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Issue 101


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by Doug K. Le Du


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See page 1 of this month's issue of the subscriber's newsletter, CDx3 Research Notes, for symbols.








Top 10 Investment Grade, Cumulative Preferreds Available Under $25



The ten highest quality preferred stocks that are selling for a sub-$25 market price are offering income investors an average 6.7 percent Yield-To-Call in today's preferred stock marketplace.

As rates move up and down over time, prices tend to move in the opposite direction, moving down and up, respectively. This is why preferred stock investing is long-term investing, taking advantage of the known inverse relationship between rates and prices over time.

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, have cumulative dividends (meaning that if the issuing company skips a dividend payment to you, they still owe you the money) 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 twenty 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 offer cumulative dividends and are currently trading below their $25 par value, this filter also limits the list to issues that have not suspended their dividend payments. 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 List
TM database (please note that to protect the values of subscriptions to our CDx3 Notification Service, trading symbols are obscured here). Already a CDx3 Notification Service subscriber? See page 1 of this month's issue of the subscriber's newsletter, CDx3 Research Notes, that you received at the end of last month for symbols.



There were a total of 892 preferred stocks and ETDs trading on U.S. stock exchanges as last month came to a close. Of these 892, these are the top ten highest quality issues that are trading below their $25 par value. This list is sorted by dividend rate (coupon) with the highest payers listed first.

The securities shown in green font are 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 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.

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.

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Alexandria Real Estate Preferred Stock Buyers Earning Twice the Return of Common Shares


Alexandria Real Estate Equities, Inc. (ARE) finds itself riding the baby boomer bubble like few others. One-third of the U.S. population (about 100 million people) started retiring four years ago and 10,000 people in the U.S. turn 60 years of age every day. Alexandria is a property REIT that specializes in commercial buildings for life science tenants (pharmaceuticals, medical research, biotech, medical devices and the like).



Occupancy of Alexandria’s North American facilities climbed to 97.0 percent at the end of 2014, up from 95.9 percent a year earlier. And the company’s financial metrics are very solid, as they have been for several years. Funds From Operations (FFO) is a more meaningful metric for property REITs than Net Income, but ARE reports both in a single summary table.



This strong performance allows this $10 billion company (market capitalization) to offer its common shareholders a $0.77 per share annual dividend or a current yield of 3.2 percent to today’s common stock buyers.


Cash is king

Since fixed-rate preferred stock dividend amounts are known and scheduled in advance, a company’s unobligated cash flow is just as important, if not more so, to many preferred stock investors than its FFO. Preferred stock dividends are paid out of the company’s cash flow and the known obligations against it, more so than quarterly profits.

ARE is facing some cash management challenges. According to their June 30, 2015 financial statements, ARE collects about $1 billion in cash per year primarily in the form of tenant rents ($204 million for Q2 2015), but only holds about $68 million in cash. That may sound like a lot of cash until you notice that their liabilities include, among other obligations, $61 million in dividends payable to shareholders.

Cheap debt and lots of it

During this prolonged period of low interest rates, like most property REITs, ARE has been quick to take on relatively cheap debt while they can in order to scoop up strategic properties. Until a few weeks ago, the company was facing secured notes payable and unsecured bank loans worth $637 million coming due in 2016. More recently, the company has announced that these 2016 obligations will be cut in half through the sale of some of its properties and the planned issuance of additional debt later this year. These actions should resolve their short-term cash issue and kick the debt can to 2019.



(Source: Company Q2 2015 Earnings Report,


Alexandria preferred stock

Investors looking for a lower-risk route to participate in Alexandria’s success while earning about twice as much income, may want to consider the company’s preferred stock over ARE common stock.



Alexandria’s series E preferred pays a 6.45 percent annual dividend (coupon) and is currently priced at $25.79 (July 30, 2014), providing a current yield of 6.25 percent. This above-par price will produce a $0.79 capital loss in the event of a future redemption of these shares and a Yield-To-Call of 4.42 percent if such a redemption occurs on the security’s March 2017 call date. But the demands on the company’s cash and low probability that rates will be lower then than they are now make a March 2017 redemption less likely.

ARE-E offers a Moody’s investment grade rating of Baa3 and cumulative dividends (meaning that if Alexandria misses a dividend payment to you, they still owe you the money; their obligation to you accumulates).


Risk versus reward

Using the Moody's rating scale as a proxy for investment risk and current yield as a measure of reward, this chart illustrates how ARE-E is positioned within the U.S. preferred stock marketplace.



Each diamond on this chart is a U.S.-traded preferred stock. The criteria used to include and exclude securities for the chart are provided in the footnote.

Notice how ARE-E stacks up against its other Baa3-rated peers. ARE-E’s current yield of 6.25 percent compares favorably to the average return of 6.10 percent at the Baa3 level.

(Sources: prospectus for ARE-E,; preferred stock data, CDx3 Notification Service database,

What’s next?

After a 16 percent value increase over the last twelve months, the notion that a downward correction is due for Alexandria’s common stock seems reasonable. Given that risk to principal, the company’s far less volatile preferred stock may be a safer bet for risk-averse investors, even as an increase in interest rates appears to be upon us. And the 6.25 percent current yield far outstrips the common’s 3.2 percent return to shareholders.

But with a coupon of 6.45 percent, today’s buyers may be holding ARE-E shares for several years. The security does not become callable until March 15, 2017 and rates would have to fall before it started to make financial sense for Alexandria to redeem these shares.










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Preferred Stock Investing, Fifth Edition

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 83 reviews posted at Amazon.

The Fifth Edition addresses selecting, buying and selling the highest quality preferred stocks during the market conditions that we are currently facing.

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

The 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).













Recent Preferred Stock Articles by Doug K. Le Du


Here is a list of some of my recent syndicated articles. To view an article, just click on the headline.

























Preferred Stock Market Research Now Available All Month Long - Free


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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The content of this newsletter, and the materials that it links to that are owned by Del Mar Research, LLC, are to be regarded as educational, rather than advisory. There can always be exceptions to trends and/or generalizations that may be presented herein. Consider your financial resources and goals before investing. You, and not Del Mar Research, LLC, are solely responsible for your own investing decisions.