 See the new Fifth Edition of Preferred Stock Investing at Amazon! |
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“This is the best, most complete analysis of preferred stock investing I have ever seen." Robert D., CDx3 Notification Service subscriber MORE>> |
In This Issue... | ||||||
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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.
This month's High Quality Preferred Stocks article describes how, after over two years of being distorted by the Federal Reserve, the market prices of the highest quality preferred stocks have started to return to more normal levels. Out of the 950 preferred stocks and exchange-traded debt securities that were trading on U.S. stock exchanges at the end of July 2013, our preferred stock search engine found 13 specific high quality issues selling below their $25 par value. (jump to article) The Preferred Stock News article uses two charts to explain how, for the first time this year, preferred stock buyers are demanding higher dividend yields in return for taking the same risk. Using Moody's ratings as a proxy for investment risk, the average yield of preferred stocks with Baa3 investment grade ratings ended July at 6.55 percent, an increase of 0.40 percent over the last two months. (jump to article) The Special Announcement article announces the availability of the all new 5th Edition of my book, Preferred Stock Investing. The new Fifth Edition of Preferred Stock Investing started shipping last week. I update the book every other year with the most recent preferred stock research, focusing on the conditions that preferred stock investors are expected to be facing (upward pressure on rates). Learn to screen, buy and sell the highest quality preferred stocks. (jump to article) The Preferred Stock Facts article is presented both here and on the PreferredStockInvesting.com website. Test your knowledge by clicking on any preferred stock question to see the multiple-choice answers. You will receive an automatic email that provides you with the correct answer and my explanation. (jump to article) The Free Special Offer article explains how you can now have continuing preferred stock research delivered to you for free. Why wait until next month's CDx3 Newsletter to find out what is going on in the preferred stock marketplace? Throughout the month I post regular research articles on my blog and make them available to you for free. (jump to article) Enjoy this month's issue. I look forward to reporting back to you in next month's issue of the CDx3 Newsletter. |
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13 Investment Grade, 6+ Percent Cumulative Preferreds Available Under $25 New Preferred Stock Search Engine Finds These 13 Out of 950 Alternatives High quality preferred stock market prices leveled off during July, ending the month at an average of $25.16 after falling just $0.01 per share from June's $25.17 ending value (July 26 prices). I define 'high quality' here as securities that are able to meet all ten of the CDx3 Selection Criteria from my book, Preferred Stock Investing. These ten selection criteria have not changed since the first edition of the book was published in 2006. Even though the Federal Reserve announced no change in its monetary policy after its July 30-31 meeting, preferred stock sellers who paid Fed-inflated prices over the last two years for their shares continue to look for reasons to sell. With preferred stock prices starting to return to more normal "Fed-free" levels, the list of high quality bargains available to buyers has grown. The list of high quality preferred stocks available for less than these security's $25 par value is offering higher returns at some of the best prices that we have seen for over two years. The search engine parameters seen in Figure 1 look for preferred stocks and exchange-traded debt securities (ETDs) that are currently trading below their $25 par value, pay a minimum annual dividend of at least 6.0 percent, have cumulative dividends and offer investment grade ratings from Moody's Investors Service. Purchasing shares below $25 is an important consideration for many preferred stock investors. In the event that your shares are redeemed (bought back from you) by the issuing company, shareholders will receive the security's par value in cash in exchange for their shares. By purchasing shares below their par value ($25 in most cases and in all of the cases shown here), preferred stock investors are able to add a layer of principal protection to their investment while also positioning themselves for a downstream capital gain in the event of a future call. Figure 1 shows the complete filter used to find these gems. Of the nineteen parameters that can be set, the four arrows highlight the keys for this search. Setting the "Currently priced below par" parameter to "Yes" does the magic here. In addition to finding the highest quality issues that are currently trading below their $25 par value, this filter also limits the list to issues that have not suspended their dividend payments. Setting the "Dividend rate at least" parameter (center left under the Dividends heading) to 6.0 eliminates securities with very low, variable or adjustable dividend rates. And by setting "Today's price, at least" to $0.01 and "Today's volume, at least" to 1 share the filter will exclude less liquid issues (securities that have not traded today). This is just one example. Click on the filter image to see another one along with a more detailed explanation. Figure 2 shows the results when this search is applied to our Preferred Stock ListTM database (please note that to protect the values of subscriptions to the CDx3 Notification Service, trading symbols are obscured here). Already a CDx3 Notification Service subscriber? See page 6 of the August 2013 issue of the subscriber's newsletter, CDx3 Research Notes, that you received on July 31 for symbols. There were a total of 950 preferred stocks and ETDs trading on U.S. stock exchanges as July 2013 came to a close. Of these 950, thirteen specific high quality issues are trading below their $25 par value (July 26, 2013 prices). This list is sorted by dividend rate (coupon) with the highest payers listed first. The five securities shown in green font are ETDs (bonds that trade on the stock exchange rather than the bond market and are very similar to preferred socks) while the remaining eight securities listed are preferred stocks. All have a current market price (seen in the Last Price column) that is below their $25 par value (as shown in the Liquid Price column) and enjoy an investment grade rating from Moody's (the Moody's column). Keep an eye out for sub-$25 buying opportunities such as those listed here. The lower your purchase price, the more principal protection you'll have. The preferred stocks and ETDs listed in Figure 2 are offering some of the best choices available to you as an income investor. Please consider becoming a subscriber to the CDx3 Notification Service today. Already a subscriber? The trading symbols for this example are provided on page 6 of the August 2013 issue of the subscriber's newsletter, CDx3 Research Notes.
Learn To Screen, Buy and Sell The Highest Quality Preferred Stocks
A new edition of Preferred Stock Investing is published every other year in order to keep up with current market trends and research. The new Fifth Edition addresses selecting, buying and selling the highest quality preferred stocks during the market conditions that we are expected to face throughout the remainder of 2013 and 2014 (upward pressure on rates). View: Table of Contents | Free Excerpt | Paperback | eBook Preferred Stock Investing includes the information, websites and other resources needed for you to be a very successful preferred stock investor. The Fifth Edition is now available at your favorite online retailer. For those who would rather someone else do the research and calculations, I offer the CDx3 Notification Service. Subscribers to the CDx3 Notification Service receive an email alert whenever a new preferred stock or exchange-traded debt security is introduced. Subscribers also receive their own non-promotional preferred stock research newsletter every month, have their own website that hosts the Preferred Stock ListTM database and have access to the CDx3 Discussion Group, the only online forum just for preferred stock investors. Invest in the best. Subscribe to the CDx3 Notification Service today. |
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Preferred Stocks End July Favoring Buyers Higher Reward For Lower Risk At Sub-$25 Prices For the first time this year, preferred stock buyers are demanding higher dividend yields in return for taking the same risk. Using Moody's ratings as a proxy for investment risk, the average yield of preferred stocks with Baa3 investment grade ratings ended July at 6.55 percent, an increase of 0.40 percent over the last two months. Figure 3 illustrates the risk versus reward trade-off that preferred stock investors are currently (ending July) making. Using current yield as a measure of reward, investors are now demanding 6.55 percent at the lowest Moody's investment grade level of Baa3. At the end of May 2013, these investors were demanding a 6.15 percent return at this same level of risk [1]. Each diamond on this chart represents a preferred stock or exchange-traded debt security trading on the New York Stock Exchange (see footnote [2] for the selection criteria used for this analysis). Moody's investment grade categories are indicated in bold font along the horizontal axis of the chart [3]. The yellow diamond in the center of the Baa3 stack is CTY from CenturyLink's Qwest Corporation. CTY is an exchange-traded debt security trading such that its yield falls right in the center of the pack at the Moody's Baa3 risk level, offering a 6.55 percent yield [4]. Sub-$25 Prices Favor Buyers For comparability, the securities used for this analysis all have $25 par values so the market favors buyers when these issues can be purchased for sub-$25 prices. In the event of a redemption by the issuing company, shareholders receive the $25 par value in cash in exchange for their shares so purchasing shares below that price positions the shareholder for a downstream capital gain in the event of a call (on top of the regular dividend income in the meantime). Looking at the table below the chart, notice how average market prices for these investment grade preferred stocks are now below $25, favoring buyers. For example, the 40 investment grade preferred stocks at the Baa3 risk level are providing an average yield of 6.55 percent for an average market price of $24.29. Issues and Issuers The table below the chart provides examples of securities at each level of risk. Specifically, the trading symbols are provided for the diamonds that you see at the top and bottom of each investment grade stack. A couple of years ago the securities able to qualify for this analysis would have been dominated by banks, but notice that is no longer the case in a post-Wall Street Reform Act/post-Basel III world. GRX-A from Gabelli is the only issue to qualify for this analysis with a Aaa rating, offering a 5.11 percent yield when this data was collected on Friday, July 26. At the A1 risk level, only four securities were able to qualify for this analysis, all of which are offered by General Electric Capital. GE-A (top diamond at A1) provides the highest yield at 6.39 percent while the lowest diamond at A1 is GEB, an exchange-traded debt security offering a 5.26 percent yield. The number of offerings tends to increase as we move down the investment grade scale since more companies are able to meet Moody's requirements. The A3 risk level includes 25 securities, the most generous of which is GAT, an exchange-traded debt security from Southern Company's Georgia Power Company. At A3, Comcast's CCV, another exchange-traded debt security, offers a more miserly 5.18 percent yield. Moving to Baa1, the average yield increases to 6.23 percent with AEK from AEGON leading the way at 7.18 percent. State Street's STT-C is the lowest performer at Baa1, offering 5.51 percent, hampered by its non-cumulative dividends. NextEra Energy's NEE-F is the diamond on top of the Baa2 stack offering an 8.21 percent yield. Buyers were paying $26.33 per share for this 8.75 percent coupon security last Friday. With a call date of March 1, 2014, these buyers are exposing themselves to a capital loss of $1.33 per share, hoping to make it back in dividend payments. PBI-A from Pitney Bowes is holding down the bottom of the Baa2 stack, offering a 5.12 percent yield, creating a 3.2 percent spread between top and bottom at this risk level. DRU from Dominion Resources marks the high point at Baa3. Like NEE-F, DRU offers a high coupon (8.375 percent) selling for $26.37 last Friday. With a June 15, 2014 call date, these buyers are willing to take the high risk of a capital loss, hoping that the dividend income makes it worth their while. BXP-B is offered by Boston Properties, a Boston-based property REIT. At Baa3, BXP-B is providing a 5.36 percent yield, the lowest offering seen as the bottom diamond at this risk level. Trend - Higher Return for Lower Risk The blue line seen on the Figure 3 chart is the "best fit" line. As expected, the best fit line slopes up and to the right, indicating that investors are demanding a higher reward (yield) for higher risk (Moody's rating). No surprise there. Figure 4 compares the best fit line from this same analysis as performed last May's (gray line) to the best fit line that you see in Figure 3 for July (blue line). By putting both best fit lines on the same chart, we can see how the risk tolerance of preferred stock investors has changed over the last two months. This timeframe is meaningful since it captures the price correction we saw during June. Looking at the Baa3 risk level in Figure 4, preferred stock investors who were accepting a return of 6.15 percent last May are now demanding 6.55 percent, an increase of 0.40 percent over the last two months. The June sell-off moved the preferred stock marketplace closer to the "Fed-free" market that buyers have been waiting for, delivering the best prices seen for two years for the highest quality preferred stocks available, pushing up yields accordingly. At the end of July, investment grade corporate bonds were offering a mere 4.34 percent and bank Certificates of Deposit (CDs) came in at 1.09 percent [5]. While the Federal Reserve's low-to-no interest rate policy continues to decimate savers, investment grade, U.S.-traded preferred stocks and exchange-traded debt securities continue to provide an attractive alternative to many income-oriented investors. Footnotes: [1] Source for all preferred stock data in this article: CDx3 Notification Service database and Preferred Stock Investing, Fifth Edition. The CDx3 Notification Service is my preferred stock email alert and research newsletter service and includes the database of all preferred stocks and exchange-traded debt securities traded on U.S. stock exchanges used for this article. [2] Criteria used to select securities for this article: Call-protected, trading on the NYSE, fixed-rate, non-convertible, Moody's rated, non-zero trading volume. Data date: July 26, 2013. [3] Moody's Investment Grade: Aaa, Aa1, Aa2, Aa3, A1, A2, A3, Baa1, Baa2, Baa3. Moody's Speculative Grade: Ba1, Ba2, Ba3, B1, B2, B3, Caa1, Caa2, Caa3, Ca, C. [4] The yield values seen here uses the same current yield formula that you see in your brokerage account or websites that show yield for dividend-paying securities. Current yield does not consider the potential for a future capital gain or loss but, rather, is intended to be used for comparison purposes here. Other yield formulas can be used for this analysis as well (e.g. yield-to-call, yield-to-maturity, effective annual return, etc.). For more on the strengths and weaknesses associated with the various methods for calculating the return from a preferred stock investment see the CDx3 Special Report titled "Calculating Your Rate of Return" (this is the report that you received for free when you subscribed to this CDx3 Newsletter; see the 'CDx3 Preferred Stock Newsletter Sign-Up' thank you email message that you received when you signed up for a link to the report). [5] Corporate bond yield is the average daily yield offered by investment grade corporate bonds during July 2013 (FederalReserve.gov). Bank CD interest rate is the average APY of the top ten 24-month certificates being offered by U.S. banks on July 26, 2013 (BankRate.com).
More Preferred Stock Research FROM DOUG K. LE DU Click any headline
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Fifth Edition of Preferred Stock Investing is Now Shipping! Learn How to Screen, Buy and Sell the Highest Quality Preferred Stocks
View: Table of Contents | Free Excerpt | Paperback | eBook The preferred stock market is finally starting to return to a market favoring buyers - higher dividend income available for lower prices. The new Fifth Edition has 21 chapters organized into six Parts over 334 pages. Here are some highlights: - Part I, "The Preferred Stock Market," introduces a new suite of charts and metrics specifically designed to measure and track the preferred stock marketplace. - Part III, "Buying the Highest Quality Preferred Stocks," includes several new chapters such as "Buying 'Fed-Free' Preferred Stocks," "Keeping Up with Increasing Interest Rates" and "Buying Less-Than-Perfect Preferred Stocks." - And chapter 8, "Managing the Risks," has been completely rewritten and expanded to include risks that are unique to preferred stocks during the increasing rate environment that awaits us. You can pick up a copy of the new Fifth Edition of Preferred Stock Investing at your favorite online retailer such as Amazon (paperback) or directly from BookLocker, the book's publisher (BookLocker provides paperback and PDF eBook formats). |
Chapter 17 provides the investing results for every qualifying preferred stock issued since January 2001 |
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Test Your Knowledge With These Preferred Stock Facts!
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).
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 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. |
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Chapter
17 of Preferred Stock Investing
includes a list of all of the CDx3
Preferred Stocks issued since January
2001 and the investing results you
would have achieved had you invested in
them using the CDx3 Income Engine.
Please
take a look at
www.PreferredStockInvesting.com.
And if you
know
someone who might be interested in simple
investing
for non-experts please have them
sign up for this free monthly preferred
stock research newsletter
at
www.PreferredStockInvesting.com.
They will automatically
begin receiving this monthly CDx3
Newsletter
next month (plus a
CDx3 Special Report) - all FREE. Many Happy Returns, Doug K. Le Du |
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Copyright (c) 2013 by Del Mar Research, LLC. Preferred Stock List, CD Times 3, CDx3, CDx3 Income Engine, CDx3 Investor, CDx3 Portfolio, CDx3 Preferred Stock, CDx3 Perfect Market Index, CDx3 Bargain Table are trademarks of Del Mar Research, LLC. All rights reserved. DISCLAIMER: The content of this CDx3 Newsletter is to be regarded as educational, rather than advisory. There can always be exceptions to trends and/or generalizations that may be discussed herein. Consider your financial resources, goals and risk tolerance before investing. You, and not Del Mar Research, LLC, are solely responsible for your own investment decisions.
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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.
