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Issue 118


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by Doug K. Le Du


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Top 10 Investment Grade, Cumulative Preferreds Available Under $25



With the Fed's December 14 hike in the federal funds rate, the price relief long-awaited by preferred stock buyers has finally arrived. The market prices of U.S.-traded preferred stocks are finally coming down, dropping $1.84 per share since their peak on August 9 (see Figure 4). This is the first sustained drop in preferred stock prices since February.


As prices fall, your annual return increases since you are having to invest less of your money to get the same dividend income. The highest quality preferred stocks that are selling for a sub-$25 market price are offering income investors an average 6.23 percent current yield in today's preferred stock marketplace and there are 81 of these gems to pick from.


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.


ETDs are very similar to preferred stocks but are actually bonds that trade on the stock exchange (rather than the bond market). As bonds, ETDs are generally seen as offering lower risk than the same company's preferred stocks.

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 the highest quality preferred stocks available for less than $25. 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, with ETDs shown in green font (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 879 preferred stocks and ETDs trading on U.S. stock exchanges as the month came to a close. Of these 879, 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.

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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2016 Delivers Higher Returns for Lower Prices - Finally!


With upward pressure on rates, new preferred stock issues are introduced that provide higher income to preferred stock buyers. And the prices of older, lower payers tend to drop accordingly making them more attractive to buyers as well. By this mechanism, income investors are provided with increasing returns at lower prices during a period of rising interest rates (now).

With historically low interest rates for the last several years, the market prices of income securities (preferred stocks, bonds) have been very high for quite some time.

But in anticipation of a Q4 rate increase, preferred stock prices finally started returning toward normal last August. 106 investment grade, call-protected preferreds are now trading below their $25 par value with an average price of $23.35 per share.

This Preferred Stock Market Snapshot™ chart depicts the preferred stock marketplace at the end of 2016 using two characteristics that are usually high on the list of considerations for risk-averse preferred stock investors - current market price (above and below these securities' $25 par value) and investment risk (as reflected by investment grade versus speculative grade Moody's ratings).



Each diamond represents a preferred stock. While there are currently 879 preferred stocks trading on U.S. stock exchanges, 229 meet the criteria listed under the chart.

The sweet spot of the preferred stock marketplace is depicted in the green lower-left quadrant - investment grade preferreds selling for a market price below their $25 par value.

As prices have come back down since August, today’s preferred stock marketplace is providing risk-averse preferred stock investors with the best buying opportunity that we have seen since last February.

Source: Preferred stock data,

Preferred stock prices

When the Fed raised the federal funds rate a year ago, we saw a very similar drop in preferred stock prices as income investors anticipated the introduction of new, higher paying issues. But by February 2016, it became apparent that the Fed was unlikely to continue raising rates as earlier thought; preferred stock prices went back up accordingly by spring.

The following chart illustrates how preferred stock prices dropped as market participants began to anticipate a Q4 rate increase, both during 2015 and 2016. In both cases illustrated here, the price drop was nearly the same, $1.88 per share for the 2015 case and $1.82 per share (so far) for the December 2016 rate hike.

The current average market price of U.S.-traded preferred stocks is $24.58 per share (see selection criteria under chart).



Is the price drop enjoyed by today’s preferred stock buyers sustainable? There are at least two reasons to be skeptical.

First, several foreign central banks are continuing with their zero-to-negative rate policy, pushing foreign investors into U.S. income securities, putting upward pressure on prices here; nothing has changed in this respect.

Second, remember that the federal funds rate is the interest rate that member banks are charged for overnight loans when they need some cash to boost their regulatory reserves. With relatively tight federal loan restrictions still in place, U.S. banks are currently holding over $2 trillion in excess reserves above and beyond the inflated 2010 Dodd-Frank requirements. Changing the federal funds rate does not have nearly the impact that it would otherwise.

Persistent high demand from foreign investors and the huge amounts of excess cash in our banking system make it more difficult to sustain the return to more normal prices. But for at least the next several months, the December increase in the federal funds rate is putting upward pressure on rates and, commensurately, downward pressure on prices.

Sources: foreign demand, Here’s why 10-year Treasury may still drop below 1%; excess reserves, Fed Worries About Deflation But Pays Banks Billions Not To Lend QE Proceeds.

Preferred stock yield

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 Greek shippers), 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.

The average current yield provided by U.S. preferred stocks reached 6.8 percent as 2016 came to a close. You can see how preferred stock investors have benefited from dropping prices since August, as yields have steadily climbed since then.



Source: Preferred stock data,

The long-awaited drop in preferred stock prices has finally arrived, providing today’s preferred stock buyers with more high quality choices offering higher returns at lower prices.










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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 93 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.

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.