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Issue 95


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by Doug K. Le Du


Preferred stock researcher

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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 6.3 percent Yield-To-Call in today's preferred stock marketplace.

As rates and prices 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 6 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 897 preferred stocks and ETDs trading on U.S. stock exchanges as last month came to a close. Of these 897, 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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Preferred Stock versus Common Stock Investing Results


The common stock market, as reflected by the S&P 500 Index, had a great year last year. The S&P 500 started the year at 1845.86 on January 2 and closed on December 31 at 2058.90, a gain of 11.5 percent.

One of the primary drivers for last year’s performance was the failure of the Fed’s withdrawal from its Quantitative Easing bond buying program to produce an increase in interest rates. Since the QE program was successful in lowering rates, the common wisdom at the time was that withdrawing from the program would surely produce the opposite result and rates would go back up.

In January 2014, the Fed began its much anticipated taper, slowly backing out of the QE program, but to no avail; the widely expected rate increase did not materialize. The cheap money that U.S. companies had come to love would continue and common stock prices surged upward accordingly.


On top of the 11.5 percent value appreciation, 421 of the 500 companies in the S&P 500 Index also paid dividends with an average current yield of 1.9 percent last year. By adding the two together (which relies on a bit of imprecise math), those investing in common stocks last year earned a total return of about 13.4 percent.

(Sources: S&P 500 values, Yahoo Finance; S&P 500 dividend data,

Preferred stock returns

Preferred stock investors are generally investing for the steady income that these securities provide. With a long-term dividend average of about 7 percent, daily price fluctuations are not the primary focus.


But that’s not to say that value appreciation opportunities do not present themselves. Importantly, the market pressures that act upon common stock prices can often be very different than those affecting the market prices of preferred stocks, so you do not want to make the mistake of assuming that if common stock prices are heading up or down the same will be true of their preferred cousins.

For example, the Cyprus clawback event that occurred during early 2013 pushed U.S. preferred stock prices up without pressuring common stock prices. During that event, citizen savings accounts in Cyprus banks were raided by the Cyprus government to help make sovereign debt payments. The resulting run on those banks turned income investors there into preferred stock buyers here in many cases.

But during 2014, the failure of the Fed’s withdrawal from QE to produce an increase in interest rates affected preferred stock prices in the same way as common stock prices – they both went up. High quality preferred stocks started 2014 at an average market price of $23.73 per share.

By high quality, I am referring to those issues favored by most risk-averse preferred stock investors – cumulative dividends, call-protected, investment grade ratings, etc.

But as it became apparent that interest rates were not going to be increasing after all (which would have pushed prices for fixed-return securities down), income investors started buying, pushing the prices of high quality preferred stocks up. By the end of 2014, the average market price of high quality preferred stocks was $25.98 per share, a value gain of 9.5 percent.



The following chart shows the percent change in market price for common stocks, as reflected by the S&P 500 Index, and high quality preferred stocks throughout 2014.


While the preferred stock value gain of 9.5 percent was not as impressive as the 11.5 percent seen by common stock investors, preferred stock investors realized substantially better dividend income throughout the year.

Specifically, while common stock investors saw 1.9 percent in dividend yield, preferred stock investors buying shares in January 2014 realized an average of 7.1 percent by year-end.

(Source: Preferred stock data,

Higher reward for lower risk

For 2014, preferred stock investors investing in the highest quality issues saw a combined return (appreciation plus dividends) of 16.6 percent, compared to 13.4 percent for common stock investors.



While outperforming common stock investors, preferred stock investors were exposed to substantially lower risk.

Remember that dividend cash is always paid to preferred stock shareholders first, before any dividend payments are made to the same company’s common stockholders (hence the name “preferred”).

And note that this analysis is limited to the highest quality preferred stocks, which have cumulative dividends (meaning that if the issuing company skips a payment to you, they still owe you the money; their obligation accumulates). Common stock dividends are, by definition, non-cumulative meaning that they can be cancelled at any time, leaving the shareholder with no recourse whatsoever.

Lastly, where the highest quality preferred stocks used here offer investment grade ratings, common stocks are not rated at all; no quantitative measure of creditworthiness (the ability to make future dividend payments) is offered to those considering buying common stock shares.

2014 provided a case of higher returns being realized by those taking substantially lower risk. As good as the return provided to common stock investors was, that seen by those investing in high quality preferred stock, on average, was better.











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Preferred Stock Investing, Fifth Edition 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 80 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 Fifth Edition addresses selecting, buying and selling the highest quality preferred stocks during the market conditions that we are expected to face.

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

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).













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.