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Issue 113


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Top Paying Investment Grade, Cumulative Preferreds



High quality preferred stocks continue to be in very high demand. The highest quality preferred stocks that are selling within one dividend of par are offering income investors an average 4.3 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 within one dividend of 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 within one dividend of par

Purchasing shares close $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 close to (or below, when available) their par value, preferred stock investors are able to add a layer of principal protection to their investment.


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 "Today's price, at most" parameter to "25.45" does the magic here.


In addition to finding the highest quality issues that offer cumulative dividends and are currently trading within one dividend of 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, for symbols.



There were a total of 905 preferred stocks and ETDs trading on U.S. stock exchanges as the month came to a close. Of these 905, these are the top highest quality issues that are trading within one dividend of their $25 par value. This list is sorted by last price with the lowest priced issues 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 securities listed are preferred stocks. All have a current market price (seen in the Last Price column) that is within one dividend of their $25 par value (as shown in the Liquid Price column) and enjoy an investment grade rating from Moody's.

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New Preferred Stock IPO’s, July 2016


While ongoing high demand for U.S. income securities has led issuers to introduce a huge crop of new preferred stock issues this year, they appear to have taken a break during July with only five new securities coming to market.

July’s five new preferred stocks are offering an average current yield of 6.2 percent for the consideration of preferred stock investors. There are now 905 of these securities trading on U.S. stock exchanges.




Note that I am using IPO date here, rather than the date on which retail trading started. The IPO date is the date that the security’s underwriters purchased the new shares from the issuing company. Anxious to sell the new shares, underwriters will generally sell to broker/dealers using a temporary trading symbol on the wholesale Over-The-Counter exchange (who, in turn, sell them to us at retail within a few days of the IPO date).

Buying New Shares for Wholesale

Note that the most recently introduced issue – CITLP from Capital One (COF) - is still trading on the Over-The-Counter exchange (as of July 29). This is a temporary OTC trading symbol until this security moves to the NYSE, at which time it will receive its permanent symbol. But there is no need to wait; during a period of high prices, individual investors, armed with a web browser and an online trading account, can often purchase newly introduced preferred stock shares at wholesale prices just like the big guys (see "Preferred Stock Buyers Change Tactics For Double-Digit Returns" for an explanation of how the OTC can be used to purchase shares for discounted prices during a period of high preferred stock prices).

Your broker will automatically update the trading symbols of any shares you purchase on the OTC. CITLP will become COF-G.


All five of July’s new issues are traditional preferred stocks. Two of the five are from financial institutions – SF-A from Stifel Financial (SF) and CITLP from Capital One (soon to become COF-G).

CITLP was the largest July issuance, with its 24 million shares raising about $600 million for Capital One. Stifel’s SF-A, issued at six million shares, seems puny by comparison. The dividends of both of these bank-issued securities are non-cumulative, allowing the value of these securities to be counted toward these bank’s Tier 1 regulatory reserves.

July’s offerings also included three new issues from property REITS – AHT-F from Ashford Hospitality (AHT); BRG-C from apartment developer Bluerock Residential Growth (BRG); and PSA-D from Public Storage (PSA) for those in need of a place to put that old couch and lawn furniture. Ashford’s AHT-F continues a trend that we have seen this year with new preferred offerings from hotel REITs.

Tax Treatment

Dividends paid by REIT preferred stocks are a pre-tax distribution of the company’s earnings to shareholders. As a pre-tax distribution, it is the shareholder who pays the full tax so dividends received from REITS do not qualified for any type of favorable tax treatment (although portions of REIT dividends are frequently re-classified at tax-time as capital gains, hence lowering your tax burden in that manner).

On the other hand, dividends received from the two new bank preferred stocks in the above table that have “QDI” in the Status column are a distribution of the bank’s after-tax earnings and are therefore designated as being Qualified Dividend Income, although there are exceptions and conditions (see prospectus).

About the New Issues

Ashford Hospitality’s 7.375 percent AHT-F is a 4.8 million share offering, generating about $116 million for the company. $75 million of these proceeds were used to redeem all 3 million outstanding shares of the company’s AHT-E 9.0 percent preferred stock. Because of the difference in the size of these two issues, however, the company’s annual dividend obligation to shareholders has increased by $2.1 million, albeit at a lower dividend rate.

The 4.95 percent offered by Public Storage’s new PSA-D preferred stock is the lowest coupon preferred stock ever issued by the company, demonstrating the strength of PSA’s A3/BBB+ ratings. Public Storage, by the far the most prolific preferred stock issuing REIT, now has twelve preferreds trading. The company’s highest coupon offering is PSA-Z at 6.0 percent, but PSA-Z also trades at about $29 per share, well above this security’s $25 par value.

BRG-C is Bluerock Residential’s second new offering within the last ten months, its only other preferred, BRG-A, being introduced last October at 8.25 percent. As these two issues are nearly identical in their terms, the downward pressure on interest rates that we have seen over this ten month period is on display here.

(Sources: Prospectuses AHT-F, SF-A, BRG-C, PSA-D, CITLP. CDx3 Notification Service database,

In Context: The U.S. Preferred Stock Marketplace

So how do the new July issues stack up within the context of today’s preferred stock marketplace?

During the week ending July 17, 2016, Japanese buyers bought a record-setting $25.4 billion of U.S. debt, pushing prices of U.S.-issued income securities to new highs during the month. Global interest rates at zero or negative were cited as the primary driving force, as foreign investors search for yield (see “Here’s why 10-year Treasury may still drop below 1%”). Until alternatives present themselves, income investors are likely to continue to see higher than normal prices for U.S. income securities, including preferred stocks.

Coupled with the limited success of the Fed’s efforts to increase the cost of money, the average market price of U.S.-traded preferred stocks has increased by $1.68 per share this year (an annualized value gain of 11.7 percent), including a $0.42 increase during July.



The data being charted here is limited to call-protected issues in order to limit the price distorting effect of an anticipated redemption.

Beyond ratings, many things affect the market prices of these securities such as the proximity to their call or maturity date, proximity to their next ex-dividend date, industry and/or overall health of the issuer (think upstream oil producers), perceived direction of interest rates, pending government regulatory or policy changes, cumulative versus non-cumulative dividends and tax treatment of dividend payments. So what we really need to look at is current yield, which calculates the average annual dividend yield per dollar invested (without considering re-invested dividend return or any future capital gain or loss). Current yield is a “bang-for-your-buck” measure of value that normalizes differences in coupon rate and price to give us a single, comparable metric.

While the continuing strong demand for U.S. preferred stocks can be attributed to several factors, the next chart makes it pretty clear that the lack of attractive alternatives is certainly among them.

U.S.-traded preferred stocks are currently returning an average current yield of 6.5 percent (blue line) while the annual return being offered to income investors by the 10-year treasury is 1.5 percent and that of the 2-year bank CD is a meager 1.4 percent (currently, tying up your money for an extra eight years in a 10-year treasury only gets you 0.1 percent over a federally-insured bank CD).


For comparison, I have set the Yield column in the first table above to show the current yield of the five new July preferreds on July 29. It is into this marketplace that July’s five new issues were introduced.

Income versus Value Investing, Year-To-Date

With an average current yield of 6.5 percent, plus the 11.7 percent annualized YTD value gain, those investing in U.S.-traded preferred stocks since the beginning of 2016 are currently on pace for a total annualized return of 18.2 percent (6.5 percent of which is realized in dividend cash).

Those investing in common stocks, as measured by the S&P500, had a great July. Starting at 2013, this common stock value index closed on July 29 at 2174, an unrealized annualized value gain of about 13.7 percent plus about two percent in average annualized dividend yield – a year-to-date annualized gain of about 15.7 for common stock investors.










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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 89 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).













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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.