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Opportunities in Preferred Shares


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I just went back and reread the entire thread on preferred shares that started last Jan and was active through May of last year. Wow that was a great and very useful thread. After reading it I wondered if we could try to do something like that again. I know that the opportunities are not around like they were in March of last year but from what I can tell there are still some good opportunities out there. I think it would be interesting to post what you are currently holding and what you are finding that is interesting in the Preferred shares arena.

 

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I will start by sharing what I have and am looking at.

 

I currently own

 

ORH B - Now owned by Fairfax - 3.75% over Libor

 

Looking into

 

Goldman Sachs Group

Series A, C and D - all are adjustable rate roughly 0.75% over Libor with a floor of 3-4%

 

Suntrust bank

Series A - Adjustable rate 0.53% over Libor with a floor of 4%

 

As you can see I have been focused on adjustable rates. Not many of the fixed rates seem as attractive to me at this time.

 

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I have been thinking about the non cumulative nature of Preferred shares and wondered what there was to motivate the company to declare a Dividend.

 

1. Reputation and their ability to go back to the market for more capital

2. they want to pay out to the common shares

3. ????????

 

I wonder in a situation where they are staving off BK (their reputation is already gone and they won't be paying out to the common for a long time) wouldn't they feel free to just discontinue to pay the dividend on the perferred?

 

What else is there to motivate them?

 

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I have been thinking about the non cumulative nature of Preferred shares and wondered what there was to motivate the company to declare a Dividend.

 

1. Reputation and their ability to go back to the market for more capital

2. they want to pay out to the common shares

3. ????????

 

I wonder in a situation where they are staving off BK (their reputation is already gone and they won't be paying out to the common for a long time) wouldn't they feel free to just discontinue to pay the dividend on the perferred?

 

What else is there to motivate them?

 

I believe you have assessed it correctly.  I would say there is nothing to motivate them to pay dividends if the company is going to be liquidated in Chapter7. In a chapter11 there may have other motivations?

 

 

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For Canadian investor, it could be a good idea to buy US preferred  in this economic environment.

Every time fear is ramping in markets, investors rush to US bond and the CAD dollar depreciate compared to USD.

 

Then if you buy a preferred when exchange rate is at parity you get a steady dividend plus you get protection againt market risk with the exchange rate. Of course you lose if CAD keeps appreciating, but it seems like a low  probability to me.

 

The trick is to find a preferred that won't go down when everything else is, but you also want a good yield.

 

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Small Cap,

 

I'm still holding a basket of financial PFD's...I sold some off when their yield dropped below 7.0% and re-invested the proceeds in higher yielding issues. I've also been successful in some limited PFD dividend harvesting. You are correct the big gains are over, but my basket is still yielding over 9%, which suggests to me there is potential for 20% to 30% additional gains. Collecting +9% while waiting is ok with me and if an issue heads south my current gains provide a decent margin of safety. Of the 35+ PFD positions in the basket three very small positions went south for the winter and didn't come back!

 

The following are definitely not risk free, but they are yielding > 10% and might be an opportunity.

 

Felcor Lodging - FCH-C  (not paying, but cumulative)

First Ind Realty - FR-J

ISTAR Financial - SFI-D

North Star Reality - NRF-A

Phoenix Cos - PFX

RAIT Financial Trust - RAS- C

Strategic Hotel & Resorts - BEE-C

 

 

I hold long positions in the above and would appreciate any comments on them

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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If you are looking for yield in the current market environment, preferreds are still beneficial although the capital appreciation/upside of 2009 is no longer available. 2009 was an opportunity that doesn't come around often.

 

In June/July, GS preferred provided a good upside/downside opportunity. I still own WFC-L, CWH (HRP) - B/C/D preferred, LXP preferred, and purchased GS-D a couple of months ago at $18-19.

 

 

 

 

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I still own Royal Bank of Scotland RBS.PR.P - NYSE - since a year ago april/may when someone on this board discussed it.  They actually had an offer out in spring to buy it in at $14/share that I ignored.  The Maturity is 25.  Another couple of years and the dividend will have paid my purchase price back. 

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I'm lazy...

 

Does anyone have a website that can show the current yields on preferred issues? Google and Yahoo do not contain the dividend amounts.  I currently look up details on preferred dividends on QuantumOnline.  Eg. http://quantumonline.com/search.cfm?tickersymbol=RBS-L&sopt=symbol

 

I would prefer a site that show the current price and yield all on one page.  Any suggestions?

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'I would prefer a site that show the current price and yield all on one page.  Any suggestions?'

 

I usually find those info concerning preferred security on this site.

 

http://www.theglobeandmail.com/globe-investor/markets/stocks/summary/?q=WFC.PR.L-N

 

Unfortunately the globe does not appear to be a definitive source. They have no dividend details for this one.  http://www.theglobeandmail.com/globe-investor/markets/stocks/summary/?q=RBS.PR.P-N

while they do have info for this one.  http://www.theglobeandmail.com/globe-investor/markets/stocks/summary/?q=RBS.PR.L-N

 

I can't see the logic in how they decide whether to publish this information for a particular share... maybe it's based on volume?

 

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If you have a subscription to the WSJ online - Current yields are provided under market data

 

http://online.wsj.com/public/quotes/main.html%3Fsymbol%3DWFCL%26type%3Dusstock

 

Eric, when I lookup the preferred share WFC Pref L --- it only includes the current yield on the underlying common shares.. not on the preferred stock.  Therefore... it appears that WSJ fails in this regard just like all the other sites.

 

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