One of the highest reader-rated books in the United States.

 

See the new Fifth Edition of Preferred Stock Investing at Amazon!

   
 

“The vetting of possible preferreds is invaluable and saves research time...your preferred stock screener is the most comprehensive.” Jim T., CDx3 Notification Service subscriber   MORE>>

In This Issue...

High Quality Preferred Stocks

Preferred Stock News

Special Announcement

Preferred Stock Facts

FREE Special Offer

   
 

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.

 


Quick Summary

This month's High Quality Preferred Stocks article describes how the market for the highest quality preferred stocks now favors buyers. Of the ten high quality preferred stocks selling for a sub-$25 market price, two offer a current yield of at least 7 percent. Out of the 933 preferred stocks and exchange-traded debt securities that were trading on U.S. stock exchanges at the end of March 2014, our preferred stock search engine found ten specific high quality issues selling below their $25 par value. (jump to article)

The Preferred Stock News article lists the 23 preferred stocks that are most affected by the LIBOR manipulation scandal. On March 14, the FDIC charged HSBC and 15 other banks. In 2005, HSBC introduced two new variable-rate preferred stocks that use the LIBOR to set the dividend rate paid to shareholders. The FDIC has charged that while doing so, the bank was also manipulating that same LIBOR rate, cheating preferred stock investors. (jump to article)

The Special Announcement article announces the availability of the 5th Edition of my book, Preferred Stock Investing. 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.

Doug K. Le Du

I am a preferred stock researcher and author of the book titled Preferred Stock Investing. I am also a syndicated writer for the popular investing venues Seeking Alpha and Motley Fool. I write three monthly newsletters that describe my ongoing preferred stock research. One newsletter, titled Preferred Stock List, is published by PortfolioChannel.com while the other two newsletters (CDx3 Newsletter and CDx3 Research Notes) are published by me directly to my readers/subscribers.

My academic background is in economics and statistics. I retired from my position as Managing Director at one of the world's largest management consulting firms in 2002 to focus on preferred stock research. I do not sell preferred stocks nor am I a stock broker or financial adviser. As a researcher, I research the market price behavior of the highest quality preferred stocks and write to you about my observations.

 

   
 

10 Investment Grade, 6.5+ Percent Cumulative Preferreds Available Under $25

Preferred stock search engine finds these ten out of 933 alternatives

With a sub-$25 average price, the market for the highest quality preferred stocks favors buyers. Of the ten highest quality preferred stocks selling for a sub-$25 market price, two are offering a current yield of at least seven percent.

As rates and prices move up and down over time, buyers buy when rates increase and prices fall below par ($25 per share in this case). Sellers sell those shares when rates fall again, pushing prices back above their original purchase price, enjoying seven percent (long-term average) dividends in the meantime.

This is why preferred stock investing is long-term investing, taking advantage of the known inverse relationship between rates and prices over time.

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.

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 6.5 percent, have cumulative dividends and offer investment grade ratings from Moody's Investors Service.

Currently priced below par

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 6.500 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.

Results

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 April 2014 issue of the subscriber's newsletter, CDx3 Research Notes, that you received on March 31 for symbols.

There were a total of 933 preferred stocks and ETDs trading on U.S. stock exchanges as March 2014 came to a close. Of these 933, ten specific high quality issues are trading below their $25 par value (March 28, 2014 prices). This list is sorted by dividend rate (coupon) with the highest payers listed first.

The security shown in green font is an ETDs (ETDs are bonds that trade on the stock exchange rather than the bond market and are very similar to preferred socks) while the remaining nine 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 April 2014 issue of the subscriber's newsletter, CDx3 Research Notes.

 

Learn To Screen, Buy and Sell The Highest Quality Preferred Stocks

Preferred Stock Investing is one of the highest reader-rated books in the United States with 74 reviews posted at Amazon.

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 2014 (upward pressure on rates).

See: Reviews | 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.

 

 

 

 

 

 

 

 

 

 

 

 

 

Figure 1

Preferred Stock Search Engine

INVESTMENT GRADE, CUMULATIVE DIVIDENDS,

CURRENTLY PRICED BELOW $25 PAR

 

Source: CDx3 Notification Service, www.PreferredStockInvesting.com

 

Click To See Bigger Screen Sample

 

 

 

 


 

Figure 2

The 10 Highest Quality Preferreds

PRICED BELOW $25 PAR (March 28, 2014 prices)

 

Source: Preferred Stock List(TM), PreferredStockInvesting.com

 

Subscribe For Trading Symbols

 

(Already a subscriber? For actual symbols see page 6 of the April 2014 issue of the subscriber's newsletter, CDx3 Research Notes).

 
   
 

Were HSBC Preferred Stock Shareholders Cheated?

FDIC Seems to Think So

On March 14, 2014, banking investigators at the U.S. Federal Deposit Insurance Corporation (FDIC) charged 16 banks with manipulating the London Inter-Bank Offered Rate (LIBOR). International investigators had previously issued $3.7 billion in fines in the two-year scandal, naming Barclays, the Royal Bank of Scotland, Dutch lender Rabobank (fined $1 billion last fall) and UBS.

The LIBOR is the rate that European banks charge each other for overnight cash loans, much like the federal funds rate in the US. The LIBOR rate that a bank pays is seen as a statement about the bank's stability: The stronger the bank, the lower the rate it has to pay for such cash. As international banking investigators have now exposed, several of those charged with reporting the rates that determined the LIBOR have been fudging the rate downward since 2005, making their banks look stronger than they really are (and pushing the LIBOR lower than it should have been).

Half-billion preferred stock shares underpaid

About a half-billion shares of variable-rate preferred stocks are included in the trillions of dollars’ worth of financial contracts, mortgages and securities that use a LIBOR-based formula to set their rate. The extent to which shareholders were shorted is not yet known, but we do know that of the variable-rate LIBOR-based preferred stocks issued since January 2005, the 23 listed in Figure 3 are still trading and would have been affected.

While prior investigations have found that the LIBOR rate has been manipulated by these banks since early- 2005, last month’s FDIC charges claim that the collusion continued through at least mid-2011.

Manipulation period: January 2005 through October 2008

Of the four methods than variable-rate preferred stocks use to set their dividend rate, the LIBOR-based method is the most common. Typically, these securities will pay a dividend that is calculated by adding a certain percentage to the then-current three-month LIBOR, unless that falls below a certain minimum rate.

That means that since October 2008, when the LIBOR fell to new lows, the LIBOR manipulation that was going on since January 2005 became irrelevant to preferred stock shareholders since the minimum rate kicked in for dividend payments.

But between January 2005 and October 2008, the LIBOR ranged from about 2.5 percent to about 5.5 percent, high enough that it was being used to calculate (erroneously) the dividends being paid on the variable-rate preferred stocks itemized in Figure 3.

HSBC: captain of the home team?

The UK’s HSBC Holdings plc (NYSE: HSBC), which many would consider the captain of the home team when it comes to the LIBOR, is the UK’s largest bank by both market capitalization and total assets. Last month’s FDIC charges were the first to implicate HSBC in the LIBOR scandal.

As startling as these charges are, it gets a lot worse when you consider what else was going on at the time with HSBC.

In late-2012, HSBC was fined $1.92 billion for laundering cash on a massive scale over a period of years for the world’s drug cartels. If the FDIC has it right with their current charges, at the same time HSBC personnel were cleaning the dirty drug cash, others within the organization were down the hall manipulating the LIBOR.

HUSI-F and HUSI-G

HSBC has two variable-rate preferreds trading that pay dividends based on the LIBOR rate: HUSI-F (originally issued as HBA-F), issued on April 1, 2005 and HUSI-G (originally issued as HBA-G), issued six months later on October 11, 2005, both of which pay dividends quarterly.

The prospectus for HUSI-F says that the dividend rate will be calculated by adding 0.75 percent to the three-month LIBOR published at the time, with a minimum rate of 3.50 percent. That means that as long as the LIBOR is above 2.75 percent, shareholders will receive a quarterly dividend calculated by adding 0.75 percent to the LIBOR.

HUSI-F and HUSI-G were issued with 18 million and 13 million shares, respectively, and paid a total of 24 dividends during the manipulation period worth about $130 million to preferred stock investors.

Redefining dishonorable conduct

The FDIC’s charges, if proven, mean that officials at HSBC issued 31 million shares of new variable-rate preferred stocks in 2005 using a dividend formula that they themselves were manipulating.

While the behavior of each of the banks involved is dishonest (at best), by adding HSBC to the list last month, the FDIC has moved this UK bank into a category that is well beyond dishonorable, given their prior relationship to the world’s drug cartels. Any claim by the bank that the money laundering was just a slip-up by a few rogue employees becomes substantially harder to accept when considered in the light of the FDIC’s new charges.

If you held shares of any of the 23 variable-rate preferred stocks listed above between January 2005 and October 2008 you were almost certainly paid dividends that were short of what was due.

 


More Preferred Stock Research

FROM DOUG K. LE DU

Click any headline

 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Figure 3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   
 

Fifth Edition of Preferred Stock Investing is Now Shipping!

Learn how to screen, buy and sell the highest quality preferred stocks

Preferred Stock Investing is one of the highest reader-rated books in the United States with 74 reviews posted at Amazon.

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 2014 (upward pressure on rates).

See: Reviews | Table of Contents | Free Excerpt | Paperback | eBook

The preferred stock market has returned 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).


 

 

 

 

 

 

   
 

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).

 


 


 

 

 

   
 

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 


 

 

   
   

Learn to screen, buy and sell the highest quality preferred stocks by purchasing the new Fifth Edition of my  book, Preferred Stock Investing (see retailers). The book identifies the resources that you need to be a very successful CDx3 Investor completely on your own. If you would rather we do the research and calculations for you I offer the CDx3 Notification Service (see reader comments).

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

 

 

 
   
 

Copyright (c) 2014 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.