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Issue 127


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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 highest quality preferred stocks that are selling for a sub-$25 market price are offering income investors an average 5.2 percent Yield-To-Call in today's preferred stock marketplace and there are now 10 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.


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-five 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 958 preferred stocks and ETDs trading on U.S. stock exchanges as the month came to a close (including convertible preferred stocks). Of these 958, 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 of these high quality securities 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. Note that the YTC for two of these securities cannot be calculated since they are now callable.

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 securities 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, September 2017


What does it mean when four times the normal number of companies simultaneously, but independently, decided to raise capital by issuing a new preferred stock? Coincidence? Probably not.

Preferred stock issuers have come to the conclusion that the low-rate gravy train is finally coming to an end (whether they are correct or not is yet to be seen). We started to see the first hint of this last June when the number of new issues ticked up to eight that month. That was followed by seven new issues during July but then a whopping fourteen during August.

Offering an average dividend (coupon) of 6.15 percent, twenty new preferred stocks were issued during September, the most robust crop that we have seen since March 2013 (twenty-two were issued that month).

September’s new issues

Here are the twenty new issues introduced during September for the consideration of preferred stock investors.



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.

While HTFA was introduced during September, it has yet to begin retail trading as of September 29.

A special note regarding preferred stock trading symbols: Annoyingly, unlike common stock trading symbols, the format used by brokers and other online quoting services for preferred stock symbols is not standardized. For example, the Series A preferred stock from Public Storage is “PSA-A” at TDAmeritrade, Google Finance and several others but this same security is “PSA.PR.A” at E*Trade. For a cross-reference table of how preferred stock symbols are denoted by sixteen popular brokers and other online quoting services, see “Preferred Stock Trading Symbol Cross-Reference Table.”

There are currently 96 high quality preferred stocks selling for an average price of $25.91 (September 29), offering an average coupon of 5.54 percent and a current yield of 5.34 percent. And ten of these high quality issues are selling below their $25 par value, providing an average yield-to-call of 5.19 percent. By high quality I mean preferreds offering the characteristics that most risk-averse preferred stock investors favor such as investment grade ratings, cumulative dividends and call-protection.

There are now a total of 958 of these securities trading on U.S. stock exchanges (including convertible preferred stocks).

Buying new shares for wholesale

Note that four of the newest issues – GBBLP from Gabelli Multimedia Trust (GGT), IRRTP from Investors Real Estate Trust (IRET), FDDRP from Federal Realty Investment Trust (FRT) and SPRYP from Spirit Realty Capital (SRC) - are still trading on the wholesale Over-The-Counter exchange (as of September 29). These are temporary OTC trading symbols until these securities move to the NYSE, at which time they will receive their permanent symbols.

But there is no need to wait; during a period of relatively 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).

Those who have been following this strategy of using the wholesale OTC exchange to buy newly introduced shares for less than $25 are more able to avoid a capital loss as prices start to drop (if they choose to sell).

A special note regarding GBBLP: This symbol, assigned by the good folks who run the OTC exchange, is the same as the temporary OTC symbol that was assigned to another security in May of 2016 (Gabelli Global Small and Mid Cap Value Trust). When researching this security, be sure that you are looking at data for the current issue (Gabelli Multimedia Trust).

Your broker will automatically update the trading symbols of any shares you purchase on the OTC. GBBLP will become GGT-E, IRRTP will become IRET-C, FDDRP will become FRT-C and SPRYP will become SRC-A.

About the new issues

The diversity of the twenty new September issues is striking. Securities from eleven property REITs, four business development corporations, two management investment companies, an electric utility and a retail bank were all introduced during the month.

Property Real Estate Investment Trusts (pREITs)


RLJ-A from RLJ Lodging (RLJ), PEI-D from Pennsylvania Real Estate Trust (PEI), GNL-A from Global Net Lease (GNL), PSB-X from PS Business Parks (PSB), GMRE-A from Global Medical REIT (GMRE), DLR-C from Digital Realty (DLR), UBP-H from Urstadt Biddle (UBA), CLNS-J from Colony NorthStar (CLNS), IRRTP/IRET-C from Investors Real Estate, FDDRP/FRT-C from Federal Realty and SPRYP/SRC-A from Spirit Realty are all cumulative, perpetual preferred stocks offered by property REITs.

“Cumulative” means that if the issuer misses a dividend payment to you, they still owe you the money (short of a bankruptcy); their obligation to you accumulates. “Perpetual” means that the issuer is not required to ever redeem your shares (i.e. the shares have no maturity date).

Diversity can also be found within this group – RLJ Lodging, hotels; Pennsylvania Real Estate, Urstadt Biddle and Federal Realty, retail; Global Net Lease, PS Business Parks, Colony NorthStar and Spirit Realty, commercial centers; Global Medical, healthcare facilities; Digital Realty, data centers; Investors Real Estate, apartments.

With the exception of RLJ-A from RLJ Lodging, all of these property REIT issues are traditional preferred stocks offering fixed-rate dividends. RLJ-A shares are optionally convertible to the company’s common stock at the option of the shareholder in accordance with the conversion terms specified in this security’s prospectus (link provided below).

Business Development Corporations


While these four securities were all issued by companies structured as Business Development Corporations, they are different in several ways.

TCGP from Carlyle Group LP (CG) is one of two non-cumulative income securities offered during September and is also the only such security from a Limited Partnership.

GECCL from Great Elm Capital (GECC) and HTFA from Horizon Technology Financial Corporation (HRZN) are Exchange-Traded Debt Securities. ETDS’s are bonds recorded on the company’s books as debt (rather than as equity, as in the case of preferred stock). As debt, the obligation to pay the interest on these bonds is cumulative. As bonds, ETDS’s are often seen as having lower risk than the same company’s preferred stock shares. ETDS are very similar to preferred stocks and are often listed on brokerage statements as such.

GLADN from Gladstone Capital (GLAD) is the only “term” preferred stock among September’s twenty offerings. A term preferred stock (as opposed to a perpetual preferred stock, discussed earlier) trades for a specific term until its maturity date. While most term preferred stocks also have a call date, at which time the issuer may redeem your shares (buy back from you for $25 per share) but is not required to, the shares must be redeemed on their maturity date. In the case of GLADN, Gladstone may redeem your shares on or after GLADN’s September 30, 2019 call date at their option, but the company must redeem your shares on September 30, 2024 if not previously called.

Management Investment Companies


ECF-A and GBBLP/GGT-E are both offered by the Gabelli empire. ECF-A is from Ellsworth Growth and Income Fund (ECF), which is managed by Gabelli Funds, LLC while GBBLP/GGT-E is from Gabelli Multimedia Trust (GGT). Ellsworth invests in the common equity of target companies. Gabelli Multimedia is eighty percent invested in telecommunications, media and entertainment companies.

Electric Utility


Both of these September issues are from subsidiaries of Southern Company (SO). ALP-Q is from Alabama Power while GPJA is from Georgia Power. While ALP-Q is a traditional, cumulative preferred stock, GPJA is an Exchange-Traded Debt Security (discussed earlier). Both have the same October 1, 2022 call date but as an ETDS, GPJA matures on October 1, 2077 (great news for today’s kindergartners investing in preferred stocks).

Retail Banking


Rounding out the September offerings is TCF-D from TCF Financial Corporation (TCF), a retail bank established in 1923. TCF-D is a 5.7 percent non-cumulative, traditional preferred stock, the proceeds from which the bank is using to redeem all six million shares of its older 7.5 percent TCF-B. This maneuver saves the bank about $2.7 million per year in dividend expense.

(Sources: Preferred stock data - CDx3 Notification Service database, Prospectuses - RLJ-A, ALP-Q, TCGP, TCF-D, PEI-D, GNL-A, PSB-X, GMRE-A, DLR-C, ECF-A, UBP-H, CLNS-J, GECCL, GPJA, GLADN, GBBLP/GGT-E, IRRTP/IRET-C, FDDRP/FRT-C, HTFA, SPRYP/SRC-A).

Tax treatment

The tax treatment of the income you receive from income securities can be a bit confusing, but it really boils down to one question – Has the company already paid tax on the cash that is being used to pay you or not? If not, the IRS is going to collect the full tax from you; if so, you still have to pay tax, but at the special 15 percent rate.

With that rule in mind, here is how the tax treatment of September’s twenty new issues plays out.

Companies incorporated as REITs, be they property REITS (RLJ Lodging, Pennsylvania Real Estate, Global Net Lease, PS Business Parks, Global Medical, Digital Realty, Urstadt Briddle, Colony NorthStar, Investors Real Estate, Federal Realty, Spirit Realty) or mortgage REITS, are required to distribute at least 90 percent of their pre-tax profits to shareholders. Doing so in the form of non-voting preferred stock dividends is the most common method of complying and because these dividend payments are made from pre-tax dollars, dividends received from REITs are taxed as regular income (i.e. they do not qualify for the special 15 percent dividend tax rate).

Interest that a company pays to those loaning the company money is a business expense to the company (tax deductible), so the company does not pay tax on the interest payments it makes to its lenders (i.e. interest payments made to lenders are paid with pre-tax dollars). Since Exchange-Traded Debt Securities are debt (Great Elm, Georgia Power, Horizon Technology), ETDS shareholders are on the hook for the taxes. Income received from ETDS’s is taxed as regular income.

Lastly, if a company pays your preferred stock dividends out of its after-tax profits, the dividend income you receive is taxed at the special 15 percent tax rate. Such dividends are referred to as “Qualified Dividend Income” or QDI. QDI preferred stocks are often seen as favorable for holding in a non-retirement account due to the favorable 15 percent tax treatment. Looking at the Status column in the above table, dividends received from Alabama Power’s ALP-Q, TCF Financial’s TCF-D, Ellsworth’s ECF-A and GBBLP/GGT-E from Gabelli Multimedia, are a distribution of the company’s after-tax earnings and are therefore designated as being Qualified Dividend Income (see prospectus for exceptions and conditions).

In Context: The U.S. preferred stock marketplace

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

For many months now, two of the most significant contributors to upward price pressure have been (1) continued zero-to-negative rates implemented by foreign central banks and (2) insensitivity by member banks toward changes in the federal funds rate. Through July of this year, preferred stock buyers have totally ignored the Fed’s federal funds rate increases.

But that started to change during early-August, as preferred stock prices realized their second most significant drop so far this year and increases have been more modest since then.


When combined with the surge of new issues that we have seen over the last four months, there may be reason to be optimistic that upward pressure on rates has finally built up enough to start pushing prices down in a meaningful way.

But 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, 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 6.4 percent (blue line) while the annual return being offered to income investors by the 10-year treasury is 2.3 percent and that of the 2-year bank CD is a meager 1.8 percent.



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

Income versus Value Investing, Year-To-Date

With an average current yield of 6.4 percent, plus the 7.1 percent annualized value gain, those investing in U.S.-traded preferred stocks since the beginning of 2017 are currently on pace for a total annualized return of 13.5 percent (6.4 percent of which is realized in dividend cash).

Starting at 2252 at the beginning of the year (January 3, 2017 open), the S&P500 common stock value index closed on September 30 at 2519, an unrealized annualized value gain of about 15.8 percent plus about two percent in average annualized dividend yield – a year-to-date annualized gain of about 17.8 percent 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 98 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


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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.