Another Preferred “On the Bubble” – We are Buying

This is not a recommendation–as everyone knows we don’t make recommendations, as everyone of us has different needs.

I just bought a smaller position in the split investment grade preferred from Vornado Realty (VNO). The particular issue is the 5.70% cumulative, redeemable issue (VNO-K).

This issue is currently redeemable and has been since 7/17. The issue pays a dividend of about 36 cents. The issue recently went ex-dividend on 9/13/2019 and paid the dividend on 10/01/2019–so we are now into the ‘accrual stage’. The issue is trading around $25.26–a week ago it traded around $25.16.

The play here–at least for me is that the issue is split investment grade so it should trade around the call price of $25 as they might be able to redeem the issue at any moment as the 5.70% is above the 5.20-5.30% they could likely lock down with a new issue.

At this moment assuming a 30 day notice price to redemption there is about 11 cents of call risk in the issue.

We will simply hold this issue until called–unless it rockets higher in which case we would sell–but there is no logical reason for it to trade above $25.50 in the foreseeable future. Our hope is the issues remains outstanding for a few months.

The issue can be seen here.

NOTE–a a yield to worst basis this is obviously a negative return (with the assumption that it is called immediately). For us it is a spot to park $10,000 of excess cash for hopefully a couple safe dividends

20 thoughts on “Another Preferred “On the Bubble” – We are Buying”

  1. Does anyone have information on why the teekay offshore 8.875% preferred is going through the roof? It traded forever around $16.50 and now it’s around $21.50 in only a very short period of time.

  2. Speaking about on the bubble, does anyone have an opinion on ARGD? 6 1/2% coupon due 9/15/42 and currently callable… NR/BBB- and trading at 25.74 last.

  3. Tim – As I’ve been posting frequently, right now I seem to be focused on picking up pennies kinds of trades and to me, this one would not be high on my priority list…. Do you draw a comparison to this one and NTRSP as another example of the strategy? To me, something like NTRSP is a better idea because 1. it can be bot with zero call risk currently 2. If it’s not called on 1/1/20 then you’re good for a full next coupon payment since it’s only callable on interest payment dates (don’t hate me for using the term “interest” when I know it pays dividends) and 3. With its 5.85% coupon and Baaz/BBB+ rating, the coupon provides stronger downside protection should interest rates move up.. I know a couple of other bank preferreds with similar situations have also been mentioned from other bigger banks which I would also think would make for better candidates.. STT-E was one and COF-D was another. Just my bellybutton opinion…

    1. Hi 2WR–darn it. I have to make notes or I forget–I have seen you mention this a number of times and you are right.

      I will look at these and see if I should put out a blurp on these 3. Thanks

      1. Tim – Welcome to my world… I’ve taken to using the built in Sticky Notes on Windows for EVERYTHING…lol. It’s how I keep up on the called issues and what to expect on call dates too… Yay, RILYL for screwing up my expectations, though, by STILL not issuing a call notice even though that was supposed to be the purpose behind issuing RILYN.

  4. Dunno…Having gotten spoiled by buying NNN, O, PSA & AXS pfds a while ago in the low $20’s having trouble pulling the trigger on over par issues. Just me.

  5. Hi Tim…and anyone else who is willing to look at my math :>)

    As an exercise to see if I understand the math correctly:

    Div = $1.425…..divide by 360 = $0.00395

    If called today….39 days => 15 cent payment

    If bought at 25.26, that is an 11 cent call risk. What am I missing regarding the math that you used to come up with an 18 cent call risk?

    1. Hi Amy–there is always someone with a calculator. Actually I simply did it ‘in my head’–obvious I am only good for +/- 7 cents or so. In the future I am going to actually use a calculator so I am more correct. I have never personally worried about a few cents here and there–I forget their are actually folks that want more exacting numbers. Thanks for the note–it will make me pay more attention.

      1. I am guessing they announce the redemption later this month (probably the 24 or 25th) for a December 1 redemption.
        But they have not been predictable in their redemptions after the issuance of other shares.

      2. Hi Tim, I am VERY loosy goosy when it comes to numbers. I never nit pick about them. I am just concerned that I have the equations properly seated in my head. That is why I was checking my knowledge of the subject with your numbers.

        That has been one of biggest brain teasers for me….when you guys start talking about….. call risk…accrued divy…..calculating from Ex date versus pay date…calculating the risk depending on if they can call at any time versus on a certain date (e.g., pay date)…..etc…etc.

        It was only recently that I learned (here) that some prospectuses mandate a call on a certain date versus ‘at any time.’ I never knew why Schwab would list either a set date….versus “continuous.”

        So…as long as I have the equations/principles straight in my head, guesstimate away!!

    2. It may pay to check the prospectus. So firms put a minimum notice period language like “at least 30 days notice but no more than 60 days”. Frankly, it’s a pain to check the prospectus for this information. I have a shortcut for Schwab users. For example today WRB/PRB has a call timing of 11/8. That’s because prospectus says 30-day minimum notice. I don’t rely on this information but I use it if I’m interested to tell me which prospectus to check.

      VNO/K seems to have a 30-day notice also. I did NOT check prospectus but if it’s a factor for people to invest not invest – they may have 30 days more dividend payment then they are calculating

      1. Steve, most prospectus are pretty uniform in terms of locating things. A bit of practice and you can go from Quantum link on prospectus to finding the actual redemption terms in less than a minute.
        Even the annual company report filings are pretty uniform. I use those to find old preferred redemption prices. I found one last week on a page past 300, in about 2 minutes. And I am no financial wizard.

  6. My Two Cents:
    I just bought 500 of the VNO/PL 5.4 % issue at 25.14.
    It sells for .16 less than the K 5.7% issue.
    The diff between dividends is roughly 2 Cents, that means the K issue is lower yield till 8 quarters from now. Should the issues be called quicker, then L is superior.
    I know we are only talking pennies.

    1. Keep in mind though that if rates start going back up (I don’t think it’s likely, but you never know) VNO-K should hold up better than VNO-L.

      The preferreds that were in the low 5% range got hit pretty hard last December. 52 wk low for VNO-L is 20.16 vs 21.40 for K.

  7. I like this idea and would probably copy you if I hadn’t bought BXP-B yesterday.

    Similar situation as VNO-K but lower yield.

    I walked past a few Vornado properties when I was in Manhattan last week… they’re impressive.

    1. Jacob–I like the company–as REITs go–I am not a big buyer of any perpetual, but the cash keeps sloshing around and I need to have less cash and more dividends.

      1. Tim, some of these past call issues trading around par become a little more attractive now that several of the brokerage firms are no longer charging commissions – especially if investors are purchasing only 100 shares at a time.

        1. kaptain–good point–when you are messing around with pennies–a couple more helps out. Thus far Fido is still charging 4.95.

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