As I noted last week I am going to add some relatively high quality issues to my portfolio and I am starting off with more preferred shares from issuer Tri-Continental Corp (TY) which is a $1.4 billion closed end fund. To me this is the finest quality CEF preferred available and very straightforward–maybe the #1 quality preferred in the publicly traded universe. The beauty is that virtually all their holdings are Level 1 assets (readily observable prices–i.e. common stocks).
The Tri-Continental Fund is managed by Columbia Threadneedle Investments–an asset manager with over $500 billion in assets under management.
The issue is a $50/share issue which originated in 1963 and carries a $2.50/share annual dividend (5%). The issue is now trading at $48/share giving it a current yield of 5.2%. Dividends are cumulative and most years they are qualified, but may also include return of capital.
Shares are redeemable anytime, but the redemption price is $55/share.
There are now 752,740 shares outstanding – the average daily volume (per Yahoo Finance) is 797 shares–so pretty thin, but adequate to fill a modest order most days.
It should be known that because Tri-Continental (TY) is a closed end fund they must maintain a 200% asset coverage ratio on senior securities. The preferred shares are the only (no debt) ‘senior securities’ the CEF has outstanding and thus carries a 4200% coverage ratio.
Note that I have a position already in this issue and in fact snagged a few shares last week at $47–I used a good til cancelled limit order for these shares. I have entered an additional order below $48 to see if I can get some more shares.
Here is their latest annual report for the period ending 12/31/2022.
Caution–while this is a extremely high quality issue it moves up and down based on interest rates (like all preferreds and bonds) and has traded in a very wide range in the 60 years it has been outstanding as can be seen in the chart below going back to 1973.
If you try to find this issue you will find the ticker used for it varies.
Yahoo Finance TY-P
Etrade TY.PR
Fidelity TY/P
I am certain others use different tickers.
For me this is a ‘sock drawer’ issue–to be held long term and simply collect the very safe dividend. This buy is about quality more than yield.
As always I write about what I am doing and this is not a recommendation to anyone to do anything–I am old school and I have no idea of the ‘suitability’ of what I do for anyone else.
Thanks Tim for the reminder on Tri-Continental. I had been looking for an entry point for a long time and had missed the dips earlier this year. I did pickup an initial position this morning at 47.29.
As I approach retirement (~1-2 years), I am working on transforming my portfolio from a more equity based to a more income based. The rise in rates this year has been helping.
Proto123–so you’re one of them from earlier today. I was late getting my order in so missed it–I’m patient.
I’m also a holder of this TY preferred. Am I the only one who wonders why they still support it? Preferreds don’t seem to be a significant part of their financing so maybe the reputational damage of dropping support wouldn’t matter. Just a thought.
Tim, I bought this last year in the $44.50 range with several buys. I looked at the chart and even though historically it’s been a lot lower, I felt at 5-1/2% it was one of the few sleep well at night, buy it and forget it. One thing I noticed in the couple days I purchased was when a order filled I went back and put in a lower bid and that filled then the last time I put in a lower bid I must of been below the range of the seller, so I moved it up.
Tim, I nibbled on this last year after learning of it from your articles years ago. Unlike many users here for whom “sock drawer” means “I trade in and out of it eleventy-four times a day and I no longer hold it at all, haha”, I know that you really mean it. However I was very surprised and disappointed to see that last year’s dividends were reported on my 1099 as about 50/50 qualified/non-qualified. (And no return of capital.)
Larry–mine is all within one of my IRAs so I don’t get over concerned with the dividend status.
Well then please be aware that for a small lot that I purchased in a taxable account on 9/28/22, the first dividend I got was the “1/1/23” credited to my Schwab account on 1/4 (where there is usually a one-day lag between payment and credit, so surely it was paid in 2023). For unknown reasons, it showed up on my 2022 1099, and it was 47% Non-Qualified which was very disappointing. Also, 3.6% of it was reported as 1099 income. Anyone considering this in a taxable account should know. If I had known that half the dividend would be non-qualified, I would have bought in an IRA account instead.
Oops. 3.6% of it was reported as 199a income. TY-PB just to be extra extra clear.
Thanks Tim!
Was this the issue that had a put feature? I must be confusing it with another issue.
BTW, anyone know how to find out whether what % of the pref dividends are ordinary? Specifically, I can’t find it for OPP-A and B.
Maine–a couple 50 dollar issues from Gabelli had put features–but I believe they are past those periods so are free trading–perpetual.
Tim – GLU-B at least still has a put available on or about 12/26/23
Interesting idea on TY preferred Tim. I went overweight in the $44-46 range on TY with the most recent downturn. Considered it along with the CDs and treasuries at the time. Given the idea that rates most likely staying neutral or almost done, probability favors this being a good trade.