A Day For a Little Buying

With markets partying a little today I took the opportunity to add a couple more percent to my investments.

mREIT New Residential Investment Trust (NRZ) had some good news today so I bought some of the New Residential Investment 7.125% FTF preferred (NRZ-B). This one has a floating rate period which is more than 4 years out–I am avoiding close by FTF issues because of the .75% 3 month Libor. This NRZ issue plays in to my attempt to lock in 7-8% current yields–this one has a 9.42% current yield–obvious plenty of risk as well.

I added some more DTE Energy 5.375% baby bonds (DTJ)–I had a position, but at $25.12 it was reasonable to add more at the right price (it becomes callable 6/21).

Lastly I added some IHTA–the Invesco 2024 Term Trust at $6.25 which is at a current yield of around 9% right now. This is a portfolio of BBB- (low investment grade) quality commercial mortgages. Certainly risk with commercial mortgages going unpaid. The net asset value is now $6.79–quite a drop in the last few months from around $10 2 months ago. The dividend has not yet been cut–it pays 4.67 cents/month and it would not be surprising to see a cut soon. The trust target is to redeem at $9.835 in 2024–looks dicey at the moment, but we’ll see.

So with my additions I am nearing 70% invested. Plenty of dry powder awaiting further developments in the mREITs and lodging REIT preferreds.

I think that right now I am above 7.5% on the portfolio yield (based on my cost). Many of the utility baby bonds and CEF preferreds I bought 10-25% below current values which gives me a high quality portfolio. I have balanced the high quality issues with the dicier issues–TWO, NRZ, HT and NLY preferreds and other such issues.

33 thoughts on “A Day For a Little Buying”

  1. Hey Tim…I’m glad to see you’re buying the 5.9% DTE baby bonds, and I wish more people were looking at the credit side for income in this market. There is so little visibility on the equity side that it just doesn’t seem feasible that companies are going to be able to continue paying their dividends. The Fed has said it is going to back stop the credit markets via the purchase of bond ETFs, so it seems much more likely that unsecured bonds will hold their value and maintain their coupon payments than either common or preferred stocks.

    1. To Citadel West or Tim; You made reference to the DTE 5.9% baby bonds. I can’t find a symbol or cusip number of that??? Do you have it??? DTE the common has a yield of 3.95%. I went to my Schwab account and scrolled thru their inventory of DTE bonds but there were no 5.9% coupons. I noticed what they did have with what I call decent coupons were trading at HUGE premiums over par.

      1. Chuck,
        I think CW made a mistake. Tim was talking about the DTJ baby bonds. DTY is the only thing DTE has that’s near 6%, as you probably saw already. He may have been talking about DTP, also – the equity units….I’m not sure.

        I own DTJ and DTP, myself. DTP is well under par.

        1. I’ve tried to understand equity units before, and failed, so I’ve avoided them. It reads like a mandatory convertible. Is that accurate? If so, does par matter?

          1. yes they are basically a mandatory convert in a different wrapper. Nope, as you said par doesn’t matter since they just trade based on the issuer common stock

          2. Irish,
            MCG pretty much covered it. Yes, they are comparable to a mandy convert and comprised of various components (warrants, stock, notes, pfd’s, etc), but bottom line is that they trade for the most part in lock-step with what the common is doing. I only mentioned the par value because I know Chuck doesn’t like paying much over par for anything. Some mistake the huge ‘under par’ figure of DTP to be some sort of great value when in fact, it’s likely to lose you money when it converts. Same problems with CNP-B. DCUE is the only one that even comes close to hovering around par – that I follow. It’s by far, in the best shape to not lose an investor $$. It’s only about 8 cents below par right now.

            1. Why would it be likely to lose you money? It’ll lose you money if the common stock goes lower, and make you money if the common stock goes higher. There are sophisticated shops that make the market in those securities, so they’ll most of the time trade fairly valued to the underlying common shares.

              1. Personal opinion but based off of experience… Unlike some other ute’s, DTE has a much more challenging regulatory environment, which keeps a lid on recovery from where we are today. Their electric and gas svcs are confined to Michigan, so they service a limited (somewhat ute hostile) geographical area. Their biomass business, whilst quite spread out geographically – is also challenged. Who is interested in large amounts of the recovered methane? Their industrial power component is definitely challenged with so much being shutdown by a hostile Governor. Sure, some of this is temporary, but recovering from all of this won’t be. Some ute’s are going to have to eat a substantial amount of losses for monies they won’t be able to recover for a multitude of reasons (same with some landlord’s). So with all that said, I don’t see the common share price recovering to a level that will bring the price of the equity units up to par anytime soon (thus, likely losing money). Surely, this is subject to change and I hope things turn around in a major way. Until then, I think if you’re going to play in this space, DCUE is proving to be the safest bet of the ones I mentioned. DTP being down ~20% below par and CNP-B even worse than that – are just not as strongly positioned. But, to each his own.

                1. Ah, your position is that you fundamentally think DTE will decline. I thought you were making a general statement on mandatory converts. Fair enough

                  1. Yes sir… That was commentary on DTE common shares underperformance…Same largely goes for CNP.

        1. To Tim and Affinity; THANK YOU for the info. Iam not overly excited about something that converts to the common. Its tough enough just to keep track of everythings call dates, then the 3 month libor + ______%. Its getting to be a full time job anymore!!!!!! LOL

      2. Sorry Chuck…the specific baby bonds that Tim mentioned have a 5.375% coupon. However, DTE Energy has several other baby bonds, including a couple with coupons at 6% and 6.25%. You can look up all securities related to the parent company using the Search Securities function at the top of this page…just plug in the parent symbol DTE.

  2. Hello Tim, you landed a better price on the IHTA than I did last week. Wanted something out 4 to 5 years hoping that this all settles out in the long run

  3. 2 random thoughts while searching for bargains: anyone like SLMNP right now? I’ve been holding it for a while (parent company LYB), 6% coupon, cumulative, now under par, penalties for missing payments, etc. Seems like value here as not much chance of a forced conversion. Curious if anyone else holds this or likes/hates it. 2. Ok not a preferred but possibly a great opportunity. Delta bond due April 2021 give you a ytm of about 9% right now on a 3.4% coupon. If you think they can avoid bankruptcy for 11 more months, this could be a great return. (and they have substantial cash plus low-interest loans that should keep them going for at least that long)

    1. Franklin; Its interesting that Delta could even get an underwriter to issue a 3.4% coupon for them in their horrendous state. Kinda strange.

      1. They’re gonna make it to April, Chuck! Like driving that old car with the gas light and engine light on at the same time, just gotta coast a few blocks!

  4. Still owned WFC-O so I swapped it for WFC-Q. What a difference.

    I bailed out of NRZ preferreds recently because if the uncertainty. Now I’m reluctant to buy back at the much higher prices. Would’ve been easier to buy if I never owned it.

      1. I doubt I’ll still own it in 2023. Maybe I’ll swap back to O after the next drop since O will likely drop more than Q.
        Resets aren’t properly priced in these days. I rarely hold until reset so the market sets the price for me.

      2. Retired Broker : “If WFC-Q reset today it would yield less than 4% at $25. Resets in 2023”.
        With T-Bills, 1 year CD’s and MM funds all under 1% that 4% looks pretty darn good to me. And that is pretty much where they would all still have to be if WFC-Q only reset to 4%. Nobody knows for sure where rates will be 3 years from now, I would “guess” they would be higher than today, some think very much higher, who knows. That said, I like to buy IG FF issues to trade in and out of and collect some decent dividends if you do hold for awhile.

    1. Martin; You probably bought my shares–LOL. I did own 4,000 of WFC+Q but sold 2,000 today and swapped them for STT+D. Had to pay more but I had too much WFC and wanted more of STT. I’m just trying to keep things in “balance” incase something blows up in my face. I think this market is acting very crazy. CNBC just had on Richard Clarida the Federal Reserve Vice Chairman and he was saying this recession is like what we had back in the 1940’s and unemployment will most likely hit over 30 million. So thats why I can’t figure out for the life of me how these things have gotten so expensive so quickly.

      1. Chuck,
        Banks are facing huge credit losses as their customers suffer through the coronavirus pandemic, S&P warns

        https://www.marketwatch.com/story/banks-are-facing-huge-credit-losses-as-their-customers-suffer-through-the-coronavirus-pandemic-sp-warns-2020-05-05?siteid=yhoof2&yptr=yahoo

        Here is a case where I think the bots crawling the internet and trading off of headlines – got it a lil goofed up. JPM wasn’t downgraded, yet, it dropped relatively steeply when the article was posted this afternoon.

        I bought more at the low of the day, right at the close – to add to my common holding of JMP, which compliments my preferreds JPM-C and JPM-D. Funny, didn’t see BofA named at all.

        1. To Affinity; THANK YOU for the good read. I do own alot of the Mega Banks Preferreds for sure. They make up around 16 or 17% of my portfolio. Don’t own their common, just the preferreds. Very good coupons and very good call protection but unfortunately most are non cumulative. Hope they can make it thru. I’ve gone thru Schwabs inventory adnauseum and its impossible to find anything thats priced decent. Iam sure you know what I mean. As an “example” yesterday AAPL came out with a 30 year bond and its a whopping 2.75% coupon, then Starbucks came out with a 30 year bond with a whopping 3.25% coupon. I refuse to buy that stuff because down the road when things return to normal they will all get priced waaaaay below par. I will guarantee you that one.

          1. I thought that the last round of ~4.75% bank preferreds issued before the ‘crisis’ was laughable. I think we’ll find we’ll wish we had loaded the boat on them in hindsight. Anything new will probably come in close to 4% flat is what my noggin’ is thinking.

            The shrinking # of quality pfd/ETD available at a decent price is but one of the reasons I’ve been very active on the common side. I’m actively buying SBUX common and will continue to add to JPM. BAC common used to be my favorite go-to banking common but I see more juice in JPM right now.

            The last 2 smaller banks selling at a decent rate were CFG-D and BK-C. They are running away out of reach now. Oh well. I’m not at the point where I will reach down to pickup anything below IG rated stuff in this environment. I’m already fully loaded with the quality stuff and at this point will begin to look at stocking a lil dry powder for the likely summer slow-down.

        2. Every time vaccine is promoted by a company it seems to me like it drives the market higher. It is computerized trading in my view.

          Pull out the damn plug please.

          Not buying

          1. Wait until Beyond Meat or Peloton comes out with a vaccine…….. maybe this’ll turn into another one of those times when companies start changing their names to prove they’re in the vaccine business just like some weirdos did way back when just to prove (or have the market assume) they were involved with blockchain………

  5. For those of you that can stomach the risk and perhaps heartache take a look at “INN+D” and “INN+E”. I own waaaay tooo much of both (17,500 shares in total) but I bought them when they were first issued right at par. They cut their common to ZERO but when I called them a few weeks back they said they have no plans to cut their 2 preferreds. Now for the “Kicker”, they are “cumulative”. They own 74 high quality Hotels in 22 states. Probably not for the faint of heart but they are trading way down around $15 and when things return to normal a person could make a killing on these providing they survive. Iam going to hold on to my shares for whatever thats worth. Their I R Mgr. is a great guy and he does return calls unlike many others I have dealt with.

    1. I have opened a start position in E when they were at a price of 12.80. Also added RLJ at the level of 16.70, but only in order to reach an average level below par (I know that they are actually irrevocable, but I just like when my prefs are not above par). Also I like the SHO, but I did lost a moment to go into them when they were at a good level. Just didn’t have enough money then, lol
      I beleive these three will survive, maybe also the PEB, but anyway my summary position in the hospitality sector will not be higher than 3-4% of the entire portfolio. These are all quite risky investments.

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