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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:
This month's High Quality Preferred Stocks article describes how preferred stock market prices have been falling back toward their more normal levels. Out of the 981 preferred stocks and exchange-traded debt securities that were trading on U.S. stock exchanges at the end of December 2012, 32 specific issues with Moody's investment grade ratings were trading below their $25 par value. That's a substantial improvement over the 24 such securities at the end of November - great news for buyers. (jump to article)
The Preferred Stock News article explains why 2013 should be relatively positive for preferred stock buyers, especially in light of the miserly alternatives being offered to risk-averse, income-oriented investors. Buyers should watch for modestly higher yields at slightly better market prices with little or no threat of increasing interest rates. (jump to article)
The Special Announcement article announces a new and very powerful subscription program for preferred stock investors. Our Preferred Stock ListTM database and search engine, long enjoyed by subscribers to our comprehensive CDx3 Notification Service, is now available as a separate subscription for do-it-yourself investors. The database includes last trade price, today's trading volume, current yield, ex-dividend dates and much more, all of which can be sorted, downloaded and printed at any time. You can create and save your own filters and watchlists of trading symbols, too. (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)
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.
32 Investment Grade Preferreds Available for Less Than $25
Falling Preferred Stock Prices Produce More Choices for Preferred Stock Buyers
Out of the 981 preferred stocks and exchange-traded debt securities that were trading on U.S. stock exchanges at the end of December 2012, 32 specific issues with Moody's investment grade ratings were trading below their $25 par value (December 28, 2012 prices).
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 32 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.
Preferred stock prices are finally starting to fall back to more normal levels. The high prices that we have seen all year began falling toward their par values during the last quarter of 2012, which is great news for buyers. At the end of September, there were 18 investment grade preferreds available below $25; 19 by the end of October and 24 when November came to a close. On December 28, 2012 there are 32.
This price movement has largely been due to (1) progress toward stability in the eurozone, (2) the 'fiscal cliff' panic (which will reemerge dressed as the debt ceiling panic over the next few weeks) and (3) the large number of new preferred stock issues introduced during Q4 trading very close to their opening par values.
During November several European countries conducted very successful bond sales, indicating that investors were more than willing to return to those assets (see Bloomberg article for data). Watch for lower preferred stock prices here as European financial leaders continue to make progress there.
Figure 1 shows the complete filter used to find these gems. Of the nineteen parameters that can be set, the two arrows highlight the keys for this search. Setting the "Currently priced below par" parameter to "Yes" does the magic here.
In addition to finding securities with Moody's investment grade ratings that are currently trading below their $25 par value, this filter also limits the list to just issues that are trading on the New York Stock Exchange (NYSE) and have not suspended their dividend payments.
Setting the "Dividend rate at least" parameter (center left under the Dividends heading) to a 1 eliminates securities with 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 January 2013 issue of the subscriber's newsletter, CDx3 Research Notes, that you received on December 30 for symbols.
The eight 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 24 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).
Many, including the Federal Reserve, think that rate increases are likely to still be a ways off and that any such future increase is likely to be extremely gradual. If you feel that they are probably right, then 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 January 2013 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 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.
The Preferred Stock Marketplace For 2013
Fewer Redemptions and EU Stability Mean Better Market Prices and Moderately Higher Yields
As 2013 unfolds, preferred stock investors looking for moderately higher yields available at better market prices should not be disappointed.
Over the last year, the marketplace for preferred stocks has been characterized by relatively high prices, a bumper crop of new issues, redemptions of older issues and bank-issued trust preferred stocks (TRUPS) and relatively stable but lower yields than have historically been the case.
This Preferred Stock Market Snapshot chart depicts the preferred stock marketplace at the end of 2012 (December 28, 2012) along with two characteristics that are usually high on the list of considerations for risk-averse preferred stock investors - current market price (above and below these securities' $25 par value) and investment risk (as reflected by investment grade versus speculative grade Moody's ratings).
Each diamond on the chart represents a qualifying preferred stock . An example is highlighted in blue within each of the four quadrants: GEB from General Electric Capital, JPM-D from JPMorgan, WFC-O from Wells Fargo and GS-I from Goldman Sachs. Each of these examples (which are not intended as recommendations) are widely held non-TRUPS and are call-protected until 2017, meaning that they do not reach their respective call dates for several years.
Trends can be identified by comparing this ending-Q4 chart with earlier 2012 quarterly iterations of this analysis (ending-Q2 here | ending-Q3 here).
Trend: Investment Grade Available For Less Than $25 Par
Preferred stocks that carry investment grade ratings and are trading for a market price below their $25 par value represent the sweet-spot for many preferred stock investors (green, lower left). During Q4, the number of choices here increased to 36, up from 25 three months earlier (note that this Snapshot chart includes preferreds trading on all U.S. stock exchange except the Over-The-Counter exchange, whereas the 32 preferreds itemized in Figure 2 include those trading on the NYSE only).
Further, the average market price of these 36 investment grade preferreds was $24.39, down $0.30 per share from the ending-Q3 value.
Trend: Market Prices Are Moving Toward Par
In good news for buyers, preferred stock market prices dropped during the fourth quarter of 2012, falling to an average $25.44 per share overall from $25.70 three months earlier.
While we saw those favoring European assets flee to U.S. preferred stocks earlier in the year (driving up prices here), the much publicized "fiscal cliff" panic throughout the fourth quarter sent many such investors back to the EU (lowering prices here).
Trend: Lower Yields
As December came to a close, the U.S. preferred stock market is offering investors an overall average yield of 6.55%, a drop from 6.93% at mid-year, largely due to the diluting effect of a bumper crop of new issues that were introduced throughout Q4 with somewhat lower dividend rates.
The Federal Reserve's low-to-no interest rate monetary policy continues to decimate savers. With bank CDs offering a mere 1.1% and investment grade corporation bonds coming in at 3.7% , the average 6.55% yield now being offered by preferred stocks may not look so bad.
Looking to 2013
While it is not possible to know with any certainty what the future preferred stock marketplace holds for preferred stock investors, here are some of the specific activities worth paying attention to as 2013 unfolds:
- Interest Rates: Income-oriented investors fear interest rate increases since such upward movement in rates tends to push the value (prices) of their holdings down (see related article). In an early December announcement, the Federal Reserve stated that it does not intend on increasing interest rates until unemployment realizes a substantial improvement, dropping to 6.5% from its current 7.7% (source: U.S. Bureau of Labor Statistics). In order to keep up with the organic growth in the workforce, let alone gain ground, the U.S. economy needs to add about 200,000 new jobs per month (source: Atlanta Federal Reserve), which has only happened a few times over the last several years. If the Fed sticks to their newly announced policy, it would be surprising if interest rates see much upward pressure during 2013.
- Redemptions (calls): When widely held preferred stocks are redeemed (called), a large group of preferred stock investors enters the market as buyers, looking to replace their shares. We saw the resulting spike in preferred stock market prices earlier in 2012 when redemptions were occurring almost daily. Going into 2013, however, redemptions of older non-bank preferred stocks will come to a crawl as we have now entered the "Redemption Gap" through 2015 (see related article).
- Prices: European investors returning to EU assets, selling their U.S. preferred stock positions here, puts downward pressure on prices. Progress in Europe means lower market prices for U.S. preferred stocks. Also, fewer redemptions means fewer buyers entering the market, relieving upward pressure on prices.
- Dividend Rates and Yields: The boost in yields delivered by those returning to EU assets and fewer preferred stock redemptions should put upward pressure on the dividend rate offered by new preferred stocks issued by U.S. companies throughout 2013. But improvements will be limited by the continuation of the Federal Reserve's low-rate monetary policy. To the extent that lower prices materialize during 2013, look for commensurately higher dividend yields.
- Trust Preferred Stocks (TRUPS): Bank-issued TRUPS, once the dominant player in the high quality preferred stock marketplace, will approach extinction as new domestic (Wall Street Reform Act) and international (Basel III) regulatory requirements kick in (see related article). REIT-issued preferreds will dominate the investment grade, cumulative offerings going forward.
- LIBOR manipulation scandal: What started out as a story about bad behavior could very well turn into much more for many variable rate preferred stock shareholders. Dividends paid by variable rate preferred stocks are often tied to the LIBOR which, as we are coming to find out, was being manipulated (downward) by the banks involved in setting this benchmark rate (probably since 2005). Several of these same banks issue variable rate preferreds tied to the very same LIBOR rate that they were manipulating. First, the U.K.'s Barclays bank was fined $450 million only to be followed in December by a $1.5 billion fine against Swiss bank UBS. Reports now say that the Royal Bank of Scotland is next with several more to come (see related BBC article).
2013 should be relatively positive for preferred stock buyers, especially in light of the miserly alternatives being offered to risk-averse, income-oriented investors. Buyers should watch for modestly higher yields at slightly better market prices with little or no threat of increasing interest rates.
 Preferred stocks and exchange-traded debt securities used for this chart include those that:
- have a par value of $25.00;
 Bank CD interest rate is the average APY of the top ten 24-month certificates being offered by U.S. banks on December 27, 2012; source: bankrate.com. Corporate bond yield is the average daily yield offered by investment grade corporate bonds during December 2012; source: federalreserve.gov.
More Preferred Stock Research
FROM DOUG K. LE DU
Click any headline
January 1, 2013: New Preferred Stock Database and Search Engine Now Available
Preferred Stock ListTM System Designed for Do-It-Yourself Investors
On January 1, 2013 our all new PreferredStockInvesting.com website introduced a new and very powerful subscription program for preferred stock investors.
Our Preferred Stock ListTM database and search engine, long enjoyed by subscribers to our comprehensive CDx3 Notification Service, is now available as a separate subscription for do-it-yourselfers. The database includes all preferred stocks and exchange-traded debt securities trading on U.S. exchanges while the Create Your Own Filter search engine feature allows you to define your own filters when looking for specific issues. You can even save your filters for later use.
Our database includes last trade price, today's trading volume, current yield, ex-dividend dates and much more, all of which can be sorted, downloaded and printed at any time. You can create and save your own watchlists of trading symbols, too.
And the Preferred Stock ListTM system, now available as a separate subscription, runs completely within your web browser which means there is no software to install onto your computer whatsoever (Windows or Mac).
The Create Your Own Filter search engine is extremely powerful. The sample seen here generates a list of Moody's investment grade, cumulative REIT preferreds and exchange-traded debt securities that are not yet callable, are trading on the NYSE and are currently priced below their $25 par value. The combinations are endless.
Our two subscription programs as described in detail at PreferredStockInvesting.com now include:
(1) our comprehensive CDx3 Notification Service - includes the Preferred Stock ListTM system, email alerts of new preferred stocks and exchange-traded debt securities, one-click Hotlists of the highest quality preferred stocks, monthly subscriber's newsletter, access to experts through our online discussion group and much more; and
(2) as of January 1, 2013, the Preferred Stock ListTM system itself - includes our Preferred Stock ListTM database and search engine. This new subscription program is great for do-it-yourselfers!
Please consider subscribing to the comprehensive CDx3 Notification Service or to our Preferred Stock ListTM system, now available separately, today.
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) 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.