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TODAY'S BEST BUYS: Highest Quality Preferreds For Lowest Price


There are currently 124 high quality preferred stocks selling for an average price of $26.43 per share (investment grade, cumulative dividends). And four of these high quality issues are selling within one dividend of their $25 par value, offering an average current yield of 5.3 percent.

Using the Preferred Stock Search Engine

The preferred stock 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 (below $25.50), 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.

In today's high-demand preferred stock marketplace, there are no high quality issues selling below their $25 par value, so finding the best-priced candidates requires the use of a robust preferred stock search engine.


Figure 1 shows the complete filter used to find the highest quality preferred stocks available that are currently trading within one dividend of their $25 par value ($25.50). Of the twenty-five preferred stock characteristics that can be set, the four arrows highlight the keys for this search. Setting the "Today's price, at most" parameter to "$25.50" 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 results 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 (PSL) database (please note that to protect the values of subscriptions to our CDx3 Notification Service, the trading symbols are obscured here). Already a CDx3 Notification Service subscriber? Sign on to the CDx3 Notification Service website and set our PSL filter parameters as shown above to see the current list.

There were a total of 919 preferred stocks and ETDS trading on U.S. stock exchanges as the month came to a close (including convertible preferred stocks). Of these 919, these four are the highest quality issues that are available for the best price (within one dividend of par).


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New Preferred Stock IPO’s, September 2019


If you are a seller, you should check your brokerage account. With demand so high for U.S.-traded preferred stocks, prices are higher than we have seen in several years. Selling your shares will deliver a nice capital gain (which is generally taxed at a lower rate than regular income). For many, selling your preferred stock shares in this high-priced market is a lot like collecting your future dividend income now, all at once. Just remember that if you choose to sell, you put an end to your dividend income. Be sure to check with your tax advisor before making any moves, but selling has become worth consideration.

In anticipation of a drop in rates, buyers and those seeking to reduce their risk continued to push up the prices of previously issued higher payers. As the month came to a close, the average market price for all U.S.-traded preferred stocks was $25.93, up $0.13 per share over the last month.


September’s new issues

September’s sixteen new preferred stocks are offering an average annual dividend (coupon) of 6.6 percent, an average current yield (which does not consider reinvested dividends or capital gain/loss) of 6.5 percent and an average Yield-To-Call (which does consider reinvested dividends and capital gain/loss) of 6.2 percent (using September 30 prices).

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.

A special note regarding preferred stock trading symbols: Annoyingly, unlike common stock trading symbols, the format used by exchanges, 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 and “PSA.PA” at Seeking Alpha. 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 124 high quality preferred stocks selling for an average price of $26.43 (September 30), offering an average current yield of 5.3 percent. By high quality I mean preferreds offering the characteristics that most risk-averse preferred stock investors favor such as investment grade ratings and cumulative dividends.

There is now a total of 919 of these securities trading on U.S. stock exchanges (including convertible preferred stocks).

About the new issues

ETI- is from Entergy Texas, Inc. (EZT), the company’s first preferred stock. First, let me say how annoying it is when the NYSE comes up with a new preferred stock symbol that ends with a hyphen. Doing so complicates everything for everybody for no particular reason. Stupid. As described above, to get the correct symbol from your favorite quoting website, replace the hyphen using the symbol convention used by your quoting site. ETI- is a Ba2/BBB- rated traditional preferred stock offering 5.375 percent cumulative dividends. Entergy Texas, Inc. falls under the Entergy Corporation (ETR) umbrella and offers electric power generation and distribution.

COF-I is a 60 million share traditional preferred stock from Capital One Financial Services (COF) offering 5.0 percent non-cumulative annual dividends. It would not be surprising for COF to use the proceeds from this new 5 percent issue to redeem COF-P (6 percent, 35 million shares) and COF-C (6.25 percent, 20 million shares). COF-P became redeemable in September 2017 while COF-C reached its call date on September 1, 2019. Capital One currently has seven preferred stocks trading.

FTAI-A is a traditional preferred stock from Fortress Transportation Infrastructure Investors, LLC (FTAI). The new FTAI-A is the company’s first and only preferred stock and uses the fixed-to-float rate structure. The dividend rate is 8.25 percent until the security’s September 15, 2024 call at which time the coupon rate uses a formula equal to the three-month LIBOR rate (currently at 2.13 percent) plus 6.886 percent. FTAI is a very interesting company, specializing in large-scale transportation and logistics – air, land and sea. You name it, they move it. From the company’s website “Fortress Transportation and Infrastructure Investors LLC owns and acquires high quality infrastructure and equipment that is essential for the transportation of goods and people globally. FTAI currently invests across four market sectors: aviation, energy, intermodal transport and rail. FTAI targets assets that, on a combined basis, generate strong and stable cash flows with the potential for earnings growth and asset appreciation. The Company’s existing mix of assets provides significant cash flows as well as organic growth potential through identified projects.” FTAI is a $4 billion LLC founded in 2011 and headquartered in New York City.

PSA-I is a traditional preferred stock offering a 4.875 percent cumulative dividend from Public Storage (PSA). PSA is the highest rated property REIT in the U.S. with double-investment grade ratings (A3/BBB+). You can see by the miserly coupon on this new security how those ratings pay off. After issuing PSA-I at 4.875 percent, the company announced the redemption of all outstanding shares of PSA-U (5.625 percent) for October 14, 2019. PSA-U shareholders will receive the security’s $25 par value (plus accrued dividends) and PSA-U shares will stop trading on that date.

BAC-N is a 5.0 percent traditional preferred stock from Bank of America Corporation (BAC) with double-investment grade ratings (Baa3/BBB-). Taking advantage of today’s relatively low rates, BAC-N is BAC’s second new preferred stock issued within the last 90 days (BAC-M was introduced on June 18 at 5.375 percent). BAC currently has thirteen preferred stocks trading. Like all bank-issued preferred stocks introduced since the Dodd-Frank Wall Street Reform Act was signed into law in July 2010, BAC-N offers non-cumulative dividends (hence allowing the bank to count the value of BAC-N toward its Tier 1 Capital regulatory reserves).

BFS-E is a traditional preferred stock offering unrated 6.0 percent fixed-rate annual dividends from Saul Centers (BFS). Dividends are cumulative meaning that if BFS misses a dividend payment to you, they still owe you the money (their obligation to pay you accumulates). BFS owns a variety of retail shopping centers primarily in the Washington, D.C. area. The company’s leadership has seen some drama lately. It lists 86-year-old Bernard Saul II as its Chairman and CEO and, until a few days ago, James Lansdale as its President, COO and Director. But in a recent SEC filing, the company announced that Lansdale would be resigning effective December 31. The announcement then went out of its way to point out that Lansdale’s resignation “was not in connection with any disagreements with the Company about any matter” (when they say it’s not the money, it’s the money). The proceeds from the new BFS-E are being used to redeem all outstanding shares of BFS-C (6.875 percent) on October 17, 2019. BFS is a $1.25 billion property REIT headquartered in Bethesda, Maryland.

MITT-C is an unrated traditional preferred stock from AG Mortgage Investment Trust, Inc. (MITT) offering 8 percent annual dividends until the security’s September 17, 2024 call date. At that time, the coupon rate will vary based on the three-month LIBOR rate plus 6.476 percent (page S-11 of the prospectus addresses how this rate will be calculated in the absence of the LIBOR). MITT-C is the company’s first new preferred stock since September 2012. MITT now has three preferred stock issues trading, with the new MITT-C being the first to use the fixed-to-float rate structure. Investors should be wary of this structure. A floating rate can sound very enticing during a period of increasing rates (which is the whole point). But that’s not the environment we are in and are not likely to be in for some time. Further, looking at the history (which I have done several times), companies tend to redeem the shares on the security’s call date if they are facing a significant uptick in the rate (but not if rates are going down). The notion that if rates rise in the future you will be gleefully smothered with increased dividend income is unlikely. MITT is a mortgage REIT, making their money by using cheap cash (such as that generated by a new preferred stock issue) to buy bundles of mortgages that, hopefully, pay a higher rate than that cash. Mortgage REITs tend to be more profitable during periods of low rates (now) since the cost of investment capital is lower while the rate paid to them by the bundles of (fixed-rate) mortgages stays the same.

DRADP from Digirad Corporation (DRAD) is a bit unusual in a couple of different ways. Note that the par value of this security is $10, rather than the usual $25. There are only eleven such securities trading on U.S. stock exchanges. Since the market price of a fixed-rate preferred stock will tend to stay pretty close to its par value (since that is the amount shareholders will receive from the issuer in the event of a call), the $10 par value of DRADP presumably makes the shares more affordable to a larger number of investors (not sure how well this actually works out in practice). Also, while about 70 percent of newly issued preferred stock are distributed to the marketplace using the wholesale Over-the-Counter exchange, DRADP did not; rather, its underwriters chose to initiate trading on the retail NGM exchange. Founded in 1985, Digirad is a $10 million company that develops and sells a variety of nuclear medical imaging systems.

FFFKP is a traditional preferred stock from Fifth Third Bancorp offering 4.95 percent non-cumulative dividends. The coupon rate of new preferred stocks is set by the underwriters at a rate that they believe market participants will pay the security’s par value for ($25 in this case). FFFKP is a somewhat rare case where the underwriters blew it, as this security has not traded reached $25 since its introduction. Market participants are saying that to take the risk associated with this Baa3/BB+ rated security, they want a coupon of at least 5.1 percent. It’s almost like introducing FFFKP below five percent became more important that acknowledging the realities of market demand. On September 11 the bank was successful in changing its state bank charter to a national charter, another piece of its ongoing expansion plans falling in to place. Fifth Third is a $20 billion bank founded in 1858 and headquartered in Cincinnati.

REXR-C is an unrated traditional preferred stock from Rexford Industrial Realty (REXR), a Southern California property REIT specializing in industrial real estate. REXR has three preferred stocks currently trading, all of which are virtually identical, none of which are currently redeemable. REXR-C pays 5.625 percent fixed-rate cumulative dividends and becomes callable on September 20, 2024. Along with issuing REXR-C, the company has recently acquired several properties: $18.2 million for the Eastvale development site in June; $110.3 million to acquire five industrial properties in early-September; and $66.2 million for an eight-building industrial complex in mid-September. REXR-C raised about $75 million, the rest being funded with cash on hand. REXR is a $4.8 billion REIT headquartered in Los Angeles, California.

ATH-B is a 5.625 percent traditional preferred stock from Athene Holding (ATH), offering non-cumulative dividends and a BBB- investment grade rating from S&P. ATH, founded in 2008 and headquartered in Bermuda, is an $8 billion insurance company specializing in retirement savings products. ATH-B, a fixed-rate preferred, is the company’s second new preferred stock issued in 90 days with ATH-A being introduced last June with a 6.35 percent fixed-to-float coupon. Combined, the two new preferreds generated over $1 billion in new cash. ATH made news this month when it announced the acquisition of the loan portfolio of PK AirFinance, GE Capital’s aviation lending group. The extent to which the new $1 billion in proceeds from ATH-A and ATH-B will make the acquisition happen is unclear, however the prospectuses of these new securities state that these proceeds will be used for “…supporting growth…” How the acquisition of an airplane lending company is consistent with retirement savings products is more clear to the folks at ATH than it is to me.

YGYIP is a fixed-rate traditional preferred stock from Youngevity International, Inc. (YGYI), an exceedingly robust name for a company with a sub-$5 common stock. YGYIP is the company’s first preferred stock and offers 9.75 percent cumulative dividends paid monthly. YGYIP is another case where the security’s underwriters appear to have over-estimated market demand as YGYIP has not traded at its $25 par value since it was introduced on September 20. Youngevity “…develops and distributes health and nutrition related products and services in the United States and internationally.” Those products include coffees, hemp oils, skincare products and a variety of other lotions and potions. YGYI is a $140 million company founded in 1996 and headquartered naturally enough on the US/Mexico border in Chula Vista, California.

AVGOP/AVGO-A is a mandatory convertible preferred stock from Broadcom, Inc. (AVGO), a relatively rare preferred stock offering from the semiconductor manufacturing industry. Broadcom has one of the most complex corporate histories you will ever run across. Without walking through the transactions, the company we know today has resulted from merging two Singapore companies - Broadcom-Singapore and Avago Technologies - and Broadcom Cayman L.P., the result of which was then “redomiciled” as a Delaware corporation. Then last year the company acquired CA, Inc. an infrastructure software company, and security software company Symantec Corporation. The company’s new preferred stock, AVGOP, is equally complex in its conversion terms which are alternatingly mandatory and/or optional at the direction of the shareholder and/or the company at a variety of points in time and/or under various conditions but within certain limitations, naturally. The Free Writing Prospectus of a new preferred stock (also known as a Term Sheet) is usually about two pages long and summarizes the high points that are of interest to most investors. The FWP for AVGOP is seven pages long and, after studying it for almost an hour, remains unclear as to what a retail investor would be investing in. It is likely that this security, given its $1,000 par value and complex terms, is intended for a specific buyer (which does not include the likes of us). Move along, nothing to see here.

GLSDP/GOODN is an unrated traditional preferred stock offering 6.625 percent cumulative dividends from Gladstone Commercial Corporation (GOOD). Gladstone is a property REIT, specializing in commercial office buildings. The proceeds from GLSDP/GOODN are being used to redeem all outstanding shares of two older, higher-paying preferred stocks – GOODP (7.75 percent, 1 million shares) and GOODO (7.5 percent, 1 million shares). GOOD was founded in 2003 and is headquartered in McLean, Virginia.

UTBPP/UBP-K is a traditional preferred stock from Urstadt Biddle Properties, Inc. (UBA), one of two preferred stocks that this property REIT has trading. UTBPP is unrated and offers cumulative 5.875 percent dividends. UBA specializes in small retail centers, primarily located along Manhattan commuter corridors. While the company acquired five such properties during 2017, their website lists only one such acquisition during 2018 and none for 2019. UBA is a $900 million company headquartered in Greenwich, Connecticut.

AGNIP/AGNCO is a 14 million share unrated, traditional preferred stock from mortgage REIT AGNC Investment Corporation (AGNC). AGNIP/AGNCO offers a 6.5 percent cumulative dividend until its October 15, 2024 call date. At that time, the dividend paid by this security becomes variable based on the three-month LIBOR rate plus 4.993 percent. Like AG Mortgage Investment Trust discussed earlier, AGNC makes its money by raising cash (such as with a new preferred stock issue) and using the proceeds to purchase bundles of mortgages that, hopefully, pay a higher return. AGNC has a total of four preferred stocks trading, one of which (AGNCB, 7.75 percent, 7 million shares) became callable in May of this year. While the prospectus for the new AGNIP/AGNCO does not say so, it would not be surprising for AGNC to use half of the proceeds from this new issue to redeem AGNCB. AGNC is an $8.7 billion company founded in 2008 and headquartered in Bethesda, Maryland.

Sources: Preferred stock data - CDx3 Notification Service database,


Preferred Stock Tax treatment

The 2017 Tax Relief Act included a provision aimed at small businesses that also delivers an enormous benefit to those holding shares of preferred stocks issued by REITs (which is pretty much all of us). Most small businesses are incorporated as a Limited Liability Corporation (LLC). Under this structure, the company’s earnings are passed through to the owners who then pay the tax on their personal returns. The Act allows those receiving such income to deduct, right off the top, up to twenty percent of this “pass-through income.”

But remember that REITs do the same thing as LLC’s – at least 90 percent of a REIT’s earnings are passed to the REIT’s shareholders primarily in the form of preferred stock dividends; the shareholders then pay the tax on their personal returns. In other words, preferred stock dividends received from REITs qualify under the Act’s “pass-through income” provision and are therefore up to twenty percent deductible. Such income is reported to you on the 1099 for received from your broker as “Section 199A” income.

The tax treatment of the taxable 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.

Traditional preferred stock dividends paid by partnerships as pass-through income, or are otherwise paid out of pre-tax profits, are taxable as regular income; you pay the full tax since the company has not (FTAI-A, DRADP).

Companies incorporated as 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, taxable dividends received from REITs are taxed as regular income (PSA-I, BFS-E, MITT-C, REXR-C, GLSDP/GOODN, UTBPP/UBP-K, AGNIP/AGNCO).

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. Since Exchange-Traded Debt Securities are debt, ETDS shareholders are on the hook for the taxes. Income received from ETDS’ is taxed as regular income (there were no EDTS’ issued during September).

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 (ETI-, COF-I, BAC-N, FFFKP, ATH-B, YGYIP, AVGOP).

In Context: The U.S. preferred stock marketplace

The following chart illustrates the average market price of U.S.-traded preferred stocks over the last twelve months.

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.

Moving down the risk scale, the next chart compares the average current yield realized by today’s preferred stock buyers when compared to the yield earned by those investing in the 10-year Treasury note or 2-year bank Certificates of Deposit.

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 1.7 percent and that of the 2-year bank CD has turned the yield curve upside down at 2.4 percent (shorter term money very rarely offers a higher return than longer term money).

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 30. It is into this marketplace that September’s new issues were introduced.










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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 over 100 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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