It was a rough day to be an income investors as REITs, Utilities, Preferred Stocks and Baby Bonds all took a drubbing. REITs and utilities were off a percent, but some baby bonds and preferreds were off by as much as 4%—yikes.
BUT let’s be calm about this or at least look at this from a positive perspective. The positive perspective is that we are able to buy new shares for 1-4% less than we could last week. We hope investors have some cash available for some bargains, but alas we are concerned that many investors have loaded up on perpetual preferreds in the last year and now are in the trap of watching them fall even though their income stream remains unchanged. We all know that you can’t have everything when you are an income investor. You have to either stay with shorter maturities (baby bonds or term preferreds) and likely forfeit 1% in dividends as compared to some higher coupon perpetuals, or you can buy the perpetuals and “pay the piper” when interest rates move higher.
When we wrote this morning we posted some charts of some of the high quality perpetual preferreds that have taken some massive losses in the last week. It is our opinion that holders of these issues should remain patient and see what the next few days bring. If interest rates remain quiet for the next few days it is likely that share prices may bounce up a bit from here which should sooth some nerves, BUT WHATEVER you do don’t make knee jerk decisions on your portfolio. Take a step back for a day and think it through a bit before acting–poor decisions are made under these types of circumstances.