Preferred stock opportunities

[tede02]

This Bloomberg article caught my attention: https://www.bloomberg.com/news/articles/2023-05-07/preferreds-get-burned-in-historic-rout-spreading-from-banks?srnd=premium. 

 

Basically all the carnage in banking and real estate has hit the associated preferred stocks. I've dabbled a little bit in preferreds. I just find these less popular securities interesting. There can be some attractive opportunities for double digit returns when you buy during periods of distress. Probably need to be very careful with banks presently. I found Buffett's comments at the annual meeting striking. There are probably a lot of banks with negative equity right now which means the preferreds are also worth zero. But there may be some REITs with preferreds that will come back to par on the other side of the cycle. I have a position in SRG preferred and a tiny position in SYF preferred presently. Both yielding around 9% based on my average price. Total return will be much higher if they ultimately come back to par. 

[yesman182]

https://www.barrons.com/amp/articles/citi-preferred-stock-dividend-7a338456
 

this article talks about a citi preferred with some interesting characteristics, it was yielding 10%. 

[JRM]

I posted recently about CORR preferreds. 

[Spekulatius]

it should be noted that the preferred of all failed bank got wiped out with this latest episode. this is a different outcome than during the GFC where most preferred survived.

In my opinion this makes the preferred not that great of a risk reward considering the downside. I would rather invest in common bank stocks the way things are - at least you get the upside.

 

Now, if banks start to raise capital, this may become a different situation.

[Saluki]

I trade in and out of the SRG cumulative preferreds, currently have a tiny position.  They pay 7.5% at par ($25) and periodically dip below $22.  It's not a bad place to park your money since the CEO is trying to sell the company and if the common holders get anything at all, the preferreds will be called at $25 and you get the dividend while you wait. It won't make you rich, but it's not scary either.  No telling when the company will sell though, since the real estate environment has gotten tougher with the rise in interest rates. 

 

I have the SEC filing for another preferred in my reading pile that pays a little more, but it's trading at close to par and the business has been having some problems, so I'll probably won't stick my neck out for a few more basis points. 

[Red Lion]

I have Ritm and agnc preferred I bought in October, sitting on about 20% gains in each. Also recently bought VNO preferred. 
 

I think there will be good opportunities in cumulative preferred issues issued by reits. I don’t think bank preferred ever really make sense on a risk:reward basis with lack of cumulative dividends and just as likely to get wiped out as the common. 

[bizaro86]

9 hours ago, RedLion said:

I have Ritm and agnc preferred I bought in October, sitting on about 20% gains in each. Also recently bought VNO preferred. 
 

I think there will be good opportunities in cumulative preferred issues issued by reits. I don’t think bank preferred ever really make sense on a risk:reward basis with lack of cumulative dividends and just as likely to get wiped out as the common. 

 

I think if you're considering regional bank prefs you need to go way up the quality scale. I learned this lesson in the GFC, when I investigated the baby bonds issued by the car makers. Chrysler was observably in the worst shape and its bonds were the cheapest, then GM, then Ford's were the most expensive. I split the difference and bought GM baby bonds. Chrysler's were a zero in bankruptcy, GM's were restructured into some common that gave me an equity-like but not spectacular return, while Ford didn't restructure and their baby bonds were a multi-bagger. Even though they were the most expensive by far they turned out the best because they didn't file. 

 

I think banks this is even more important, because there won't be a "restructure and get common in the new bank" option, they'll just be a donut. 

[lnofeisone]

11 hours ago, bizaro86 said:

I think banks this is even more important, because there won't be a "restructure and get common in the new bank" option, they'll just be a donut. 

This is the most apt way to put it. My FRC prefs are just that, 0. It was a tiny position, less than 25 bps. A good reminder and a lesson of what will happen to some of these bank prefs.

[tede02]

For ideas, I was looking at the holdings within the iShares preferred ETF. The fund holds hundreds of preferreds. If you go to the end of the list where the smallest positions are, you'll find the stuff that is the most bombed out. You'll find First Republic all the way at the end! LOL. It's an interesting list to review. Basically all financials, REITs and some misc. stuff sprinkled throughout.