Great Resources for Preferred Stock Investors!






Issue 126


Subscribe: CDx3 Notification Service

  See Preferred Stock Investor Reviews


Preferred Stock Investing, 5th Edition

  See Reader Reviews


Free Preferred Stock Resources


In This Issue:

High Quality Preferred Stocks

Preferred Stock News

Special Announcement

More Preferred Stock Research

Free Special Offer




"It's the single best source of preferred stock information.”

- from Ray E, CDx3 Notification Service subscriber. See more preferred stock investor reviews here.














by Doug K. Le Du


Preferred stock researcher

SeekingAlpha contributor

PortfolioChannel contributor

Syndicated writer






97 Reader Reviews


See Reader Reviews

Table of Contents

Free Excerpt


















































Already a subscriber?

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 5.1 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 955 preferred stocks and ETDs trading on U.S. stock exchanges as the month came to a close (including convertible preferred stocks). Of these 955, 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 the fourth security listed cannot be calculated since its call date is August 1, 2017.

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.

Please consider becoming a subscriber to our CDx3 Notification Service today. We offer monthly and annual subscriptions for individuals and groups. Check out these features:

















New Preferred Stock IPO’s, August 2017


There were two pieces of great news for preferred stock buyers during August – (1) prices realized the second largest drop of the year and (2) issuers treated us to the largest menu of new preferred stock issues that we have seen since June 2014.

After June’s eight new offerings and seven new preferred stocks introduced during July, August brought fourteen new issues with an average coupon of 6.45 percent for the consideration of preferred stock investors.

August’s new issues

With the surge of new issues over the last three months and August’s long-awaited drop in prices, maybe issuers have started rushing to the low-rate trough before it’s too late. After all, a market with falling prices pushes up yields, requiring that any new issues pay a more generous dividend to buyers.

Here are the fourteen new issues introduced during August.



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.

There are currently 94 high quality preferred stocks selling for an average price of $25.96 (August 31), offering an average coupon of 5.57 percent and a current yield of 5.36 percent. And 10 of these high quality issues are selling below their $25 par value, providing an average yield-to-call of 5.14 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 955 of these securities trading on U.S. stock exchanges (including convertible preferred stocks).

About the new issues

The diversity of the fourteen new August issues is striking: five properties REITs, four mortgage REITs, three business development corporations, an insurance company and one management investment company issue were all introduced during the month.

Property Real Estate Investment Trusts (pREITs)

DLR-J from Digital Realty (DLR), KIM-L from Kimco (KIM), FPI-B from Farmland Partners (FPI), AHT-H from Ashford Hospitality (AHT) and CDR-C from Cedar Realty (CDR) are all cumulative, traditional 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.

Diversity can also be found within this group – Digital Realty, data centers ; Kimco and Cedar Realty, retail; Farmland Partners, farmland; Ashford Hospitality, hotels.

Farmland Partners is unique within the preferred stock space. Holding close to 150,000 acres of farmland throughout the United States, the company is incorporated as a property REIT. Contrary to its name, FPI is not a partnership but is, rather, a $330 million publicly traded corporation founded in 2013. The proceeds from their FPI-B issue will be used to help fund their acquisition of the American Farmland Company (AFCO).

Mortgage Real Estate Investment Trusts (mREITs)

Mortgage REITs typically do not own physical property; rather, they raise capital (such as through a preferred stock offering) that is used to buy bundles of residential and/or commercial mortgages. If the cost of the raised capital is less than the bundled mortgage rate, mortgage REITs make money on the spread. The cost of investment capital that mortgage REITs are able to raise is determined by the prevailing interest rates at the time while the revenue coming from the mortgages, at least to some degree, remains fixed until the mortgages mature. So during a period of increasing interest rates, cost is rising while revenue remains relatively flat, squeezing the profitability of mortgage REITs.

SLDA from Sutherland (SLD), IVR-C from Invesco (IVR), CHMI-A from Cherry Hill (CHMI) and AGNCP from AGNC Investment Corp. (AGNC) are cumulative income securities, but use varying methods to determine their dividend rate. While Sutherland’s SLDA and Cherry Hill’s CHMI-A pay fixed dividend rates (7 percent and 8.2 percent, respectively), the dividend rates offered by IVR-C and AGNCP are fixed until their respective call dates, then becomes variable.

For IVR-C, its 7.5 percent coupon is good until its September 27, 2027 call date, then IVR-C’s dividend rate floats based on the then-current three-month LIBOR (currently at 1.32 percent) plus 5.289 percent. In AGNCP’s case, its 7.0 percent fixed rate is good until this security’s October 15, 2022 call date, then floats based on the three-month LIBOR rate plus 5.111 percent.

Sutherland’s SLDA is easily the most complex (not to mention unusual) security among the August offerings. SLDA is an Exchange-Traded Debt Security (a bond, discussion more below) but includes an optional conversion provision that allows shareholders to convert their SLDA shares into the company’s common stock (on the above table, note that SLDA appear in green font, indicating an ETDS, and the “OptConv” notation under the trading symbol). The terms of this provision appear on page 1 of the prospectus and are spectacularly complex. Further, since ETDS’s are recorded as debt on the company’s books, any shares converted to the company’s common stock by shareholders converts debt into equity, diluting the value of equity shares.

Business Development Corporations

KCAPL from KCAP Financial (KCAP), SCA from Stellus Capital (SCM) and HCAPZ from Harvest Capital (HCAP) are Exchange-Traded Debt Securities from these three business development corporations. 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.

Typically, these types of income securities will offer a five-year call period and a maturity date that is several decades into the future. Curiously, the fuses on these three securities are much shorter. KCAPL, SCA and HCAPZ become callable in just two years (September 2019) and mature in just five years (September 2022).


Arch Capital (AGCL) is a Bermuda-based insurance company, offering its ACGLO on August 14. ACGLO is the only non-cumulative preferred stock among August’s robust offerings. Paying 5.45 percent non-cumulative dividends, Arch is taking full advantage of its double-investment grade ratings with this new issue.

The new ACGLO is an 8 million share issue, raising just under $200 million for the company. These proceeds are being used to partially redeem ARH-C, a 13 million share preferred stock with a 6.75 percent coupon. Assuming that Arch uses all of the $200 million from the new ACGLO toward redeeming 8 million ARH-C shares, the resulting annual dividend expense savings pencils out to about $2.6 million to the company.

Management Investment Company

Rounding out the August offerings is ECCY from Eagle Point Credit (ECC). Like KCAPL, SCA and HCAPZ, ECCY is also an ETDS. Being incorporated as a Management Investment Company, ECC invests in equity positions and loan instruments that are “…unrated or rated below investment grade and are considered speculative with respect to timely payment of interest and repayment of principal.”

(Sources: Prospectuses ECCY, DLR-J, SLDA, KIM-L, KCAPL, IVR-C, CHMI-A, FPI-B, ACGLO, AGNCN, AHT-H, CDR-C, SCA, HCAPZ. CDx3 Notification Service database,

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 August’s fourteen new issues plays out.

Companies incorporated as REITs, be they property REITS (Ashford Hospitality, Cedar Realty Trust, Farmland Partners, Kimco, Digital Realty) or mortgage REITS (Sutherland, AGNC, Cherry Hill, Invesco), 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 (KCAP Financial, Stellus, Harvest Capital and Eagle Point), 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 Arch Capital’s ACGLO 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 August 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. Since December 2016, preferred stock buyers have totally ignored the Fed’s three rate increases.

That may have started to change during August, as preferred stock prices realized their second most significant drop so far this year.


Normally, the $0.13 drop that we saw during August would not attract much attention, but this time may be different. Just over 60 percent of preferred stocks use the calendar quarter to pay their dividends, so upward pressure on prices typically builds as March, June, September and December approach. Because of this mechanism, we would normally expect to see prices increase during August as September’s dividend payments come into view.

But preferred stock prices went down last month, not up. When combined with the surge of new issues that we have seen over the last three 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. As the coming months unfold, August 2017 may be seen as the month that preferred stock prices finally started to return to normal (closer to their $25 par values).

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 2.2 percent and that of the 2-year bank CD is a meager 1.7 percent.



For comparison, I have set the Yield column in the first table above to show the current yield of the new August preferreds on August 31. It is into this marketplace that August’s new issues were introduced.

Income versus Value Investing, Year-To-Date

With an average current yield of 6.4 percent, plus the 7.8 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 14.2 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 August 31 at 2472, an unrealized annualized value gain of about 14.7 percent plus about two percent in average annualized dividend yield – a year-to-date annualized gain of about 16.7 percent for common stock investors.










See Reader Reviews

Table of Contents

Free Excerpt









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 97 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.

To receive articles by email automatically without having to visit the Forum, click here

A separate window from FeedBurner (a Google service) will open on your screen. Enter and verify the email address that you want articles from the Forum to be emailed to as instructed. And don't worry - you'll never receive any spam from me and your email address will not be shared.

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.










Book (Preferred Stock Investing)

  - Paperback provided by Amazon

  - eBook PDF provided by BookLocker


Notification Service

  - eMail alert features

  - Spec Sheets

  - Database features

  - Preferred stock search engine features

  - Access to experts

  - CDx3 Research Notes newsletter features

  - Pricing, Individual or Group subscriptions


Free Resources

  - CDx3 Newsletter (published by email the first week of every month)

  - Research article library (hosted by Seeking Alpha)

  - Test your knowledge (online preferred stock quiz)





(c) 2017 Del Mar Research, LLC. All rights reserved.


Trademarks of Del Mar Research, LLC:

  - CDx3 logo

  - Preferred Stock List, CDx3, CD Times 3, CDx3 Income Engine,

     CDx3 Investor, CDx3 Portfolio, CDx3 Preferred Stock


Notification Service

  - Individual Subscription Agreement

  - Group Subscription Agreement



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.