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Drifting Lower Again

The 10 year treasury is drifting lower again today–now at 4.377%. We do have economic news today that could move the rate in either direct–in particular on the day before Thanksgiving in the U.S. when many traders are likely taking the day off.

Today I will likely do nothing—but I am studying 2 preferred issues for potential nibbles. Both issues follow my recent theme of higher yielding issues.

First is the new oddball (liquidation is $9.13) Energy Transfer 9.25% preferred (ET-I) non callable which is trading at $9.95 for a current yield of 8.48%. This issue is new and was issued in connection with the acquisition of Crestwood. Being that this issue is from an MLP this is K-1 generating.

The other is the preferred from holding company Steel Partners (another MLP) 6% cumulative preferred which is trading at $23.44 and has a mandatory redemption of 2/10/2026 for a yield to maturity of around 9%. Steel Partners (SPLP) has been a solid performer–holding many different company’s in many industries–a very well managed company.

Both of these ideas were stolen from others. Someone asked about the Energy Transfer issue on this site which set me off on a deep dive to find the details. The Steel Partners issue was written about by Preferred Stock Trader on Seeking Alpha.

PS–I have no problem getting ideas from others that fit my needs–to overlook them would be foolish.

23 thoughts on “Drifting Lower Again”

  1. I am a long time holder of CEQP- now ET-I in retirement accounts.

    This is an unusual MLP preferred as 100% of the distribution is 20-V and will be treated as UBTI. I now keep ~1,000 shares in multiple IRA’s to ensure I hit less than $ 1,000 of UBTI in each of them.

    Tim is not the only one to like the issue., as Trapping Value has a positive article on another web site.


    1. I, too, have a lot of ET-I. It’s a very solid buy. I also have long held ET-D. I’m a fan of both.

    2. Is “100% of the distribution is 20-V and will be treated as UBTI” based on your experience or is it from a source?

  2. Figured I would finally comment here after lurking on the site for about a year and having picked up many great ideas for all of you here.

    I currently own the ET-I issue having inherited it from the Crestwood merger. Even before Aquisition I felt it held up nicely during periods of volatility and has generally been a great paying investment so far. I am also glad I held it through the aquisition as it has gained nicely from ET’s better credit. With that said, you might as well buy the ET-D issue since it yields 10.5%, if you wait until it passes the dividend you can get it at par.

    1. If ET-I is held in a taxable account (due to the K1) are the interest payouts considered 100% ROC and therefore tax deferred until a sale occurs? Like holding ET in a taxable account?

    2. I love the Partnership Preferred; high yielding, relatively safe, and a lot of people won’t touch them because of the K-1; had the DCP series for a long time until they got called ; still have a couple of the NS pfrd ;

      1. I have owned lots of energy MLP preferreds in IRAs and have never had UBTI thrown off from any of them (that I can recall). Most I have owned just show guaranteed payments for use of capital.

        Note that if you own “regular” MLP units in an IRA, you have to worry about UBTI from operations (the $1000 annual limit) and you have to watch for UBTI from recapture when you sell. I have been slowly selling off an MLP I inherited in an IRA years ago so that I don’t get enough recapture to require a return. One year I accidentally sold too much and Schwab filed a UBTI return for me (no charge for preparing it). Gotta be more careful.

        There was a trend a while back for brokers to threaten to charge for filing those returns, but many (most) backed away. A few now charge (I saw a list, but can’t remember any more) – so check with your broker.

    3. Thanks Dan – yes please comment. I did pick up a little today–as my ‘dry powder’ is minimal. Wished I would have been more awake and got a little 50 cents ago–but 8.5% or so is a decent reward.

      Yes–considered the others, but like the non call on the I issue.

    4. Dan,
      While part of Crestwood did it generate UBTI, or was it one of the single line items for interest on the k-1?

      1. I am not sure furcal, haven’t had it a whole year yet actually. Holding in an IRA so assumed no tax issues…

  3. “PS–I have no problem getting ideas from others that fit my needs–to overlook them would be foolish.”

    To overlook them would make participating in III irrelevant! LOL

  4. I think Grid has played with SPLP and he might be able to give some input. I did a quick read of PST’s article and about the only thing that stood out is they can issue common stock in lieu of cash for a dividend payment on the preferred. I just had my DCP-C called and the broker did a withholding being it was a K-1 This didn’t bother me because my YTC was good. But with a current 6.3% yield you have to consider your current yield with a K-1 If you keep the number of shares down to where you don’t have worry then ok, but there has to be better a 6% or higher preferred out there.

    1. I have played with this and its sister SPLP-T that was merged into A a few years ago, too. Nothing certainly wrong with issue (its a K-1 if that is a thing to one). An only an awareness issue though. At redemption it can be paid out in common unit stock instead of cash if that is an issue. The CEO “Baby Buffett” owns a lot of common units and at least used to own a lot of preferred. That can viewed either way. Being he likes the cash unit payment, or it keeps him from being diluted if they redeem in unit shares. I watched how FPI-B cratered on dilution when it was redeemed in shares instead of cash. Glad I sold that before they announced the conversion to shares instead of cash most were assuming to get.

    2. Charles – this is about YTM–not the current yield. Relative to a K-1 I buy in my IRA and it doesn’t bother me any at all.

      1. Tim;
        I know nothing about K-1 IRS forms other than I owned a shipping issue a few years back and received a K-1 form from Schwab on April 13th, long after I did my taxes. I held the issue in my IRA and there was about $25 in UBTI. So, essentially I did nothing, wasn’t sure if I needed to include that for information purposes in my tax return or no, pretty sure the IRS was sent one as well, nothings come of it so far, wait, be right back someone is pounding on my door 🙂

        1. From what I’ve read, I understand that the UBTI issues in IRA’s are now generally handled inside the accounts by the account trustees. ( Scuttlebutt was that the IRS realized there was confusion on the issue.) The trustee generally files the 990T and pays the tax. So you don’t need to do any reporting of income on your personal 1040 return. I add the customary disclaimer. I don’t give tax advice. Don’t rely on anything I say. DYODD and JMO.

          OT, but — There’s a lot of discussion on whether it makes sense to put tax pref securities like K-1 issuing partnerships into retirement accounts instead of taxable accounts, since some of the tax prefs are tax deferred rather than tax exempt. Some say, “not to worry I plan to hold forever.” and the UBTI taxes can be small in actual dollars. Others say, sometimes the tax prefs can trigger unexpected taxable events and result in high UBTI taxes, as many caught up in the ONEOK deal complained. Just sayin’

          1. Sometimes the trustees can charge you a stiff fee for doing that though. IIRC Vanguard was threatening to charge several hundred dollars at one point for doing that. I never saw any charges show up though.

          2. I held the previous Ceqp- (now ET-I) in an IRA and unfortunately had UBTI over 1000 and Vanguard charged 300 to file a 990 for me.
            So this past year, I thought I could outsmart them, and kept my UBTI to 950.00 and they still filed a 990 again and charged me again. So be careful on how many stocks send you a K-1

          3. Bear, I held the DCP in my wife’s IRA and had hoped they would allow it to float instead of calling it. T Rowe took care of withholding the amount owed when it was called.

        2. Bill S – I always receive k-1’s late, but have never had one my CPA used. So I am essentially with you.

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