Yesterday I made a purchase for my ‘sock drawer’ (to be held for the safe yield).
I purchased shares of General American Investors (GAM) 5.95% perpetual preferred (GAM-B) at $24.47 for a current yield of about 6.1%.
This is an old favorite closed end fund perpetual which has historically traded much above $25/share, but has now been sold off into the low $24’s—of course I didn’t catch the low on this one. Shares are now trading at $24.74. Shares have been outstanding since 2003 and were redeemable in 2008.
The issue have asset coverage ratio of just over 700% and is just a plain vanilla closed end fund (holding level 1 assets (stocks and bonds))–just how I like them–simple and straightforward.
Thanks to theta for posting on this in the ‘reader alerts’ section.
The company fact sheet is here.
Tim,
Welcome to the GAM-B party. I have long preferred (pun intended) this one to several other CEF preferreds and have long advocated for it in the comments when other preferreds of CEFs are mentioned. Not quite as much coverage at TY-, but more liquid and a higher coupon than that safest of all CEF preferreds. Additionally, the fund has said they intend to buy back shares whenever they fall below $24.95, so there is a pull-to-par effect if you can get it below that price. The last few months is the first time I have seen it trade below par for weeks at a time – on the rare times it gets down this low, it is usually just a spike for a few hours or days before it gets right back up to par. I love this one and both hold a basic position (buying on spike lows below par) and trade a portion as it recovers up to par on the rare times I can buy it on a spike low. Great security for the sock drawer.
Tim, does the CEF sheet keep up to date on the asset coverage? I assume that has to be a manual input?
Thanks,
Jeff
I believe in the past they used to buy it back below $25 as well. Not sure if they’re doing that right now, but potentially offers another level of security fur your below par purchase.
Yes, in the past they did this and is one of the reasons I like this one over other preferreds of CEFs. Has anyone investigated whether they still do the buybacks below par. I haven’t had time to dig into that question.
they do or are planning to do buybacks.
https://generalamericaninvestors.com/documents/news/2023_1206_PressRelease.pdf
how many would consider PMTU sock drawer ? in my sock drawer evaluation ;its on the cusp.
Definitely junk drawer.
P.S. In case anyone missed it, they finally declared the initial distribution: ex date 12/14, pay date 1/2, $0.5844. When I asked IR about this a couple of weeks ago, I got one of the snottiest replies ever, which just adds to the PMT-B situation in making me think that I don’t like these people. For now I will still take their money.
Just to be fair, PMTU is a note that pays interest. interest payments are not declared they are mandatory. It’s not a preferred or some other kind of issue that first needs to be declared before paid. And they’re paying you for the extra couple of days from issue date as was spelled out how the the first payment would work in the original prospectus.. “The notes will bear interest at the rate per annum set forth on the cover page of this prospectus supplement from, and including, September 21, 2023, and the subsequent interest periods will be the periods from, and including, an interest payment date to, but excluding, the next interest payment date or the stated maturity date or earlier redemption date, as the case may be. Interest is payable quarterly in arrears on March 30, June 30, September 30 and December 30 of each year, beginning on December 30, 2023…”
Still I don’t think it’d fit my definition of sock drawer qualified…
I know that, but their prospectus language is opaque, they didn’t have to be snotty about it, and there was nothing stopping them from tacking on the bond dates and amount to the preferred dividend declaration that they issued anyway (which is what most baby bond issuers do). They also were very late doing whatever it was they needed to do to get the info into brokers’ systems. The summary is that they seem investor-hostile.
i’m shooting for between 7-8% for my sock drawer ; I’m finding the top of that range in new BDC offerings and insurance companies ;
ted–not any issues with a 8% yield will be making my sock drawer–only rock solid issues I don’t have to worry about.
Ted. There are all kinds of sock drawers. If you pull out some of your socks, does yours have some wear and tear? look for some holes on the soles, or stretched out bands at the top. Sometimes these holes appear when dividends are cut, or they dont cover the dividend. When I see holes in mine, i replace them. If you have to periodically check on them too much, maybe rearrange them and stuff those in your underwear drawer.
or “needs darning” drawer…. ha
Tim that sounds like a nice move.
Would love to get your thoughts on BML-G? It’s a Bank of America floater currently yielding 7.7% and trades well below par. Seems like a really safe bet in the near 8% category.
Not sure what I am missing on this issue…
I don’t think you’re missing much. There are several of those low-spread SOFR floaters out there throwing off really nice yields (for now). I own a bunch of USB-A which is similar.
i’ve owned this for a while ; being $1000 par; trading at 795 many people are buying odd lots ; and you cant get good pricing ; i.e might have to buy at market to get execution.
USBpH is trading at 20.13 and 7.83% yield with good volume .
I have been attempting to buy some BML-G near the bid but no takers since the daily volume is low. The yield is attractive and I’m reducing my duration exposure in some of the lower priced that appreciated so much in the recent upswing.
Dan–I think that old Merrill Lynch issue is fine for now – I guess it kind of depends on your interest rate outlook. It is amazing how strong these low coupon floaters have traded over the years, but in a year or two IF rates go way down you will give up some capital. You can scan out to a monthly chart going back to day one and see the price movement over time as interest rates move.
https://innovativeincomeinvestor.com/security/bank-of-america-floating-rate-dep-shares-non-cumul-pfd-stock-series-i/
My knee jerk reaction was that you don’t want to buy a low spread, low minimum floater when interest rates have peaked or are near the peak. Then I looked at the chart… and got totally confused. What do our esteemed interest rate savvy investors expect these issues to do when rates start to drop?
David, you got a smile out of me. Read others posts on Tim’s comment on Esports suspends dividends. I even posted. Me personally, I am buying preferred like this and other with a higher yield to average about 7%.
No plan fits everyone. No one has a crystal ball. I think we will never see ZIRP on interest rates again in my lifetime, Just too much debt and the people with cash ( governments, banks and PE ) are going to demand higher rates even for Treasury debt. That is if something catastrophic doesn’t happen.
Bell curve wise, there is still a large portion of the population retired or will be retiring so there is still a demand for this type of investment. People complain about inflation but its going to be with us. Like stretching a rubber band, We traded dollars for cheap junk for our consumer lifestyle. Businesses and countries are going to demand more dollars for the same products, its called inflation. I can remember back as far as the 70’s and am somewhat aware of the 60’s. I would consider a 5% to 6% return on a safe solid investment as pretty good. When you get outside that zone, your looking at higher risk. Now that’s not to say some 7% yielding stocks are risky. This past year in market drops some of these 5% and 6% stocks hit a 7% yield.
When I was younger, I was probably too conservative, then I swung the opposite direction. Long term, stay safe David. You decide how much risk you want to take. It’s a hard world out there, the school of hard knocks can be a great teacher.
You start now and keep saving, you might be surprised where you are at 20 or 30 yrs from now.
I added some today but at a little higher price. Still over 6% yield. Hopefully it doesn’t get called for a long long time.