Category: Investment Ideas

For some investors it may be a reasonable idea to buy the Ready Capital 6.50% Senior Notes (RCP) due 2021. My idea is based upon the nice coupon and short maturity in April, 2021.

I mention this (and own it) because it is trading at $25.04-$25.06 and has 2 interest payments until maturity (January and April) for about 41 cents each.

Ready Capital (RC) actually has a 7% convertible note due in 2023 trading around $23.79 which has a better yield, but obviously is 2 1/2 years further out in maturity so has more risk built in.

Assuming financial markets don’t totally implode this seems like a good short term yielder.

Investors should do their due diligence to see if this might be right for you.

Nobody is really excited about the plethora of low coupon preferred’s being issued lately, although I see a few folks are buying them–including me.

As I always have to do–I just can’t help myself, I have bought a couple issues lately that I normally probably wouldn’t buy–and I did it as a test–can I squeeze at least 1-1.5% flip profit out of the issues. Right now the answer is not totally known, but of the 2 I have bought 1 has been sold for about a 1.5% flip profit.

1st off I bought 300 shares of the Public Storage 3.875% (PSA-N) issue on 10/05/2020 for $24.82–the issue had traded as low as $24.70. I fully planned to sell these shares when I hit my target of 1.5%.

I then sold the issue on 10/19/20 for $25.16 which gave me my 1.5% profit (slightly less actually). That is a ‘steak dinner’ trade, so I am satisfied with my meager profit. I did notice the shares plunged down to $24.85 today for whatever reason.

On Monday of this week I began to buy shares in the new RiverNorth/DoubleLine Strategic Opportunity Fund 4.375% preferred. This is a high quality issue and I was too ‘excited’ to jump and buy. I started with a 300 share purchase on Monday for $25.10 and followed it up on Monday afternoon with another 100 shares at $24.96. Should have been more patient.

I now wait to see my next move–it closed at $24.95 today. If it falls from here I will buy a couple hundred more shares. The quality of this issue at a reasonable coupon (in my eyes anyway) means I would be willing to go to 600-1000 shares or maybe higher. I am confident I can squeeze out a 1% flip profit, but likely I want to hold some of this issue long term so I will determine later what I want to hold long term.

So assuming there is not an interest rate spike while I hold these issues it looks like it is probable one can get 1-1.5% quick flip

I am not recommending anyone fiddle around like this–I mean really a short term $100 profit is meaningless in the big picture and I would rather have holdings that are long term. This was a test and a boredom trade.

NOTE–I post the brokerage clips above to display the actual transaction–the top clips are from Fidelity and the bottom from eTrade (also note that eTrade charges $4.95 on the OTC trades.

Arbitrage Trader on Seeking Alpha wrote about the Brookfield Property Partners (BPY) preferred units of which there are 3 issues outstanding.

Summarizing–the shares are trading very low compared to similar real estate owners (primarily REIT preferreds) and should have substantial upside for capital gains.

He covers the topic quite completely so I won’t write more–just that I do own the 5.75% BPYPN issue.

You can find his article here.

Never stopping in the search for a little extra yield without extraordinary high risk I stumbled across an old friend ( a security I held previously for some amount of time) that may well be worth a minor position in a portfolio generally characterized by conservative holdings.

I have been looking at the 6.50% $25 Senior Notes of REIT Ready Capital (RC) which trades under ticker RCP. This issue was originally issued by Sutherland Asset Management which was the company’s previous name.

These senior notes have been callable since 4/29/2019 and offered a early call bonus of 1% (callable at 101% of $25) until 4/30/2020–after which it is callable under more normal terms – $25 plus accrued interest.

The baby bonds closed at $24.13 today (Wednesday) and have been trading perfectly flat at this level for over 1 month.

Now the interesting part of this baby bond is that it will reach maturity on 4/30/21–about 10 1/2 months from now. The bond goes ex-dividend (interest) next Monday 7/12 (for a 7/31 payment) which means that an investor could garner 4 interest payments prior to maturity and additionally if bought at $24.13 there will be a capital gain of 87 cents. This means a gain of 10.3% is possible if held to maturity in 10.5 months.

Now as you might expect with the potential 10.3% return you will be taking more risk than a security with potential for a 5% return–that is what this game is all about–risk/reward.

Ready Capital is a mREIT and the lions share of the loans they make are in the small and medium sized commercial marketplace–honestly in the current environment this is a ‘dicey’ part of the market. RC is a company of $5.3 billion in assets with shareholder equity of $775 million. The company announced a loss of $50.4 million on the most recent quarterly earnings compared to profit of $29.4 million a year ago. It would not surprise me a bit if the company reported substantial losses for the next 2-3 (or more) quarters as the commercial end of the mortgage will be very messy as this recession unfolds.

The company recently cut their common dividend from 40 cents/share to 25 cents/share and may well cut again–or even suspend it.

We can’t recommend this security since every single reader has different needs–different risk tolerances–but I personally will get at least a starter position with consideration to adding in the future as economic conditions unfold.

For those wanting a position in these shares make sure to go through the SEC 10-Q below which provides data not only on the companies financials, but gives explanations about which segments of the marketplace the company operates in.

The latest 10-Q for the quarter ending 3/31/2020 can be read here.

Today I bought a 1/2 position in the Highland Income Fund 5.375% perpetual preferred (HFRO-A) for $23.67 – current yield 5.70%.

This issue is A1 rated by Moodys and since it is a closed end fund it is required to maintain a 200% asset coverage ratio–the ratio was around 360% on 12/1/2019—no doubt much less now, but it is the best CEF preferred available now that is investment grade.

Additionally, I went ahead and bought a little more of the AMG 5.15% Convertible Trust Preferred (AATRL) for $38.75 (6.5% current yield)–I just can’t help it–I am really overweight on this one with initial buys almost $10/share lower. It is now at $40.09 (but thinly traded and may fall off any moment).

Also I sold a little more of the Spire 5.90% perpetual (SR-A)–I thought I had sold it all yesterday on a pop, but found more in another account.

These add another 1% to the portfolio – now I wait and watch some more.