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MARCH 2016

Issue 108


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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 6.5 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 888 preferred stocks and ETDs trading on U.S. stock exchanges as last month came to a close. Of these 888, 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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New Preferred Stock IPO’s, February 2016


There were four new preferred stocks issued during February 2016, bringing the total number of these securities trading on U.S. stock exchanges to 888.



As of February 29, EBAYL had yet to start trading so it appears with zero volume and last trade price in our database, but is expected to begin trading within the next few days.

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 who sell them to us within a few days of the IPO date.

As with last month’s new preferred stock IPO’s, banks were well represented in February (see “New Preferred Stock IPOs, January 2016”). BANC-E is from Banc of California, GS-N is from Goldman Sachs, FRC-G is from First Republic Bank and EBAYL is from eBay.

Sources: Prospectuses BANC-E, FRC-G, GS-N, EBAYL . CDx3 Notification Service database,

About the New Issues

While ratings are somewhat controversial, the benefit to the issuer is clear here; the two lowest coupon securities are offered by the two companies with double investment grade ratings (unrated securities are coded as NF – Not Found).

As has been the case since 2010 when the Wall Street Reform Act was signed into law, new bank-issued preferred stocks offer non-cumulative dividends. On the upside, February’s three new bank issues are all designated as offering Qualified Dividend Income (QDI), providing a tax benefit to many buyers (see “Hidden Risks Of Tax-Advantaged Preferred Stocks” for data regarding whether QDI preferreds are really advantageous).

eBay’s EBAYL provides preferred stock investors with a rare opportunity to invest directly in a technology firm without exposure to common stock risk. EBAYL was purchased by its underwriters on February 22 and will begin retail trading shortly. Introducing an ETD into its capital stack is a new strategy for eBay, rarely seen among retailers (online or otherwise). ETDs are bonds and are recorded on the company’s books as debt, rather than equity (as with preferred stocks). As debt, ETDs are generally seen as carrying less risk than the same company’s preferred stock in the event of a bankruptcy. As bonds, the interest paid to shareholders by ETDs is generally cumulative and is taxed as ordinary income (no QDI opportunity here).

EBAYL is a large issue raising about $726 million after underwriter commissions. With double investment grade ratings, and the lower risk profile of an ETD, EBAYL should attract a lot of attention for the next several weeks. Retail buyers should remember, however, that the lower the coupon, the less likely a future redemption (Public Storage, for example, has never redeemed a preferred stock with a coupon below 6.125 percent). Even though the call date for EBAYL is March 1, 2021, it would not be unusual for shares to remain trading until their February 1, 2056 maturity date so perpetual ownership is a consideration here.

In Context: The U.S. Preferred Stock Marketplace

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

Continuing last year’s trend, the average market price of call-protected, U.S.-traded preferred stocks has fallen this year, favoring buyers.



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

After having started 2016 at $24.59, buyers were paying an average of $24.29 per share at the end of February, down $0.30 so far this year.

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.

As prices have come down, buyers do not need to invest as many dollars to earn the same return, so preferred stock yields are heading up. The current yield of all call-protected, U.S.-traded preferred stocks at the end of February was 8.043 percent (rated and unrated), up 0.328 percent from 7.715 percent at the beginning of the year.


For comparison, I have set the Yield column in the first table above to show the current yield of the four new February preferreds on February 29.

It is into this marketplace that February’s new issues were introduced. Compared to the overall market, the four new February issues appear fairly miserly, offering lower coupons. But when comparing these issues to other recent introduction (see January 2016 IPO’s) or other issues from the same companies (where there are some), the underwriters have concluded that today’s buyers are willing to pay about $25 per share for these income securities from these issuers.

If the underwriters got it right, the market prices of these new securities should stay fairly close to $25 (their par value) for the next few weeks. As unique as it is, EBAYL will be the one to watch.










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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).













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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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.