Innovative Income Investor | Innovative Income Investor

Stepping In for a Buy on This 9.36% Yielder

This morning I have initiated a position in Jackson Financial (JXN) 8.0% fixed-rate reset preferred (JXN-A).

As I have noted many times I am kind of full up on treasuries and CD’s at the 4.9% to 5.40% area and now is the time to try to buy some fairly solid high yielders to balance the portfolio out.

This year has played out like this – Great gains through January. Sold considerable amounts during February locking in some nice capital gains and started moving into more CD’s and treasuries–then we had the banking crisis which meant little activity. A week ago I started searching for issues that were fallen angels. I added shares of the Tricontinental 5% preferred and now I have added some Lincoln Financial 9% preferred and today the Jackson Financial 8% preferred. I have plenty of dry powder as I have had CD’s and treasuries mature that I bought in September

This issue (JXN-A) came to market on 3/6/2023–just before we had the ‘banking crisis’ appear and being an insurance issue (annuity) the company has been painted with the typical banking and insurance paint brush. This means that the preferred shares were slammed and now trade around $21.30 for a 9.36% current yield. The yield to 1st call (3/30/2028) is just over 12%. This issue is just 1 notch below investment grade from both S&P and Moody’s.

Over the weekend I did some digging on this issue and I find the financials very acceptable–although very complex, because the company does hedge their investments so you have hedging gains and losses which tend to muddy the picture but this is preferred to many of the banks which did not hedge their long duration investments and now regret it. The company has almost $300 billion in asset under management – so a pretty large company.

Now does this mean I think the banking crisis is ended? No, but if I wait to see if it has 100% this bargain will no longer be there – it will be trading much higher. This is a starter position and I may or may not buy more–don’t know until I see more data. This is not a recommendation – as always.

Monday Morning Kickoff

Last week the S&P500 rose by 1.4% which is a decent performance on a week with a Fed rate hike and this is actually the second week in a row with a 1.4% gain.

The 10 year treasury gyrated around before closing the week at 3.38%. Trading was in the 3.30% to 3.64% range, but because of a continuing rush to safety we see low rates. Seems to me we may have the low yield in place as yields are likely to start moving higher as the slow confidence building in the banking system continues—of course whether the confidence continues to build is dependent on whether we see more banks fail–we’ll see.

This week we have plenty of economic news to drive markets around–the big one is the PCE (personal consumption expenditures) on Friday since this is one of Jay Powell’s favorites (or so it is said) for indications of inflation.

As I mentioned last week the Fed balance sheet grew by $94 billion last week – so in 2 weeks we have grown the assets by just shy of $400 billion. This makes for an interesting chart–showing the peak balance sheet and the spike from levels reached as the FED implemented quantitative tightening.

**This chart shows the Fed balance sheet from 18 months ago to last week.**

Last week the average $25/share preferred stock and baby bond fell by 19 cents. Interestingly investment grade issue caught a bid and rose by 17 cents. Banking issues fell by 17 cents, mREITs fell by 9 cents, shippers fell by 18 cents, but CEF preferreds rose a dime.

Last week we had no new income issues price.

Banking and Insurance Company Problems Continue

On Wednesday I bought a small amount of the Lincoln Financial Group 9% non cumulative preferred stock (LNC-D) which was an add to my modest holdings in this issue. This purchase was executed off a good-til-cancelled buy order which was entered a few weeks back–then it moves a little lower–might have to buy a little more. Within the last month the issue has traded as high as $29–now at $24.58. It is kind of early to be jumping into most banking and insurance issues in a major way. Honestly I see so many ‘potential’ buys in the various issues it is difficult to hold back on buying–but I’m going to try to restrain myself for a few more days–but if one doesn’t ‘hold their nose’ and do a little buying it is highly likely a giant opportunity will be missed. With my CD and Treasury buckets full I need to step in a little bit.

Equities are tumbling a bit this morning – down almost 1%, while treasury yields are plunging—the 10 year now at 3.29%—incredible ‘rush to safety’ amid global banking concerns–now with Deutsche Bank potentially having problems. This bank, along with Credit Suisse, have been problems since was back in 2007-2010 so I guess we shouldn’t be surprised. Regardless this issue has a long, long way to run.

I see the Fed balance sheet rose around $100 billion in the last week–add this to the $300 billion rise from the previous week we see the balance sheet back up to round $8.8 trillion which is now just below the record high of about $9 trillion. Any thought on this ever reaching 0 in our lifetime should be forgotten about – it will never happen. Honestly the $400 billion increase in the last 2 weeks is lower than I would have guessed it would be as banks rushed to borrow on their depreciated assets–so maybe that is the bright side. We don’t know which banks have borrowed from the Fed – this data will not be announced until 2 years after the start of the program, although one can figure it out in the future by going through banking financial statements.

Well let’s get the day rolling and see where we go heading into the weekend.

Headlines of Interest

Below are some press releases from company’s with preferred stock or baby bonds outstanding–or just news of general interest.

Global Ship Lease Files its Annual Report for 2022 on Form 20-F

Stifel Reports February 2023 Operating Data

Pyxis Tankers Announces Completion of Sale of Its 2009 Built Tanker

Logan Ridge Finance Corporation Announces Share Repurchase Program Under a New 10b5-1 Stock Trading Plan

Mortgage Rates Continue to Slide Down

Two Harbors Investment Corp. Announces First Quarter 2023 Common and Preferred Stock Dividends and Company Update

Harrow Announces Fourth Quarter and Year-End 2022 Financial Results

Chicken Soup for the Soul Entertainment to Release Fourth Quarter and Full Year Earnings for Fiscal 2022 and Hold Analyst and Investor Conference Call After Market Close on Thursday, March 30, 2023

Dynex Capital, Inc. Declares First Quarter 2023 Series C Preferred Stock Dividend

Added a ‘Taste’ of Lincoln Financial 9% Preferred

Yesterday I added a ‘taste’ of the Lincoln Financial Group (LNC) 9% non cumulative preferred (LNC-D). I already had a position in this issue and it fell $3/share in the last 2 weeks. This buy came off a GTC buy order.

All insurance issues have been hammered fairly hard because of the banking crisis and the ‘mark to market’ debate. This issue is investment grade and was issued after the company took some massive write downs which destroyed the company equity. With a new CEO I believe they will do just fine–over time.