A Few Great Buys

Below are a few great buys that are out there right now.

When I say great buys, to me, that means at or very close to investment grade. No doubt I have mentioned some of these before–maybe they are better buys now? Of course they could be better next month–but one never knows.

Kemper Corporation (KMPB) 5.875% subordinated debentures. This baby bond is 1 notch below investment grade per S&P and Moody’s. The issue has dropped about $2/share in the last 10-15 days to trade at $23.51 with a current yield of 6.30%. This one does have the “may defer interest payments one or more times for up to 5 years’ clause in it–which while likely will never happen, is a slight negative.

American Financial Group (AFGD) 5.625% subordinated debentures. Again this baby bond is off $2/share in the last 10-15 days to now trade at $23.39 with a current yield of 6.01% (corrected). This issue is double investment grade. These shares also contain a clause to defer interest.

Athene Holdings-now owned by Apollo (APO) has a gaggle of investment grade preferreds outstanding which can be seen here. All issues have current yields of 6.2% to 6.5%.

Capital One Financial (COF) has numerous preferreds outstanding with current yields in the 6.2% to 6.3% area–they are here. These issues have fallen up to $3/share in the last couple of weeks as interest rates popped higher. The issues are split investment grade.

Obviously these are just a few issues that have fallen relatively sharply in the last few weeks to the point of being fairly attractive for income investors. There are many, many more but some at a slightly lower credit rating (i.e. BB).

29 thoughts on “A Few Great Buys”

  1. Been adding to CMS-C at current prices… Yielding 6%, same as SR-A but with much more potential for cap gains in the future.

    Also, does anybody have an opinion on UMH-D? I know the landscape has changed dramatically but the intention was to have them called at first chance, 1/22/23. Currently trading at around 24.85 I have been adding a few here.

    1. Not sure how you reach the conclusion CMS-C has more cap gain potential than SR-A when SR-A is trading lower and they have virtually the same coupon

      1. Maverick,

        Might you be looking at CMSC the baby bond?
        5.875% CMSC baby bond trading at $24.37
        4.2% CMS-C preferred stock trading at $17.34

  2. I would note that KMPB has a reset feature of 4.14% plus the five year treasury starting in 2027. This could be a a positive (probably) or a negative.

    KTBA mentioned in this thread…a big loser for me. But I can’t see selling a higher quality income issue now yielding close to 9%. I view it as something Gridbird’s father would appreciate. I remember Grid saying his father didn’t care how low something went as long as it paid. That’s KTBA.

    For years AT&T would tender for “any and all” of the underlying 2095 bond each December. I finally took one of those offers and sold mine at 140. If AT&T had any sense they would make a tender for KTBA.

    1. Thanks TheGoat—I corrected the spreadsheet to the correct quarterly divi–current yield 6.01% Yield to worst is around 8.3 or 8.4%.

      1. Tim – “Yield to call,” not “yield to worst” is 8.30% or 8.40%. Certainly if YTM = 6.10% , 8.30% cannot be yield to worst.. Mr. Nit is picking again…….

        1. 2wr–current yield is 6.01% and it is trading at 23.39–with a 1st potential call date of 6/1/2025.

  3. Following Tim’s approach, here is a list of all babys/terms that are Moodys Ba1 rated or better and are down more than -15.0% year to date.

    Ticker, Moodys, S&P, current yield% , percent change year to date

    DHCNL, Ba1, BBB-, 9.9%, -30.42%
    DHCNI, Ba1, BBB-, 9.18%, -30.96%
    QVCC, Ba2, BBB-, 8.48%, -28.43%
    QVCD, Ba2, BBB-, 8.13%, -23.09%
    OPINL, Baa3, BBB-, 7.41%, -21.33%
    UZD, Ba1, BB, 7.17%, -19.63%
    UZE, Ba1, BB, 7.08%, -26.44%
    UZF, Ba1, BB, 7.04%, -25.48%
    BAMH, Baa3, BBB, 6.4%, -28.18%
    AIZN, Ba1, BB+, 6.25%, -22.14%
    MGRB, Baa1, BBB-, 6.23%, -27.62%
    MGRD, Baa1, BBB-, 6.13%, -30.66%
    AEFC, Baa1, BBB, 6.05%, -21.35%
    AFGD, Baa2, BBB-, 6.01%, -19.86%
    AFGC, Baa2, BBB-, 5.98%, -21.62%
    WRB-F, Baa2, BBB-, 5.9%, -20.7%
    DTB, Baa3, BBB-, 5.76%, -27.59%
    SOJD, Baa3, BBB, 5.73%, -20.32%
    AFGE, Baa2, BBB-, 5.59%, -25.38%
    PFH, Baa1, BBB+, 5.06%, -21.66%
    TVE, Aaa, AA+, 2.57%, -16.74%
    TVC, Aaa, AA+, 2.43%, -15.87%

    DHCNL, DHCNI and OPINL are associated with the Portnoy family and are uninvestable to many because of that, regardless of their Moodys/S&P ratings. QVCC and QVCD are tied into Qurate Retail/Home Shopping Network which seems to be out of favor post Covid. Others will have more informed opinions of many on this list. Likely some of the ratings listed are out of date, so you absolutely positively should double check them and read the latest reports before investing.

  4. There may be more than interest rates at work on the Capital One Financial preferreds.

    COF has a large credit card business, supposedly targeted at lower rated credits. Its credit card delinquencies have reportedly been running higher than the 3 month average. So there may be some recession fears reflected in the prices.

    In the logic of The Other Website, the delinquency increase is fine because there was pandemic money last year, so delinquencies which are up now, are just “normalizing.” (Bad is good, got that?) The touts at The Other Website and The Motley (great risk-reward!) seem enthusiastic about COF common.

    Synchrony SYF operates in the same sector, although its market share is smaller than COF’s and it has a slightly different business model. SYF has a discounted preferred yielding ~7%. Like COF, delinquencies at SYF are slowly creeping up. Look before you leap and DYODD.

    Just my opinion

    1. BNJ
      Was just looking at RNR-PF and read an article on RNR from Oct. 2021 Similar thesis that the business had a terrible year with losses on natural disasters but the losses were spread out with 3rd parties so was actually a good year for them. ( bad is good )
      My concern with a lot of Preferred:
      As an example is in May and June of this year SYF.PA twice dropped into the high 18’s to mid 18’s. This year hasn’t seemed all that bad so far, so if the sh-t really hit the fan where would some of these preferred be? I have to ask myself if I am willing to take a loss on capitol if I lock in a decent return at this time. I am thinking I may want to hold off and see if some of these test these lows a third time. I hate to think of it as timing the market, but some I have been in and sold out of the past few years have had bottoms 2 to 3 dollars below where they are at now.

  5. Hello,
    It’s been awhile. Can someone tell me what KTBA is about? Is it old baby bell debt?
    Tnx!

    1. Believe its an old Southern Bell trust. Click on the link in the baby bond list here on III or go to quantumonline
      Maybe some people here hold it. I have found it hard to get an order filled with TD

    2. KTBA is where Smith Barney bought an old Bell bond and repackaged the debt. Now they’re both long gone it’s been acquired by somebody who doesn’t want it, nor does AT&T want it they repurchased the remaining bond. But because of legal issues only gridbird understands KTBA can’t be tendered so they’ll be paying 7% until 2095.
      KTBA is an old friend I used to trade back when 50 cent swings or higher were not uncommon. Now it’s delisted because nobody wants to pay for the new SEC rules for listing. So retail investors can’t buy it and you’ll get ripped off selling it to the insiders.

      1. “nor does AT&T want it they repurchased the remaining bond”
        There still seems to be a tad out there. I see the underlying, CUSIP 079867AP2, quoted at $110. That implies an equivalent value of $27.50 for KTBA.
        Also note that the 7% coupon is based on a price of $25. The yield on the last KTBA price of $20 is north of 8%. Thanks again, SEC.

      2. AT&T can buy the bond back through a consent solicitation, but the bonds stuck inside KTBA will never been sold that way, the trust document gives the trustee all the power in this case.

  6. Tim,
    My unfounded concern is the concentration of investment in insurance companies. I still remember what happened with AIG in the great recession.
    The West and Southwest are areas of increasing fire and probably flood damage with the fire damaged hillsides. The Midwest has its share of weather events and so does the South and Northeast.
    Are you seeing some of the same opportunities, in preferred’s, and notes in the healthcare, manufacturing, banking etc for investing at good returns?

    1. Charles–I share those same concerns and I personally won’t be doing too much more in insurance–I have a bunch already. Banking is where I am looking to add–i.e. the COF issues. I just was looking at the IG (or near IG) but certainly there are a lot of opportunities in REIT preferreds. Healthcare and manufacturing have few preferreds and baby bonds outstanding–so dominated by banking and REITs.

    2. “ I still remember what happened with AIG in the great recession.”

      I understand the concern but I think looking at AIG and saying that means insurance is risky is like looking at Enron and saying that means utilities are risky. Not totally comparable as Enron was straight up fraud but AIG but fraud played a big role in AIG’s bankruptcy as well.

      1. Landlord,
        Yes and at the time everyone was in on the game, even teacher and state retirement funds buying the repacked mortgage notes that AIG insured. Nothing really changes. Crypto comes to mind.
        The O&G exploration companies spending money on questionable wells drilling in Indiana corn fields taking investors money.
        I was caught with BDC’s that covered losses on loans on their books. They rolled over troubled loans into new loans to make it look like borrowers were paying on the loans and not delinquent, throwing away good money on bad loans and still taking their management commission.
        This time around, higher interest rates will make it harder for leveraged companies of all kinds to roll over debt.

    3. Charles there are many types of “investment risks” one assumes when in investing. One article I read lists 9, some are totally out of ones control such as “general market risk”. That is the risk you take for playing. But there are a few in ones control if they so personally deem them to be important to mitigate against. “Concentration risk”, “duration risk”, and “credit risk” (meaning credit quality one chooses to invest in) for example are three that the individual investor can directly control.
      Concentration risk can refer to buying too much of any one security or a specific sector in general. Financial preferreds encompass 75% ish of the preferred world, though that is a bigger umbrella being banks, insurers, asset managers, etc. FWIW, I share a wary eye in those P&C insurers too and keep in general my allotment very low. I just never have personally had a huge amount dedicated to financials in general. Maybe a third in total is what I have now. But I dont view it as an Im right thing, its just the way I roll.

      1. Funny Grid, I have CUBI, ZION, VLYP preferred in order of risk and trying to mitigate the risk by buying the floaters.
        The record heat and Winter coming along with shortages in the EU so I am in CEQP-P and one or two others heavy to gas.
        Like others, I am in a few that are takeover candidates where the risk is balanced hopefully that the deals close.
        My sock drawer is pretty empty. With rates assured to go up I am waiting to see how low some of the investment grade bonds and preferred go.

        1. Charles, I have several financial live floaters also RZA, CUBI-F, and SLMBP. Noted a varying degree of credit quality with the above also. I just started toeing in on ALL-B. Due to my need to maintain some credit quality balance across the spectrum, its largely being groomed incase RZA gets sent to the showers.
          BTW….In reference to your earlier post on which entities to follow. Rida Moron had the gaul to write a primer article on understanding “income statements” and a bit earlier one on understanding “balance sheets”. All while recommending a WPG bond that went belly up just weeks after their recommendation earlier this year. Perhaps they need a primer on these instead of giving one?

  7. Is there a problem with the ‘Sandbox page’ ? I can only bring up one comment.
    Sunday, Sept 4, noon EST.

    1. Howard–yes I got just 1 on the first page, but the normal listing when I clicked ‘older comments’.

      I tweaked one setting and I think it is ok now. Thanks for the headsup

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