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Author: Innovative Income Investor

Into the Home Stretch

Well hopefully folks are getting through the holiday period with their sanity. With our 6 grand kids ranging in age from 4 to 15 holidays are becoming less stressful as they are quite content to play with each other instead of requiring adult supervision (at least as much).

So with just 4 trading days left in 2019 I hope we maintain our gains–I really expect market movements will be pretty muted, whether it be stock prices or interest rates.

Last night I was adding more data and filing in a few blanks in the database when I came upon an issue I thought I would mention. This is for folks looking for a stable value issue–with a relatively short maturity date.

The issue is the GDL Fund $50/share preferred (GDL-C).

This issue is cumulative, puttable and callable. The coupon is set at 4% for 2019 and 2020, which will potentially be reset later in 2020 for the next 4 years.

Investors can ‘put’ shares back to the company in March, 2020 and March 2022 at $50 plus accrued dividends.

There is a mandatory redemption in 2025 at $50/share.

The issue is trading around $50.90 and as happens with these types of issues it is somewhat illiquid–trading only 600 shares a day.

Being a Gabelli CEF (closed end fund) the fund must maintain a 200% asset coverage ratio–as of 6/30/2019 coverage was at 237%. The fund holds level 1 assets (common stocks mostly) and quite honestly, the fund performance is pretty lousy, but I am not overly concerned about the fund performance as long as they maintain asset coverage.

The issue is not rated, but would likely be investment grade if they decided to rate it.

So this issue has a lot of good qualities–for me the 2025 mandatory redemption is perfect. The puttable period in 2022 and the mandatory redemption will help maintain shares in the $50 price area. Also the 4% coupon isn’t too bad for this type of issue.

The company can redeem shares starting in March, 2021–but I would be surprised if a 4% issue were called.

Current yield is 3.93% and yield to worst is just under the 3% area.

I am pondering a purchase since I have a rather large position (for me anyway) of over 1000 shares of the Kayne Anderson 3.50% (KYN-F) issue and with the mandatory redemption in 4/2020 I am looking for a place to stash some ‘safe’ money.

It’s the Giving Season and Income Securities Have Joined the Festivities

This is the giving season–giving gifts, contributing to charities (even though we no longer can deduct our contributions) and trying to be a decent person (not always with success).

We all know common stocks have been “giving”–almost daily, but I am surprised that the preferred stocks and baby bonds I buy just keep on “giving” as well. Investment grade issues have been contributing greatly to good times, in spite of rising interest rates–at some point this will have to end–but now isn’t the time.

Some of us have looked for potential set backs with year end sell-offs or rebalancing and they just haven’t happened–so quiet–maybe too quiet

With the sortable spreadsheet I have posted I am able to drill down on what is happening in income markets really easily and below is a chart from December showing what income issues have done. I have removed issues that have suspended dividends.

The red line represents all $25 investment grade preferreds. The blue line represents all $25 issues–preferreds and baby bonds of which there are 655 issues. The green line is the 10 year treasury.

Of course during December we see a lot of ex-dividend dates — and there 100 more in the next week so we really need to see a longer term chart (I will keep tracking these numbers), but certainly for holders during the month of December the good gains continue.

I am anxious for the new year to start and am concerned that the easy gains of 2019 will become much tougher in 2020–we shall see.

Monday Morning Kickoff

The S&P500 traded in a range of 3183 to 3226 and closed near the high at 3221 last week as stock traders and investors continue to drive prices higher.

The 10 year treasury opened at 1.85% before moving as high as 1.95% before closing out the week at 1.92%. The question is can the rate move above 2%? As long as we see a very slow move higher I don’t mind seeing rates rise a bit–it will eventually put a stop to these sub 5% issues.

The FED balance sheet grew by a giant $42 billion. With the new QE the balance sheet has now grown $378 billion since 9/4/2019–this is really a giant QE–$90 billion a month.

Last week we had just 1 new income issue.

Gabelli Multimedia Trust sold a new 5.125% perpetual preferred which is now trading under OTC ticker GABGP. Shares last traded at $25.35

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In addition to the Gabelli issue the new 8% foxed-to-floating rate issue from Medallion Bank (a division of Medallion Financial-MFIN) began to trade.

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After starting out very weakly early in the week–trading as low as $24.40 the issue got some traction as the week wore on and the share price traded as high as $25/share, before settling back a bit in the $24.90 area.

Disclosure–I bought a 1/2 position at $24.49 and finished the 2nd half at $24.65. I likely will exit this position soon as it was meant only as a ‘flip’.

Another Investment Grade Issue Called

Bank of America (BAC) called their 6.50% perpetual preferred (BAC-Y) today for redemption on 1/27/2020 which is the 1st day they are available to be redeemed.

No loss will be incurred by holders as it was trading around $25.40 yesterday.

This is one more issue gone from the “Investment Grade $25 issues in or near 1st redemption date” list.

I did not have this issue on the list from back in November since it was a few months out, but it looks like I should update the list further with additional issues–say up to 3 months out.

Here is the list–showing how many issues have been called for redemption in the last month.

NOTE–the yield to worst shown is incorrect-as it doesn’t count accrued dividends/interest, but I hope to install a new formula before long.

I continue to hold the Vornado Realty Trust (VNO-L) perpetual (VNO-L) 5.40% and the WR Berkley (WRB-B) 5.625% Subordinated Notes.

The reason to hold some of these issues is because they are tied to $25 fairly closely because they are in, or near, potential redemptions and thus likely trade with less volatility–and their coupons are strong in the current rate environment.

As always if you have a Google account you can take your own copy of this list.