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Issue 102


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by Doug K. Le Du


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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 6.7 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 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: Less Volatility, Better Principal Protection, Higher Returns at Lower Risk


Usually, the day-to-day bouncing around of stock prices makes it tough to compare the volatility of preferred stocks to common stocks. But the volatility seen in the U.S. stock market during August was so extreme that the differences in these two types of equity securities was amplified, providing an excellent opportunity to directly compare the volatility characteristics of the two.

Less Volatility

The market prices of investments that have a known return do not tend to bounce around as much as the market prices of alternatives with lesser known returns. With a known return, the speculators - those fairly certain that they know something that is unknown to others - are removed from the market.

Further, preferred stocks have a known par value, usually $25 per share, which is the amount that shareholders will receive in cash in the event that the issuing company decides to redeem the shares (buy back from holders). The known par value provides another stabilizing effect on price, especially with preferreds that are close to, or approaching, their published call dates.

This chart illustrates the daily change in the average market price of U.S.-traded preferred stocks (blue line) and common stocks (gray line) throughout August. The standard deviation measures the degree of variability (volatility), with common stock prices bouncing around over five times as much as preferred stock prices during the month.


Even though August 2015 produced some of the most volatile equity prices in recent history, a known return and par value serve as anchors for preferred stock market prices, a benefit that common stock shareholders do not enjoy.

Sources: S&P500 values,; Preferred stock data,

Better Principal Protection

In addition to being less volatile, the year-to-date average market price of high quality preferred stocks has substantially outperformed that of common stock shares as well. By high quality, I am referring to those issues favored by most risk-averse preferred stock investors such as those with cumulative dividends, call-protection and investment grade ratings.



Average high quality preferred prices have only fallen below their $25.98 per share starting point on one occasion (June) and are up this year by 0.4 percent, ending August at $26.08. Common stock prices, on the other hand, gave up earlier gains and have eroded investor principal by an average of 3.4 percent.

It is worth remembering that once the Fed begins raising interest rates (a policy change that has been a week away for two years now) the market prices of equities are likely to experience downward pressure, especially those that offer a fixed return. For income investors (bonds and preferred stocks), falling prices represent an opportunity to buy additional higher yielding shares at lower prices; for value investors (common stocks), looking to buy low and sell high, falling prices frequently represent a selling opportunity.

Higher Return

There are currently twenty-three call-protected, high quality preferred stocks offered by fifteen companies trading on U.S. stock exchanges. The following chart compares the dividend yield being paid by these preferred securities to the same companies’ common stock shares.


The average dividend yield being offered by the twenty-three highest quality preferreds is currently 6.5 percent, whereas the same companies’ common stocks are offering an average dividend yield of only 3.7 percent (earlier this year, reported that the average common dividend yield of all S&P500 companies was 1.9 percent).

The most extreme cases are identified by common trading symbol on the chart. Health Care REIT (HCN) has one preferred stock, HCN-J, offering a current yield of 6.1 percent and a common yield of 5.1 percent. Goldman Sachs (GS) comes in at 6.2 percent on the preferred scale with a common yield of 1.4 percent. CubeSmart (CUBE), a competitor to Public Storage (PSA), has one preferred stock trading, CUBE-A, with a 7.25 percent preferred yield versus 2.5 percent from their common stock. CenturyLink (CTL) is the only case where the company’s common stock is currently paying more than its average preferred stock yield – 8.0 percent versus 6.8 percent, respectively (note that CenturyLink’s preferreds are actually Exchange-Traded Debt Securities).

As a group, today’s high quality preferred stocks are offering almost double the dividend yield of the common stock shares from the same company. These results are consistent with those seen throughout 2014 as well (for 2014 results, see “Preferred Stock Versus Common Stock Investing Results”, February 2, 2015).

Source: S&P500 dividend data,

Lower Risk

While outperforming common stock investors, preferred stock investors are 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.

So far this year, and like all of last year, the U.S. equity market has provided a case where high quality preferred stocks have offered substantially less volatility, better principal protection and a higher return at lower risk.










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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 85 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.

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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.

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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.