities in the days following each quarterly ex-dividend date. Per the Rule of Buyer/Seller Behavior (Preferred Stock Investing, page 43), the market price will tend to be lowest for the quarter at that point in time. You might want to set up an alert in your online brokerage account that sends you an automatic email message if the market price approaches your purchase price.
Preferred Stock Investing makes this point over and over but it bears repeating here - to enjoy the benefits of additional principal protection and a potential downstream capital gain, avoid paying more than $25 per share for your CDx3 Preferred Stocks.
Brokers And Investment Groups: New Meeting Materials Now Available
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 an email request to:
You will receive an auto-reply email message with current download instructions.
Who Are These Companies That Issue CDx3 Preferred Stocks?
BB&T Corporation (NYSE: BBT)
BB&T Corporation is a $19 billion regional bank holding company. Branch Banking and Trust traces its history to 1872. BB&T is headquartered in Winston-Salem, North Carolina. A series of key acquisitions over the past several years has left BB&T the nation's ninth largest bank. BB&T is also showcased in the Special Announcement article above.
One of BB&T's most memorable moments in recent history was provided by long-time (but now former) CEO John Allison in September 2008 just as the Treasury's TARP program was taking shape. BB&T was one of the Big Banks that was required to volunteer for TARP funds by Treasury as a cover for Citi (among others). Blistering hot at this intervention, Allison wrote a now famous letter to Congress explaining exactly what he thought of the circumstances. BB&T took the TARP money as required then repaid it a few months later. You can read Allison's letter here.
BB&T was established in post-Civil War North Carolina by private investors to help rebuild the farms and small business in the area. Co-founder Alpheus Branch joined with Thomas Jefferson Hadley, who was trying to put together financing for public schools at the time, to form the Branch and Hadley bank. The first 'B' in BB&T still refers to its original founder.
Recent acquisitions include Fidelity Federal Bankshares and Virginia First Financial (1997); Maryland Federal Bancorp and Franklin Bancorporation (1998); Mainstreet Financial First Citizens, Mason-Dixon Bancshares, Matewan Bancshares and First Liberty (1999); Premier Bancshares, Hardwick Holding Company, First Banking Company of Southeast Georgia, One Valley Bancorp and BankFirst Corp. (2000); FCNB Corp., FirstSpartan Financial, Century South Banks, Virginia Capital Bancshares, F&M National Corp. and Community First Banking Company (2001); MidAmerica Bancorp, Area Bancshares and Regional Financial Corporation (2002); Equitable Bank and First Virginia Banks (2003); Republic Bancshares (2004); Main Street Banks and First Citizens Bancorp of Cleveland, Tennessee (2006); Coastal Financial (2007); Haven Trust Bank of Atlanta (2008) and Colonial Bank of Montgomery (2009).
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. Companies can issue multiple series of preferred stocks, some of which may meet the CDx3 Selection Criteria while others do not.
What is a Trust Preferred Stock (TRUPS)?
There are three types of preferred stock - traditional preferred stock, trust preferred stock and third-party trust preferred stock. Other terms that you may hear (such as "cumulative preferred stock" or "convertible preferred stock") refer to characteristics of the preferred stock or its dividends, not the type.
A cumulative preferred stock is a traditional, trust or third-party trust preferred stock whose dividends are cumulative; a convertible preferred stock is a traditional, trust or third-party trust preferred stock whose shares are convertible to the company's common stock at some point in time or under certain conditions.
But there are only three types of preferred stock. From the investor’s perspective, there is very little difference. The difference exists to accommodate various reporting needs of the issuing company.
The question this month for preferred stock investors:What is a trust preferred stock?
(A) A type of preferred stock that allows the issuing company to
treat the dividend expense as a tax deduction.
(C) A type of preferred stock that the 2010 Wall Street Reform Act removes from the calculation of bank reserves.
(D) All of the above.
The correct answer to this question is (D), all of the above.
Enron made trust preferred stock (TRUPS) famous by taking advantage of a loophole (closed in 2003). Since then, for reasons that I will explain in a moment, only banks issue TRUPS but that is coming to an end as well.
When a company issues a trust preferred stock (TRUPS), they first set up a new company (the trust). That trust sells the TRUPS shares to the investing public and loans the proceeds back to the issuing (parent) company. The issuing company, in exchange for this loan from the trust, issues a bond (usually a “junior subordinated debenture”) to the trust, which is a promise to pay back the loan plus interest.
As the issuing company makes interest payments to the trust, the trust uses that cash to pay dividends to the investors who purchased the TRUPS shares from the trust. The trust is essentially a middleman, collecting cash interest payments from the issuing company and passing that cash on to investors in the form of dividend payments. The IRS collects taxes from the trust on the interest income that the trust received from the issuing company...unless the issuing company locates the trust offshore beyond the reach of the IRS in, say, the Turks & Caicos (which Goldman Sachs, at the time, set up for Enron). Bingo, no taxes.
Also, reporting the TRUPS as “equity” on the company’s books, along with other common and preferred stocks, lowers the company’s all important “debt-to-equity” ratio, making the company’s SEC filings look more attractive to investors.
And for banks, the value of the TRUPS, right along with the value of the bank's traditional preferred stock, was allowed to be counted toward the bank's reserves watched by regulators (Tier 1 Capital).
So TRUPS’s provided a double benefit to their issuing companies – lower taxes plus stronger SEC filings. Plus, for banks, the third benefit of boosting their regulatory reserves.
New accounting rules in 2003, however, required the issuing company to pay taxes on the interest payments sent to the trust and the TRUPS shares issued by the trust are now required to be reported as a liability on the parent company’s books rather than as equity.
More recently, the 2010 Wall Street Reform Act goes a step further and disallows the counting of TRUPS as Tier 1 Capital which should effectively eliminate the issuance of new TRUPS by banks.
You can submit your own preferred stock question: 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 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.
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.
You are also invited to visit the Forum and comment on my articles.
36 New Preferred Stocks Introduced So Far This Year
Regional Banks Said To Be Preparing New High Quality Issues
There are currently 1,077 preferred stocks trading on U.S. stock exchanges with 36 new issues introduced so far this year. There are usually 1,000 to 2,000 preferreds trading, depending on the rate of new issues, calls and maturities, so 1,077 is actually on the low side.
We have seen new issues from a variety of industry segments, from Goodyear Tire & Rubber Company to technology firm Unisys Corporation. Seaspan Corp., a very interesting shipping company that's actually not in the shipping business, even got into the act with a new offering. This outfit desperately needs to diversity its customer base beyond China before it will attract an investment grade rating however.
In terms of high quality issues Real Estate Investment Trusts (REITs) have led the way so far this year but look for that to change. Some pretty good information is saying that banks are going to be introducing new high quality traditional preferred stocks, starting with regional banks as soon as next month.
As banks get clear of their TARP obligations, attentions have turned toward raising Basel III-compliant capital and that points directly to either more bonds or new traditional preferred stock issues. According to an analysis by Zack's posted to the CDx3 Reading List on the CDx3 Notification Service website, we will see a new regional bank-issued preferred stock within the next few weeks. And it appears that this new issue will meet all ten of the CDx3 Selection Criteria from chapter 7 of Preferred Stock Investing.
Dividend yields for the highest quality CDx3-compliant preferred stocks are running right around 7%. These are preferred stocks issued by companies that have never missed a preferred stock dividend payment, have investment grade ratings and carry the "cumulative" dividend requirement (if the issuing company misses a dividend payment to you they still owe you the money; their obligation to pay you accumulates).
Beyond the usual activity from REITS and others, preferred stock investors should look for new high quality preferred stocks issued by regional banks.
Thank you very much for your interest in my research. As always, I look forward to reporting back to you in next month's issue of the CDx3 Newsletter.
to screen, buy and sell the highest
quality preferred stocks by
the third edition of my book, Preferred
Stock Investing (see
retailers). The book identifies
the resources that you need to be a very
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your own. If you would rather we do the
research and calculations for you I
CDx3 Notification Service
15 of Preferred Stock Investing
includes a list of all of the CDx3
Preferred Stocks issued since January
2001 and the investing results you
would have achieved had you invested in
them using the CDx3 Income Engine.
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.
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Chapter 15 of Preferred Stock Investing includes a list of all of the CDx3 Preferred Stocks issued since January 2001 and the investing results you would have achieved had you invested in them using the CDx3 Income Engine.
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-experts please have them send an email message to:
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) 2011 by Doug K. Le Du
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 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.