Ending the Week on a High Note

Looking at the bounce in equities today makes me wonder if this rally is here to stay–or do we get another plunge next week?

Right now I am mostly watching and waiting–I’m waiting to see how many high quality low coupon preferreds will be redeemed–I’m waiting for the China resolution (and not holding my breath)–I’m waiting for a market panic so I can scoop up some bargains. I’m waiting for a lot of things to happen–all which I believe will happen, but I have no idea when they will occur.

Yesterday our reader Fred noted that retail REIT Kimco (NYSE:KIM) was selling a 3.70% note with a maturity out in 2049–sick–30 years at 3.70%!! They will redeem the KIM-I 6% preferred issue and the KIM-K 5.625% preferred issue. Look for lots more of this kind of stuff ahead.

This afternoon we let go of our Saul Centers 6.875% preferred (NYSE:BFS-C) at $25.48. I had picked up a modest position last week when big sellers dumped the share price down to $25.05 (I paid around 25.11 on average). I know quite a few of you got on board as well. This issue will be called soon so the price should stay at $25.60 or below. It is trading around $25.47 right now so it has maybe 15 cents of call risk in it (assuming a 30 day notice is given). We just wanted a 1 or 1.5% gain so we got it and we are out.

Also we note that ‘fake utility’ Just Energy (NYSE:JE) has been taken to the woodshed bigtime. Looks like their 8.50% fixed-to-floating preferred (NYSE:JE-A) has taken a $6/share haircut since Wednesday and is trading at $17.24. So far the peer Spark Energy 8.75% fixed to floating rate has not fallen much in sympathy. I no longer hold much of the Spark Energy issue–it took a long time to get a meager profit from that ‘fake utility’ and I am not made for those wild rides.

29 thoughts on “Ending the Week on a High Note”

  1. Tim, Hand raises at the back of the class…Not to quibble, but if it’s “fake utility” Just Energy, isn’t it also the “hated” Spark Energy?

    1. alpha8–yes it was hated when I owned it for sure–and it was hated, but I thought I would invoke Grids ‘fake utilties’. A+ on the question.

      1. Tim, you know what they are so it wasnt going to surprise you. Any play can be a good one depending on ones risk level, so that isnt for me to decide. But these outfits fight churn, lie and piss customers off, which repeats the churn. And apparently they hire the bottom rung accountants also to work for them, lol.

        1. Grid–you are absolutely right. On the other hand I don’t judge companies too harshly if I can make a buck or two-which is pretty much what I made.

          1. Tim, trust me, I make no moral judgements on any company that puts money in pocket either. I will leave that to others with more conviction and passion so I dont have to fake it. 🙂
            So that protest picture in Minny by one of my Enbridge pipelines wasnt you?

            1. Grid–funny you would mention enbridge pipelines. Some fools would rather keep pipelines that are 40-50 years old and in marginal condition than put new pipes in the ground. In Minnesota we have such a divide–it can be comical. In the north where the pipelines are protested we have massive iron ore mining occurring–nobody protesting at the mines–mining and timber that is what northern Minnesota is all about (and fishing I guess). If you had protests at the mines there would be some real confrontations–it would be ugly.

              No I haven’t been to a protest since the early 70’s as a young, ignorant college student.

  2. Thank you so much for this site. It really is a pleasure to come here. I think you have everyone’s best investment interest.

    I sold JPM-C earlier today for $28.02(400 shares) that helped compensate for JE-A yesterday at $19.01. As bad as $19.01 was; it was worse today.

    While I was selling JE-A, I went ahead and unloaded PEI-B for $21.30. It felt good to let these dogs go. In the past, I would ride them down to zero (LINE, and several others).

    I was already out of SPKEP and managed to break even (yeah).

    Question for you. Do you think COF-P will be called? It is a couple of years past call and there are several higher coupon COF issues with upcoming call dates. It just went X-DIV so would be dead $ for awhile,

    1. Barbara – COF-P is another bank preferred that is only callable on a dividend payment date, NOT on any other dates…. Given it also is callable on 30 days advance notice, you’re apparently now good to go for at least one more dividend beyond the 9/1/19 divvy.

      1. Thank you for the info.

        I knew about the 30 days notice, but not only callable on paid date.

        I guess that means WFC-T got a stay of execution at least one more quarter as it’s 1st call date in 9/15/19.

        1. BarbK – Each issue has to be looked at individually so you can’t make assumptions on one based on what you know about another, however, you’re in luck… It looks like WFC-T is unusual in that it has to give no less than 40 days notice, not 30 before calling…. That would imply that it, too, survives beyond this upcoming 9/15 payment.

    2. Barb, i’ve purchased a few hundred shares of COF-P. My thought
      process (which maybe wrong) was that COF-C and COF-D are going to
      be callable this year and have higher rates than P. Plus the C only has
      12M shares outstanding and the D has 20M outstanding while the P
      has 35M. So they could call both higher ones for about what it would
      take to call P. That’s just my thoughts.

    3. Barbara–glad to have you here–there are a great bunch of folks around that help us all learn.

      I think COF-P is ‘on the bubble’. Capital One is barely investment grade and as you mentioned there are 2 other issues coming toward early redemption. I would hold it and with a 30 day notice on it you only have a risk of about 15-20 cents. As 2WR mentioned you are good for the very near future. Anything above say $25.40-$25.50 I would cut it loose.

      1. I own a modest amount of COF-P, but since I bought at $25.14, and have already received 2 dividends, I’m intending to hold to the bitter end.

        Still, if I see it going to $25.50 or above, the temptation to sell would be quite high.

      2. Oh lordy….everytime I think that I understand how to calculate call risk, I get confused.

        COF-P closed at 25.31.

        Quarterly div is $0.38

        It pays 9/1 and, if I understand 2WR’s post correctly, the earliest it can be redeemed is 12/1…so they can’t issue a call notice before 11/1.

        With the earliest possible call being 12/1, that guarantees another $0.38 if we start counting from the pay date of 9/1.

        I am obviously missing something…..where does the risk of 15-20 cents come into the equation?

        Thanks for any lessons on this issue! Still learning….

        1. I think the call risk was just a back of the envelope calculation. Excluding commissions and purchasing at 25.31, I think we can net $,07 a share if called on 12/1. When Capital One had the security breach, I thought that may delay all of them from being called for awhile.

          I already owed 600 shares. I need to go back to see when I bought them and what I paid, but it wasn’t much over par.

          I got some when I thought ALL-E was being called.

            1. Hi Barb,

              There is no edit function so we have to proofread very well before we hit the giddy up and go button.

            2. BarbK—I had asked Chad (our Tech guy) to investigate a new, more flexible commenting system instead of this wordpress system. There are good systems out there, but I have no idea how well they would work on wordpress.

          1. Hi BarbK—yes I shot that off the cuff without factoring in that they could only call on a dividend payment date. Sorry

        2. Amy, if you owned COF-P before XD date yesterday, you are guaranteed the dividend of $0.375 paid on 9/1.

          I reviewed the prospectus, and yes they have to call the stock on a dividend payment date, as W2R said ( Section S-7 and severalother places ).

          Section S-19 also states that they have to provide a minimum of 30 days notice ( 60 days max ).

          Since they did not call on July 31, the next opportunity to do so falls on November 1. Even if they do call on that day, we are guaranteed the Dec 1 payment so long as we own it on the XD date in Mid November.

          So you are correct, as far as I can determine. But I may have overlooked something critical; if so, hope someone else chimes in.

        3. Amy – First of all, to be completely accurate, in order to COF to call COF-P on 12-1, which is the next possible call date, they will have to issue a notice of call on or before 11/1 because they are obligated to issue a notice no later than 30 days in advance of a call. Tim will have to answer regarding his comment of 15-20 cent of risk because to me there is zero risk because you’re guaranteed 37.5 cents on 12/1. Figuring your annualized yield right now if you were to buy this 25.375 payout Monday @ 25.31’s close to an assumed 12/1 call is a little tricky right now because of being in the ex-div time… So in other words, you are more than 3 months out to your payment and most bond calculators will compute yield on a 3 month interim but not of 3 months plus 10 days as would be the actual case. Calculating using 3 months exactly, a purchase of 6% due 12/1/2019 [settlement set as 9/1] at 25.31 gives you only a 1.027% annualized yield. Estimating the effect of those extra 10 days, I’d say your real yield is only .91% so 25.31 is too high UNLESS you want to bet COF-P also gets past December… If it makes it to 3/1, then you will have earned approx 3.25% for the holding period.. All this just to pick up a coupla pennies, but I seem to be trying to do it more frequently

          1. Thanks for your responses – much appreciated.

            2WR – thanks for clarifying how I mis-spoke regarding “cannot issue a call notice until November 1” when in reality they can issue a call for December 1 sometime between October 1 and November 1 which is the 30 to 60 day window.

            You brought up a good point about the annualized yield. Since the money we will earn is calculated starting from the payment date, we earn nothing from Ex day -> payment date (in this case, August 15-Sept 1)……if I understand this correctly.

            But then I think that can be said anytime we buy a new issue? i.e……when buying between the Ex date and the payment date, the seller gets the next payment and me, as the buyer, does not start making money until the quarterly payment clock starts again on the payment date…?? Is my understanding correct?

            TIA!

            1. Amy – I’m not quite getting your question, “But then I think that can be said anytime we buy a new issue?” I’m not sure I’m answering what you’re asking but on a new issue, the first coupon could be longer or shorter or the same as the normal 3 months on a $25 issue. It’s always stated in the prospectus if it is either. But as far as ex-div and what you are asking, I’m not sure how what you say differs from any normal situations as opposed to only a new issues…. If you buy immediately after the ex div date, you don’t get paid your first coupon until a period of time greater than just 3 months, the amount of time dependent upon how much time difference there is between x-date and payment date…

              1. 2WR, thanks for trying to answer my poorly worded question. When I said “new issue” I wasn’t meaning an IPO.

                For example if I buy an issue that has been outstanding for years from Joe on August 20 for an issue that went EX on August 15 and pays September 1, Joe gets the money from this issue that is generated through September 1.

                I, as a new holder, start to accrue dividend starting September 1 (or September 2, I’m not sure when the clock actually starts ticking for the new order).

                In this scenario, I’m assuming that I get no money between August 20, the day that I bought it, and September 1, the next payment date. That’s Joe’s money.

                Does that make sense?

          2. 2WR–sorry–I shot that off the cuff number before realizing the call only can occur on a dividend payment date–instead assuming they just needed a 30 day notice. Thanks for keeping things straight for me.

        4. Hi Amy–I shot that ‘off the cuff’–as 2WR says this is one of those issues that can only be called for redemption on the dividend payment date so there is no call risk. I didn’t factor in the ‘only on the dividend payment date’ stipulation. Sorry to confuse the topic–if they could call with 30 days notice my number would be about correct, but that is not the case.

          1. Thanks, Tim. As an exercise to make sure I understand this, I will calculate the call risk based on a scenario when they could, theoretically, call it on Monday which is the assumption that you were working with.

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