Category: General Commentary

Early this morning I wrote the post on the new preferred issue from ARMOUR Residential. The post was not as complete as it should have been and had a couple typos. My apologies.

Last night I had a 8 pm flight out of Minneapolis–which got held up for 90 minutes so they could de-ice-why it took 90 minutes I have no idea. I ended up not getting to my Scottsdale room until about 1:30 am mountain time. I thought I could get the pricing posted in a coherent fashion–obviously not.

The good part is as usual everybody had data in the comments that completed the story. Thanks all.

The other good part is the weather in Scottsdale is beautiful–70’s and sunny–the bad part is that by Sunday night late I will be at my desk–hopefully with enough recharge for a few months.

Early next week (Monday the 27th) we will see ‘rebalancing’ announcements being made by Wells Fargo on a number of Indexes. Below is a list of mostly preferred stock indexes that will announce rebalancing.

As you can see the announcement will be made Monday with actual rebalancing occuring on the next Monday (2/3).

Many ETFs track these indexes and I randomly checked a few of them and there is sizable potential volume that could occur in many issues–whether it is orderly or not is anyone’s guess. There may be issues “dumped” that would allow a few issues to be picked up at more bargain prices. We will wait and see what happens.

NOTE–the ETFs tracking these indexes are not the mega sized ETFs, but as a group they are sizable.

Today ChuckP posted an article that is currently on Barrons. It is not unlike many we have seen in the past and most of us that have been investing in baby bonds and preferred stocks are well aware of the risk that is out there.

We are posting this because it is a reminder that markets are dangerous and even if you own bonds and preferred stocks there is danger. Newer investors in these areas need to know that it isn’t just about earning an easy (although modest) return by collecting interest and dividends.

Essentially it is reminding investors that chasing yield is getting a bit carried away—of course most of us know that, but it has been going on for years–when does the music stop?

Here is the article “Ponzi Market”. I believe Barrons will allow you to read this once only before the paywall comes up.

This is just in case others were unclear as to the status of the dividends paid by Triton International (TRTN) on their preferred stock. The prospectus on the issues have always been unclear as to whether they pay qualified dividends or not.

ALL DIVIDENDS PAID ON THEIR PREFERREDS THUS FAR ARE ‘RETURN OF CAPITAL’.

Data on the status of the various dividends can be found here.

As most of you probably know when a dividend is designated as ‘return of capital’ it reduces your cost basis of the shares.

For Instance—

If you pay $25 for a share and receive $2 in return of capital distributions your cost basis in now $23. If you sell it for $25 you will have a $2/share gain since your cost basis had been reduced to $23 through receipt of a return of capital distribution.

The return of capital is not taxable – but upon the sale of the shares you may have a capital gain (or loss) and you will need to then pay taxes (if in a taxable account).

Yesterday we had 11 income issues go ex-dividend and I thought that might skew the average share price a bit–but in this market of yield hungry investors the ‘markdown’ of those 11 issues wasn’t enough to stop the move higher in prices.

Today with 47 issues going ex-dividend I am fairly certain the average price will stop going higher–for a day or two anyway.

Yesterday the average of all $25 issues moved 2 cents higher–although we did see the banking sector drop by 6 cents-the only sector to fall.