“The system works...I have seen nothing else of any use regarding preferred stock investing." George W., CDx3 Notification Service subscriber MORE>>
|In This Issue...|
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:
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 the pretenders, 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, 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."
This month's High Quality Preferred Stocks article explains how high quality preferred stock shares can be purchased for a market price greater than $25 (par) without having to worry about the risk of a future capital loss. The trick is to use the proceeds from a redeemed preferred stock, of which there will be a record number during July. (jump to article)
The Preferred Stock News article describes how the Federal Reserve's June 7 announcement has opened the "premature call window," making all bank trust preferred stocks callable for the 90 days that follow. The article also itemizes the TRUPS calls that preferred stock investors should look for during July and makes a suggestion about how to use the proceeds to keep the dividend income coming. (jump to article)
The Special Announcement 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 the Preferred Stock Investing Reader's Forum and make them available to you for free. (jump to article)
The Preferred Stock Facts article is presented both here and on the Preferred Stock Investing Reader's Forum. 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)
In the Free Special Offer article I offer to provide you with some of the research from my book, Preferred Stock Investing, Fourth Edition. I am making it available to brokers, financial planners and investment groups 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.
"Double-Dip" Increases Investment Grade Choices
Use Proceeds From Called Shares to Earn Double Dividends
Older preferred stocks are being redeemed by their issuing companies at a record pace. No less than 17 CDx3 Preferred Stocks (the high quality issues that meet the ten selection criteria from chapter 7 of my book, Preferred Stock Investing) are going to be redeemed during July, starting with STI-Z from SunTrust on July 11.
With all of these calls, many preferred stock investors are going to be looking to replace their called shares. The challenge at the moment is that market prices for high quality preferreds are relatively high. Buyers of such preferred stocks are seeing many prices above the $25 per share par value. Since purchasing shares above the $25 par value exposes investors to the possibility of a downstream capital loss in the event of a future call, many are rightly reluctant to purchase shares above that price point.
Many preferred stock investors are therefore currently faced with either (a) purchasing higher risk preferreds at a sub-$25 price or (b) paying above $25 for higher quality preferred stock shares.
As mentioned in the below "Preferred Stock News" article, there is a "double-dip" technique that allows a preferred stock investor to have the best of both worlds - use the proceeds from a recent redemption to purchase shares of another high quality preferred stock without realizing a net capital loss in the event of a future call.
Example of the "Double-Dip"
Let's say you own shares of BBT-B, a trust preferred stock from BB&T Corporation that has been called for July 18, 2012. BBT-B pays quarterly dividends of $0.60 per share on the first day of February, May, August and November for the quarter that just ended the prior day.
Since BBT-B has been called for July 18, BBT-B's final quarter is a partial period for which shareholders will receive a partial dividend of $0.52 per share. This final partial dividend covers the period May 1 to July 18 as shown in Figure 1.
The CDx3 Notification Service website (my preferred stock email alert and research newsletter service) provides subscribers with the ex-dividend dates of all preferred stocks and exchange traded debt securities trading on U.S. stock exchanges plus a special "Ex-Dividend Calendar" that lists the upcoming ex-dividend schedule for just the highest quality issues (see example here). Looking at the current (July 2012) schedule allows subscribers to see the upcoming ex-dividend dates for this month.
Remember, those who own shares of a preferred stock on the morning of the indicated ex-dividend date will receive the upcoming dividend payment for the entire 90 day quarter just ended, regardless of your purchase date. That means that if you use the proceeds from BBT-B's July 18 redemption to purchase shares of another high quality preferred stock that has yet to reach its ex-dividend date this month, you will receive two dividends (one from BBT-B and the second from your new shares) for the same period.
Looking at the example shown in Figure 2 (using "PFD-A" as a fictitious trading symbol for reference here), we can see that PFD-A will reach its upcoming ex-dividend date on July 25 (a week after you get the redemption cash from BBT-B).
Note: If you are a subscriber to the CDx3 Notification Service, you can find this same example, complete with the actual trading symbol, on page 6 of the current (July 2012) issue of the subscriber's newsletter, CDx3 Research Notes.
PFD-A uses the same dividend payment schedule as BBT-B. So as long as you purchase shares of PFD-A prior to its upcoming July 25 ex-dividend date, you will receive the upcoming dividend for the period May 1 through July 31. That dividend payment from PFD-A will cover the same date range (May 1 through July 18) that BBT-B has already paid you for; you get paid two dividends on the same principal. That's the double-dip.
Result of the "Double-Dip"
As illustrated by Figure 3, even though you will pay more than $25 per share for PFD-A ($25.38 in this example), you have already been reimbursed (in advance) for the risk of a future capital loss by this double dividend payment.
By using the double-dip technique as described in this example, preferred stock investors can shop for purchase candidates that are priced above their $25 per share par value, greatly increasing the number of high quality preferred stocks available to you in today's market. Just be sure that doing so is consistent with your personal goals, resources and risk tolerance.
Please consider becoming a subscriber to the CDx3 Notification Service today.
Already a subscriber? The trading symbol for this example is listed on page 6 of the current issue of the subscriber's newsletter, CDx3 Research Notes.
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. The Fourth 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 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 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.
Preferred Stock Investors About To Be Cash-Rich Thanks To New Fed Action
Cash From Redeemed Shares Can Be Used To Buy "High Quality" Preferred Stocks
Beginning on July 11, 2012, and for the 90 days that follow, preferred stock investors are going to see a significant uptick in their brokerage cash account thanks to a Thursday, June 7, 2012 announcement by the Federal Reserve.
The June 7 Fed announcement opened the "premature call window" for 90 days, triggering a multitude of trust preferred stock (TRUPS) redemptions from our publicly traded banks. With the premature call window now open (for the second time since July 2010), all bank-issued TRUPS are now redeemable regardless of the call date that is published in their prospectus.
Current Redemption Status
Companies are required to provide a minimum of 30 days notice when they redeem ("call") a preferred stock. SunTrust was the first to react on Monday, June 11, redeeming its STI-Z TRUPS for July 11, 2012. If you own shares of STI-Z, SunTrust is going to buy your shares back from you on that date, the proceeds showing up in your brokerage cash account.
Citi and JP Morgan were quick to act as well with TRUPS redemptions (see list: Citi | JP Morgan). Citi is redeeming just under $5 billion of their TRUPS while JP Morgan is calling $9 billion worth.
The following day KeyCorp prematurely called KEY-F ($0.7 billion) for July 12 followed by BB&T Corporation on Wednesday, June 18 calling BBT-A, BBT-B and BBT-C (valued at $3.1 billion) for July 18.
Bank of America, with over 70 preferred stocks, weighed in on Friday, June 22, calling 11 TRUPS (see list) for July 25, 2012 valued at $3.9 billion in response to the Fed announcement.
PNC Financial (PNC) was the last June announcement, the bank redeeming PNH and NCC-C for July 30, 2012. These two TRUPS redemptions will deliver another $1 billion into the cash accounts of preferred stock investors during July.
Standard TRUPS prospectus language allows banks to redeem their TRUPS, regardless of their published call dates, within a 90 day period following a "capital treatment event" (which the Fed's June 7 announcement was).
TRUPS Redemptions Will Push Up Short-Term Prices
Because these TRUPS redemptions are being triggered by the same June 7, 2012 event, many billions in cash are going to land in the cash accounts of preferred stock investors within the 90 day period beginning on July 11 with STI-Z shareholders.
High quality preferred stock market prices have been relatively high this year, initially caused by several simultaneous redemptions of very widely held REIT-issued preferred stocks. During the second quarter, investors fleeing eurozone assets added additional upward price pressure on high quality U.S. assets.
Going into the third quarter, the Fed's June 7 announcement is going to create a large group of suddenly cash-rich preferred stock buyers, beginning July 11 and for the 90 days that follow, all looking to replace their redeemed shares simultaneously. Consequently, while it is not possible to know in advance with certainty, preferred stock investors should expect additional short-term upward pressure on the market prices of preferred stocks beginning July 11, 2012 that would not have been there otherwise.
What's A Buyer To Do?
During this period of high prices, preferred stock buyers are frequently faced with having to pay a market price above $25 (par) in many cases.
Paying a market price above $25 per share, while increasing the number of alternatives available to pick from, can expose you to the risk of realizing a capital loss in the event of a downstream call (since shareholders will receive $25 from the issuing company in that event).
But what if someone else reimburses you for that risk?
One way to help mitigate the risk of a capital loss that comes with purchasing shares above $25 is to use the "double-dip" technique.
Those holding shares of a redeemed preferred stock receive a final dividend payment for the final quarter through the redemption date. By using the proceeds from the redeemed shares to purchase a preferred stock that has a dividend payment for the same period coming up, the shareholder gets paid twice for the same period on the same principal.
The above "High Quality Preferred Stocks" article provides an example of how to do this.
As TRUPS redemption dates arrive between July 11 and early-October, tens of billions of new dollars are going to be distributed to preferred stock investors. These cash-rich buyers are going to enter the market during the same 90 day period looking to replace their called shares and, hence, put additional upward pressure on preferred stock market prices. By using the double-dip technique, a preferred stock investor can be reimbursed for the risk of a downstream capital loss when purchasing shares above $25.
 There are exceptions to the 90 day limitation language. Some banks removed this limitation from their TRUPS prospectuses when the securities were originally issued. TRUPS without the 90 day limitation language in their prospectus become callable, and remain callable, whenever a "capital treatment event" occurs. Check the prospectus to see if your TRUPS shares will remain callable beyond the 90 days following June 7, 2012.
 "High quality" preferred
stocks are those that meet the ten risk-lowering selection criteria
from chapter 7 of my book, Preferred Stock Investing. For
example, high quality preferred stocks have investment grade ratings
and the cumulative dividend requirement.
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.
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).
Brokers And Investment Groups: Free 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.
to screen, buy and sell the highest
quality preferred stocks by
the Fourth 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
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 Fourth Edition
of the book is in print.
take a look at
And if you
someone who might be interested in simple
for non-experts please have them send an email
they will automatically
begin receiving this monthly CDx3
next month (plus a
CDx3 Special Report) - all FREE.
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 Fourth 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) 2012 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.