This quick note is to add a page for discussion for “flipping” issues and for “dividend capture” techniques.
We all discuss these types of things all the time so it is way past time to add a area for discussion for of techniques you use for “flipping” (a quick hold and resale for profit-or occasionally a loss) and for “dividend capture”–buying with the intent to secure a dividend and probably sell shortly there after.
Not recommending this as a buy, but it is a strange imbalance and potentially a flip:
AHL-C is floating at 4.06% + SOFR + 0.262% = about 9.5% with a current price of $25.23. It has been callable since July 1, 2023. There is always the possibility that they will call it.
AHL-D is a perpetual with a base yield of 5.625% and a current price of $17.01, so the current yield is about 8.3%. It is callable on 1/1/2027.
AHL-E is a perpetual with a base yield of 5.625% and a current price of $15.86, so the current yield is about 8.9%. It is callable on 10/1/2024, but it is unlikely to be called.
In comparing C to E, there is a $9.37 price difference for a 0.6% yield difference. Currently it makes a little sense for the higher yield, but if SOFR drops by just 0.6% then they will yield the same at a vastly different price for sibling preferreds.
In comparing D to E, there is a $1.15 price difference for the same coupon.
I have a very small amount of C. I might flip it to E and wait for some long-term equilibrium.
Not necessarily a flip, but an imbalance:
ET-C floated in May at 4.53% + SOFR + 0.262% = about 10.1% (current yield). Current price = $25.43.
ET-D floated in August at 4.738% + SOFR + 0.262% = about 10.4% (current yield). Current price = $25.40.
ET-E floats on May 15, 2024 at 5.161% + SOFR + 0.26% = about 10.7% at current SOFR rate. Current price = $24.38, and current yield = 7.8%. Assuming that ET-E matches the price of its siblings in 7 months, it will have a $1 capital gain and a higher yield. You will receive a K-1. DYODD.
All 3 go ex-div on about Oct. 31.
Lower dividend now, higher float yield later. Often such issues seem underpriced relative to others by the same company paying more now. I own several of them but not ET phone home,
I had not made the connection to the character, now it’s the first thing I think about when I see the symbol. Thanks for the laugh.
NLY-I now more than $2 loer than NLY-F. Major mispricing, recently barely $1 lower where it belongs. Only 5 more dividends before they both float at the same level and no way F makes up more than $1 difference.
NYTML vs MYMTM has been wild. Both are similar other than L being 10-15% lower both current dividend and floating dividend. The price has varied from 12-16% lower. I don’t always capture the full 4% but I don’t need it all to make a profit.
AGNCL vs AGNCP has been interesting. Hard to compare because they are so different but with the price varying from $2+ higher to less than $1 higher and everywhere in between why not trade against the inefficient market.
MFA-B vs MFA-C have also bounced around a lot. So,etimes there is a reason since one os fixed and one floats but that doesn’t account for all of the moves. AGNCO was also in the mix but been too high for awhile now.
Finally AAM-A vs AAM-B virtually i=demntical but the prices =]are ]all over the map both upo and down and between each otjer. Hard to trade because of the wide spread and front running robber barons but when it happens it’s good.
Hey I need more than 5 minutes to correct my late night drunken typing errors.
Thnaks, Martin.
I’ve been flipping between the AAMs and also between CODI-B and -C, and GOODN v GOODO.
I’ll check on
I’ll rake a look at those. There’s a limit to how many I can follow closely. Some of those on my radar haven’t been useful lately.
PRIF-L bid up. Good time to swap into PRIF-F. or just Sell.
ABR-D selling lower than ABR-E. If you own E now would be a good time to swap for D or F.
If you gambled on some bank preferreds at a low price, then it goes up a few percent do you take the quick profit or let it ride? Interesting dilemma. Sell the rally and buy back on the correction is the best outcome.
I already sold out a couple NYCB-U about a quick 10% flip in less than a week riding that Signature Bank announcement. FRMEP has bounced up and down a couple buck swings in mid 23 to 25 range and I have traded those. The other 4 I have just bought probably be more patient with.
Personally, I usually sell for the flip, all things being equal.
If you watch price movement, you can sometimes flip the same issue several times in fairly short order if the volatility holds. I have a few I have flipped for a buck a swing several times over a couple of weeks.
Any reason why NEE-R a $50 preferred is selling at around a 9.6% discount (45.18) compared to NEE-N a $25 preferred is selling at 25.11
NEE-R is yielding 7.65% vs NEE-N at 5.63%.
Convertible into common stock.
The stock purchase contract requires the holder to purchase for $50 a variable number of shares of NextEra Energy, Inc. (NYSE: NEE) common stock no later than 9/1/2025 and pays a contract adjustment rate of 2.326% per annum. The stock purchase settlement rate will be 0.4500 shares per unit if the then current market price is equal to or greater than $111.10 and 0.5626 shares per unit if the market price is equal to or less than $88.88.
I don’t quite follow what this says, could you explain it further. Thanks
its a convertible preferred. The price performance tracks the common stock. You can look up details on quantumonline.com
I took me about 3.5 hours to finally figure this out. I have a good amount of NEE-R that I think that I may unload for a small loss at this point. I didn’t realize how risky this could be.
ENBA the 6.375% fix to float that is callable and floats 4/15 is trading $24.8x. Next ex-divd 3/31 so likely a decent buy here to extract the dividend. Even better if they do not call it and it floats at 3Mo LIBOR + 3.843%
STAR says they’re rdeeming the preferreds after the merger with Safehold is complete. Probably around March. Yet they are trading 2-4% below par. Do investors not believe it? Are they skittish about going dark? 8% isn’t bad for them.
Martin – I’m a believer that they will take out the preferreds and the outstanding STAR debt issues, even though the STAR debt is between 4.75% – 5.50%…. That was their original plan and still is what they think is best… That being said, Jay did leave the door open to change in the last CC and lay the issue at the feet of the special committees regarding the merger plan both at STAR and SAFE…. This does leave room for doubt. That being said, I believe there are covenant reasons that the debt will be retired and as to the preferreds, overall they represent a very small percentage of their capital structure and part of Jay’s goal is to begin the new STAR as an IG company with a relatively simplified structure…. Eliminating the preferreds will help with rating agencies so I think that lessens their sensitivity to interest rate changes as the primary motivating factor for calling….
Here’s the interplay with an analyst from the last CC:
Jade Rahmani
Thank you very much. The follow-up on the liabilities. The weighted average duration is 3.2 years, the weighted average cost is 4.79%. Even excluding the troughs, the cost is between 475 and 550. I mean, given the turmoil playing out today, and recently in the capital markets, and just extreme levels of interest rate volatility. Wouldn’t you choose to keep those liabilities and look at that as an asset?
Jay Sugarman
Yes, hey Jade. No, definitely in a market like this, we’re looking at all sources of capital. And definitely those look attractive on their face. They do have a different covenant package, given they sit at Star and not Safehold. So got to take that into account. As you saw as part of the transaction, we are keeping the troughs in the system, so that definitely was a piece of paper, both from duration and where it sits and pricing that made sense. But I think ultimately, it all has to line up to make sense. And we think the structure we’ve come up with is still the best. But definitely, if the market continues to deteriorate, I’m sure those special committees will be taking that into consideration.
Jade Rahmani
Thank you. So I guess just to put a finer point on that, whose decision is it to repurchase and be buying back bonds? Is it management’s decision or is it special committees decision?
Jay Sugarman
That typically is a board decision. And we have authorizations that have to be approved by the board. The actual execution would obviously be in management’s stance of that, any meaningful transaction like that would have board authorization.
Hi Martin,
You might want to look at the merger spread before flipping these preferred issues. The arb community is essentially assigning a zero percent chance of this deal being completed. The spread between the stock price and the purchase price is over 70%, which is a huge red flag.
Ignore me. I saw on a merger list that the spread on the deal was 79%. Out of curiosity, I started to look at the structure of the deal. It is way too complicated. I have no interest in trying to establish what the spread actually is based on today’s numbers.
For a flip I wouldn’t hold until completion just until somebody bids it up a little. If nothing happens it’s paying 8% so I was trying to figure if there’s downside to the price. Thinking about bailing out now for a half percent gain.
Whatever you decide, good luck with your trades.
MarkS, I am curious to know what/which merger list you are referring to? Is this list publicly available? TIA
Hi TNT,
Here is the list that I use.
http://intrinsicedge.blogspot.com/
I swore off trying to understand this deal. But I have been drawn back to it- like watching a train wreck.
When the IStar/Safehold merger was announced, IStar was trading at around $17.08 per share. Their presentation claimed that the deal was accretive for IStar shareholders. They based this claim on a combined book value of NewCorp of $6.48 + $11.73 (.27 share of each Safehold at $43.45 per share) = $18.39 (according to their numbers- mine come out to $18.21). So IStar shareholders would see an increase of a little over one dollar per share.
Unfortunately, Mr. Market had other ideas. Currently iStar’s shares trade at $7.40 while Safehold is trading at $27.71. So assuming the $6.48 combined book value is still valid, the current deal would be $6.48 + $7.48 (.27 x $27.71) = $13.96. This large spread may indicate that the market doesn’t believe the deal will close. After reading Moody’s take, Safehold looks like an interesting investment- while IStar doesn’t do anything for me. I understand that IStar has installed an “independent” panel to make sure that the deal is fair for both sides. But that may not be enough- as I don’t see what Safehold shareholders get from the deal. Perhaps someone on the board who is more familiar with the companies can enlighten me.
Mark:
“This large spread may indicate that the market doesn’t believe the deal will close.”
No doubt a complex deal, but I believe you are ignoring the special dividend STAR paid on 12/7/22 in SAFE shares:
“iStar Announces Details for Its Special Dividend
November 29, 2022 at 7:30 AM EST
NEW YORK, Nov. 29, 2022 /PRNewswire/ — iStar Inc. (NYSE: STAR) announced today the specific terms for its previously announced special dividend. The company will pay a one-time non-cash dividend of 6.64 million shares of Safehold (NYSE: SAFE), which equates to 0.07655 shares of SAFE for each share of iStar common stock outstanding.
No fractional shares of SAFE common stock will be issued in connection with the special dividend, and instead Company stockholders will receive cash in lieu of any fractional shares.
The dividend will be paid on a pro rata basis on December 7, 2022 to shareholders of record as of the close of business on December 1, 2022.”
Given that SAFE was trading for around $28 on 12/7/22, this dividend equated to another $2.14/share in value for STAR common holders (for every 100 shares of STAR you owned you received 7.655 shares of SAFE valued at $28/share – $214.34).
Given that STAR did the SAFE dividend distribution this week, it sure seems this merger appears to be on plan to close during 1Q or 2Q 2023. STAR also suspended any more cash dividends.
SAFE is going to get $55M in management fees from STAR over the next 4 years, and $8M/year in interest income from a $100M loan to the STAR SpinCo. Much needed income for SAFE….and almost egregious. So SAFE holders would be foolish to vote no on it.
I agree that I would have no interest in the future STAR SpinCo (legacy assets), although it will have some value, given that it will also own approximately 9+M SAFE shares.
If I had owned STAR common when the deal was announced in August I would have sold it due to the complexities of this deal. Tough break for those STAR owners who held on and watched SAFE fall 40% since the deal was announced – and hence STAR fall with it. That is $600M in value on STAR’s balance sheet vaporized since 8/11/22.
But my guess is the big passive holders of STAR like Blackrock, Vanguard, and Fidelity will all vote for the deal, assuming ISS Proxy Services gives its OK (not sure why they wouldn’t?).
From the 9/30/22 STAR 10Q:
“The Company has covenanted to redeem all of its outstanding preferred stock at the liquidation preference per share plus accrued and unpaid dividends and to retire all of its remaining senior unsecured notes in connection with the Merger. The Company’s trust preferred securities will remain outstanding at New SAFE.”
By my calculations STAR should still be able to easily pay off all is debt and the $305M in preferreds even with SAFE trading down to $27.70/share. STAR still owns 34M shares in SAFE. The STAR SpinCo will take the brunt of the loss, as the $400M in SAFE shares they were going to seed the company with have traded down to $250M.
I think all my math is correct?
Hi Rob,
Thanks for the comment. I am thrilled that another person actually follows these crazy complicated deals.
The fact that IStar went ahead with the stock distribution and stopped paying dividends are indeed positive signs. But it doesn’t change my basic point. Assuming for the sake of argument that the spread narrowed by the of the value of the stock distribution (around $2.00), it is still a very large spread- around $9 ish vs $14 ish. Mr. Market is still showing signs of skepticism.
I actually believe that the spread is actuality larger than I first indicated.
1) IStar was going to sell MDS Partners about 5.4 million of Safehold stock for around $37 per share- a substantial discount to the share price at the time. The sale price will have to be modified significantly in light of Safehold’s share price decline.
2) IStar holds a large amount of Safehold’s shares. It is highly likely that the combined book value has changed for the worse with the loss of value in Safehold’s shares.
3) The recent market dislocations has made it harder for IStar to sell off assets. That normally leads to reductions in value/sale prices.
I looked at Safehold’s most recent 10Q. The management fee of $55 million over 4 years isn’t that big a deal. And yes, New Corp will receive the 8 million in interest on the 100 million dollar loan, but it also assumes 150 million in outstanding preferred shares of IStar- that seems like a wash to me.
My main point is simple: the deal may in fact close, but it’s certainly not a sure thing. People considering buying or holding IStar debt/equity should do so with open eyes.
The complexity of this deal most certainly exceeds my capacity to fully understand all the moving parts, that’s for sure. That being said, this also feels like a genie is out of the bottle type merger proposal, where turning back now would be very difficult if not impossible and might even cause greater harm to both companies. And with STAR owning 41% of the voting shares and a commitment to voting those shares in favor, you would think that as long as STAR wants this done, it’s going to get done… It may get altered and possibly altered dramatically before all is said and done, but it just seems pretty clear that this will not be abandoned… Famous last words??? Perhaps.
You say, “New Corp will receive the 8 million in interest on the 100 million dollar loan, but it also assumes 150 million in outstanding preferred shares of IStar.” I think you’re saying you got that from SAFE’s most recent 10q, but where specifically in the 10Q does it say anything about assuming “150 million of IStar preferreds? It could be there but I’ve missed it. The most recent STAR 10q still references the Merger Agreement dated Aug 10, 2022 which says on p 6 that each series of STAR preferreds will be converted into the right to receive an amount in cash equal to $25.00 plus the aggregate amount of all accrued and unpaid dividends, so it appears the assumption remains that there will be no preferreds outstanding for New Corp to assume….. What have I missed?
Hi 2WR,
The assumption of Preferred shares by NewCorp is in this presentation.
https://ir.istar.com/static-files/c99137c0-57c1-4265-939d-daf1d6fa59d8
Specifically, it states:
“Safehold internalizes and as part of the transaction effectively assumes $100m L+150 Trust Preferred due 2035 from iStar and effectively issues 1.2m of new SAFE shares to iStar.”
I wrote my response to Rob from memory this morning. Obviously, I was wrong about the amount- it’s 100 million not 150 million. My bad!
Regarding the Safeholder vote- often in this type of interested party transaction, an independent committee is often enough to satisfy the fairness requirement. But since Safehold shareholders have lost so much in market value on this deal, out of an abundance of caution, a “majority of the minority vote” may also be required. Again, this deal can close. I just want people to understand that it isn’t a slam dunk.
Ahhhhhh right! Now I remember – it’s a “trust preferred” carried on STAR’s books as debt, not as a preferred…. I do remember reading about that… I had read where they distinguished between the 3 preferred issues and the one “trust preferred.” So it’s not really a “preferred.” in the same sense as the 3 that are slated to be redeemed if this closes. Whew. Like I said, this is all well beyond my abilities to fully comprehend….. I think I’ll go watch the NY Giants before my head explodes….. Thanks for the clarification… My mind needed the refreshing… ha. I’ll wait until the Giants lose before allowing the explosion.
Good man! I’m pulling for the Giants myself.
Mark:
” IStar was going to sell MDS Partners about 5.4 million of Safehold stock for around $37 per share- a substantial discount to the share price at the time. The sale price will have to be modified significantly in light of Safehold’s share price decline.”
Why does the $37 SAFE sale price have to be re-negotiated? Is that just your gut feel? STAR has a legally binding agreement with MSD:
The Company has entered into an agreement (the “MSD Stock Purchase Agreement”) with MSD Partners, L.P. (“MSD Partners”) and SAFE under which the Company has agreed to sell and MSD Partners has agreed to buy 5,405,406 shares of the SAFE’s common stock owned by the Company for $200.0 million(the “MSD Stock Purchase”) shortly before the closing of the Merger”
“The recent market dislocations has made it harder for IStar to sell off assets.”
STAR doesn’t really have any “sell-able” real estate assets left to sell. They have $400M in legacy master planned properties (Asbury Park and Magnolia Green) that will go into the Star SpinCo. The only other assets beyond the $1.34B in cash and 34M shares of SAFE are $90M in ground lease Plus assets (which are being assumed by the New SAFE) and $177M in Real estate Finance loans (6 loans). The plan was to include the loan book in the STAR SpinCo, but I would be not be surprised if they tried to sell that loan portfolio at a haircut. 71% of the loan portfolio is loans on apartment and retail assets.
“The management fee of $55 million over 4 years isn’t that big a deal.”
“I looked at Safehold’s most recent 10Q.”
I disagree. Trapping Value over on SA has been doing outstanding work on SAFE (he has been bearish for a year and has been correct on everything) and his latest report shows that the true operating cash flow of SAFE was only $11M for the first 9 months of 2022.
https://seekingalpha.com/article/4552067-safehold-bonds-might-be-a-better-alternative
The $25M SAFE will receive in management fee income in year one from the merger should be a huge boost to their operating cash flow bottom line.
I believe SAFE desperately needs this deal to happen (they now have $630M outstanding on their LOC at unhedged floating rates!), and the reasons for the huge fall in SAFE’s stock price over the last 3 months was because it was always way overvalued (based on cash flow) and the balance sheet has become much more leveraged.
I expect the deal to go through with few (if any) modifications. I agree with 2WR that there is an aura of inevitably to this deal.
But we’ll see. If SAFE falls down to $15/share in the next few months, all bets are off!
Anyone own STAR shares? Did you get the dividend of SAFE shares that was supposed to be paid on the 7th? I see nothing yet at TDAmeritrade
Hi Rob,
I am not the only one wondering about the $37 price.
From the November earnings call:
Richard Charles Anderson SMBC Nikko Securities America, Inc., Research Division – Research Analyst:
On the MSD question? Are they still getting a talk at $37?
Jay S. Sugarman Safehold Inc. – CEO & Chairman
Yes, nothing has changed.
Marcos Alvarado Safehold Inc. – President & CIO
Apologies, Jay. Nothing has changed as it relates to any of the merger document
Also according to Sugarman, Safehold had a great quarter and has over 700 million in liquidity. Go figure!
Mark:
SAFE only has $35M of cash that is unrestricted as of 9/30/22…so that $700M of “liquidity” that the CEO brags about would be from further jacking up the floating-rate and unhedged LOC (at 3month LIBOR +100 bps). They can take the LOC to $1.35B.
The 5.4M share sale to Dell at $37 is important to STAR, as that $200M plus their $1.34B in cash outstanding essentially pays off all the outstanding STAR debt. Maybe it will be re-negotiated but I don’t know how Dell can ignore contract law. Dell also agreed to buy $20M in SAFE “Caret” units. STAR owns 34M shares of SAFE as of today.
I was wrong about the $177M in real estate loans, as Sugarman said on the recent quarterly call that he expects those all to be paid off before the merger closes. This is great news for the STAR preferreds.
“Remaining in this portfolio is six loans carried at $177 million. We anticipate the majority of these loans to be repaid prior to merger closer.”
And you were correct, there is another $100M+ in real estate assets (13 properties) for STAR to sell beyond the $90M in ground lease assets they are selling to SAFE. They will take $50M of these proceeds to fund the STAR SpinCo.
So the $177M loan payoffs, $90M in ground lease sales, and $50+M in real estate sales (after funding STAR SpinCo) will be used to payoff the $305M in STAR D+G+I preferreds.
Even if this merger crashes and burns, the STAR preferreds sure seem like a safe bet near $24. Nearly all of STAR’s $1.7B in unsecured debt is at below market rates of 4.25 – 5.5%, and they obviously have the cash to pay off a $754M October 2024 maturity (rate of 4.75%).
Hi Rob,
I have no dog in his hunt. Here’s to hoping you guys make a bundle. I was just offer a different opinion- wasn’t trying to be an ass.
If you’ve been playing NLY-I vs NLY-F hopefully you made money. NLY-I was as much as $3.50 lower in price as was pointed out on III, now it’s $1.40 lower. I still rate NLY-I slightly higher but the inefficient market overrates current dividend so I swapped some into F hoping to swap back later.
RITM-D is an enigma. I went all in when it dropped below RITM-B by more than a couple cents, now it’s inexplicably $1.20 lower. Why? B floats a couple years sooner for probably a higher dividend, then D is better for all of eternity. Does not justify a lower price in my opinion.
CIM-A now $1.50 lower than CIM-B. Both pay the same rate now but A is fixed and B will eventually float. If you suspect rates will ever come back down why would A be worth so much less?
Similarly, PMT-C fixed at $5 lower than PMT-A seems like a mismatch.
NYMT preferreds are interesting if you like to do your own analysis. 4 issues and they are completely different, making comparison a challenge.
RITM-D is the issue most likely to be called as it will cost the most to service. So it’s entirely possible that the ‘better for all eternity’ rate will not exist for all eternity – or even for a little while.
A call would be a large capital gain, very positive outcome then go buy something else.
RITM-C has dropped relative to their other issues and may be just as good or better than D. For now. Depends on future Libor/Sofr vs T rate,.T is signifacantly lower now but that hasn’t always been the case.
Flipped today: sold eica @ $22.71 and bot eccc @ $20.77 .
Got almost $2 in cash now, increased the yield from eica’s 5.5% to eccc’s 7.8%, but extended the terms from 2026 to 2031 (ytc is irrelevant because although both are callable in 2023, the ytc are 15% and 20% respectively).
In addition, I pocketed more than $1 in short term capital losses.
I understand I acquired extra risk in the significant longer duration from 2026 to 2031 (not negligible with CLOs) but still, looks too good to be true!. Maybe I was particularly lucky in today’s prices due to market craziness?
Or am I missing something else?
btw: eccc is in Tim’s medium dur. portfolio.
Another swap between practically identical securities:
sold wfc-l @ 1211 and
bot bac-l @ 1190
Same rationale: stay similarly invested, harvest capital losses, and pocket a few bucks on the way.
Given that I believe this is quite profitable on the long run, given that there are so many “sister” securities, and given that many of our held positions have significant losses, I wonder why few are commenting on this. Either most do not do it, or simply do not wish to comment?
I do it all the time to stack nickels, the gains are usually rather small but they add up since you rarely lose money on this type of trade. To capture some of them you have to be watching the market often or you’re pateintly playing the spread which some people find annoying.
This trade looks about even other than for the tax advantage. Just missed ex-div and slightly lower dividend but WFC-L typically trades at a slightly higher dividend.
Martin,
You are right, it was meaningful mostly for tax purposes.
Just did another one, with good tax harvest and bit more cash pocketed and a bit more difference in terms:
Sold prif-g @ 23.77 and
bot prif-i @ 22.87.
Similar yields (~6.7%) but prif-g is callable 3/23 maturing in 6/26,
while prif-i has longer dates: callable jun/24 maturing in 6/28.
dd, where do you think the line is between substantially identical for wash sale purposes? in your case, prif-g vs prif-i you note call and maturity date differences. JPM-K vs. JPM-M, different call date by 3 months, and a different coupon. Sufficiently different? Thanks, Jim
It’s a very high standard. Certainly different coupons and maturities and call dates are very very different. The only two stocks I can recall being ruled substantially identical to each other was in a stock for stock merger when the merger was all done but the stocks still traded a few days until it closed.
https://www.morningstar.com/articles/1045354/wash-sale-challenge-what-is-substantially-identical
https://www.optionstaxguy.com/substantially-identical-bonds-v-opt
https://www.forbes.com/sites/baldwin/2012/06/05/wash-sale-trap-what-is-substantially-identical/?sh=180b2c3b72d7
different issues of the same company have not been considered a wash sale. They are not exactly the same. Maybe they could be considered “substantially similar” in some cases but they have flown under the radar so far.
My favorite pair of issues for swapping is TANNL and TANNZ. As another commenter noted, their ex-div dates are six weeks apart, so they are 180 degrees out of phase. In most other respects, they are very similar. They are nominally 8% issues, so the dividend is 50 cents. To judge price between the issues, I use the following rule: the issue that will next go ex-div should be worth 25 cents more than the one that most recently went ex-div. As of today’s close, TANNL was at 25.29, while TANNZ closed at 25.59. At least the way I look at it, that’s 55 cents of mispricing, since TANNL should be worth 25 cents more than TANNZ, not 30 cents less. I bought a little more TANNL this afternoon at 25.29, and I might buy some more tomorrow if I can get it at that price or lower.
A few days ago RITM-A and RITM-D were trading around the same price yesterday. Now they are $1,30 apart. Good swap opportunity for anybody who owns them. I swapped 800 shares today but not at the top price.
A swap today:
sold tds-u @ 19.73 and bot tds-v @ 18.55.
tds-u pays 6.63% (current yield: 8.4%) callable on 3/26 and
tds-v pays 6% (current yield: 8.1%) callable on 9/26
The swap extends 6 months the call time and sacrifices 0.3% in yield, BUT:
gives me a short term capital loss in tds-u while pocketing $1.18 in cash now.
Was this a good swap?
I generally go with the higher yield when that far below par call isn’t much of a factor. Unless you need the loss for tax reasons, though I have enough losers this year that’s not going to be an issue.
One more consideration is how the market has been pricing them. Even if I like one better, if the market disagrees I might swap when the prices divergence expecting to gain it back. Haven’t been following TDS so I don’t l know.
Martin,
Although I don’t have the day-to-day data, over time tds-u seems to be priced higher than tds-v , which makes sense as it has a higher yield, so flipping back may cost.
I guess many of us have enough losers this year, which can be materialized as cap. gain losses by selling (or swapping) them, and can be carried over (after the $3k) to the following years.
Another swap today, practically keeping the same investment, but harvesting some capital losses while pocketing some $:
sold bip-a @ 16.70 and
bot bip-b @ 15.95
bip-a is in Tim’s portfolio, but bip-b is practically equivalent yielding 7.8% callable Feb 2026, vs bip-a yielding 7.6% callable Oct 2025.
At this pace, I will be accumulating capital losses so that I will not owe taxes on capital gains for some years….What’s not to like?
dd, I have been buying both this week in dribs and drabs. Preferreds slotted BBB-, paying near 8%, and 85% of debt non recourse. I like the company enough to overlook K-1 which is of minimal problems anyways.
Grid my friend, wanted to get your thoughts on PCG.A, I am out right now but have bought and flipped this utility preferred an incredible amount of times through the years. The common equity looks strong 💪🏻, but I seem to not be able to pull the horribly run and in a radical state scary security trigger. Any thoughts would be greatly appreciated from all here, I am Azure
Azure, On last round I bought at a bit over $20 then some under $20 then flipped out for a quick 40 cent a share gain or so. Or should I say the price just happened to be up when I sold. As soon as I saw the Feds launched yet another criminal investigation of PCG for the latest huge Mosquito fire, I sold. It just never ends and this is a big fire. The fire had been going on for so long I assumed PCG was safe, but yet they are looking at them again.
The common got a recent bump because they were included recently into S&P 500 Index so that bumped it. But Im out and wont be in again until this fire thing is cleared up. PCG preferreds have been great trades for me over the recent years, but Im just worn out now. And as well all know there are a lot of things that have dropped (including what I own unfortunately, ha) that doesnt have that hair on it.
How do people here feel about flipping DCP-B and C ?
I didn’t catch the low, but up over a 1.00 on the B and ex-date is getting close.
Conflicted as to if there will be more opportunities to flip these several times as they are at least a year out from going fixed to floating?
Haven’t been following that one. Don’t want too many K-1 flips. Based only on price movement, market conditions, and low float rate I wouldn’t oppose a sell order at this time,
Dividend captures are abundant at end of quarter, But if recent volatility continues it could drown out these small movements, making it hard to tell if the capture strategy is working. Here are the ones I’m watching
29th – FBRT-E CHMI-A/B EFC-A/B SEAL-A BHR-D SRG-A(risky) HCDIP(monthly)
30th – AGNCO/N/M/P NYMTM/N/L/Z GPMT-A VIASP TANNZ ACR-C XOMAO/P
not yet announced – DX-C RTLPP/O
July 7th – CIO-A
8th – DBRG-H/I/J
11th TWO-A/B/C
13th NREF-A
14th NRZ-A/B/C/D FHN-B(6 month)
I randomly picked TANNZ for a closer look. All data are from Marketwatch, and all prices are closing prices. Over the last four run-ups to ex-div date, here’s what happened:
Business day, average closing price
x + 2 25.865
x + 1 25.91
ex-div 25.805
x – 1 26.245
x – 2 26.23
x – 3 26.22
x – 4 26.165
x – 5 26.1175
x – 6 26.195
x – 7 26.1375
x – 8 26.235
x – 9 26.175
x – 10 26.0525
x – 11 25.8875
So the best strategy over those four cycles would have been to buy eleven business days prior to ex-div, and sell three business days prior to ex-div for an average profit of 33.25 cents. That’s better than buying on the day prior to ex-div, selling the day after ex-div, losing 33.25 cents but pocketing 50 cents of dividend for a net gain of 16.75 cents, on average. Of course, the first strategy takes 8 business days and the second takes two, so if you annualize, the div capture is better.
This cycle isn’t following the previous pattern. x-11 was 6/14/2022 and the closing price was 25.60. x-4 was 6/24/2022 and the closing price was 25.60 again.
I am not a financial advisor and I can not predict the future.
I do not currently hold a position in TANNZ.
Good study though small sample size.
I’ve heard various theories about the best time to buy and sell. For me the answer is always “whenever you get a good price.” It’s really about trading on price movement. I find more opportunities around the time of dividend capture so I specifically look for them. I don’t recommend trading on specific dates at whatever price, that’s only part of the puzzle. Because of the spread you might not get the last price anyway.
SCHW-D – the Schwab 5.95% coupon QDI preferreds seems to a decent buy at or just below $25. Has been callable but not yet called to my knowledge. Ex-divd May 16, 2022
For those of you that like to swing trade preferreds, take a look at a chart of EFSCP. The bid ask spreads can be wide, and volumes low, but price swings of a few percent per day are not uncommon.
Trying to avoid low dividend issues at a time like this. When stacking small gains my first priority is to avoid big losses. I like playing the spread during quiet patient times. More power to you if its working.
Agreed. I’ll stick with swing trading TDS -U and V which often have large spreads and currently yield 7.5%
I would like to put a few unusual strategies out there for consideration: (1) “reverse dividend capture”; short a low coupon perpetual the day it goes ex and buy it back before it goes ex the next time. The trend is your friend. (2) Possibly counterproductive, but you could be long the same issues and collect the albeit moderate coupon of the perpetuals without price risk. Of course two brokerage accounts are needed to avoid being short the box.
After rethinking it over, although option {2) above would be low risk, for overall portfolio performance, option (1) has a chance, if rising rates keep dragging the price of all fixed income lower, for the realized gains you would receive from option (1) to help mitigate the unrealized losses you would experience with the rest of your fixed income portfolio, and help keep your account value more constant. The high convexity experienced with low coupon perps would help give you “more bang for the buck”
I’m not so sure that using two brokerage accounts gets around the ‘short against the box’ rule – but I won’t swear to it.
I’ll offer unusual strategy (3). I’ve been short about 30-35% of the value of my long holdings (same issuer). When a short position has a gain, I flip to another short position, hopefully in the same issuer. Had a good one today at +66 and +1.19, softened the damage elsewhere.
Major flip in NYMTZ today. down to $3.30 lower than NYMTN before breifly jumping to within $2.00 of it. I caught some but not all of it.
Been playing RTLPP RTLPO swaps now that SB-s cooled off though they are still worth something. Rumor of a call not taken seriously since it’s below stripped par.
Been in MITT-B for a long time finally got a swap to MITT-A today. Need more of those to cope with the drop.
Fully in NRZ-B now that NRZ-D is 80-90 cents higher. Hopefully I’ll get to swap back unless investors are finally wising up.
Divi captures have been going pretty good. I should do more but dont push it.
I already had an oversized NSS position but bought 400 more yesterday just to gamble on an exD flip. Was able to sell that lot just 7 cents cheaper than I bought yesterday pocketing the 42 cent interest payment. Still keeping the regular position just because that Libor rise is really going to pop the yield here. Though I doubt the price does much if anything being its past call.
Several issues have jumped past week so I sold most of those and entering others. Im not as keen on my closing purchase today as it was still dropping and I got at $26.08, but going to give DDT a run for the money again as it will go exD in about 2 weeks.
I broke rank and did some of my selling before ex-div this time prices were too good to ignore. The quarter ending issues I held on to didn’t do much today. Already sold some of next weeks batch too. Not believing in this rally.
No, I agree. Im hitting and running and holding cash which I rarely do.
Martin, Do you have access to a charting platform that shows the price difference between 2 securities? Scottrade used to have that ability but it is gone. I haven’t found anything to replace it.
If anyone has any suggestions, I would appreciate it.
IBKR or tradingview can both chart that
No, I make my own watch lists and follow them. After making the initial calculations I can tell just by looking at the changing prices. There’s a practical limit to how many things I can keep track of so I’m always scouring for the best potential bargains to follow and dropping off my list the ones that aren’t doing anything. I don’t like to automate too much of the process because I stop thinking if the program is thinking for me.
kapil –
IBKR offers the ability to set up long/short combos which can be graphed as well. Don’t know if it’s still available but IBKR used to offer a DDE link which updated an Excel spreadsheet in real time (create your own pairs in the spreadsheet).
A sluggish alternative is to set up a spreadsheet and cut and paste a live quotes watch list into it.
Dividend captures seem small now compared to the other wild gyrations going on. Yet I’m still playing them amidst the noise. End of quarter is a busy time.
CIM preferreds ex-div on the 24th,
all Gabelli’s coming up soon.
End of month:
AGNC’s NYMT’s CHMI’s DX-c GPMT-a VIASP TANNZ AXS-e
early April
RTLPP/O XOMAO/P DBRG-H/I LFMDP GNL-A/B NREF-a
Plus many others I’m not following. My attention span is only so big.
MER-K was an easy one day divi capture as no brokerage seems to know how to post it. It went exD Friday, but closed Thursday at 26.28. Closed Friday at $26.10 off a 40 cent interest payment.
BHFAP with 6.6% coupon goes ex-divd tomorrow and a likely good dividend capture candidate at these lows of $25.7x.
Has been down quite some on no specific news the past week or so.
Own some and added more today to capture tomorrow’s dividend and aim to exit if / when it gets back to $26s where it traded until past few weeks
Someone wanting to reach for yield a bit and have some longer term back side protection, PLYM-A may be snagged under 25.50 now. I bought 400 around $25.70 range and just doubled down with 200 at $25.50 and 200 more at $25.48. It kicks out a .4688 divi in 3 weeks. Hits first call date later this year and has penalty premiums added if not redeemed by 2024. Its an industrial reit.
I wish I could buy more, but I have hit my limit.
Grid:
There was a discussion thread on PLYM+A a few weeks ago. I blew out of much of mine at $27+ when it was inexplicably trading there on 2/11/22. Will definitely be called at year end. I still hold some.
It is a strange duck the way it trades. Too small to be owned by PFF. Hoping it gets jammed back to $27 for you!
Rob, glad you got that upswing. I have traded this thing off and on for most of its issuance. And many other times I thought I was going to get some for a trade and kept getting jumped. Most infant industrial reits tend to shed their prefereds after reaching adolescence. So it wouldnt surprise me if they jettison this one fairly quick after call date. So it wouldnt surprise me if you got the last real good spike bounce. So hold I will, but will take a spike sell opp too if it happens.
This is from today for them.
“As of February 21, 2021, the Company’s current cash balance was approximately $9.8 million, excluding operating expense escrows of approximately $5.0 million, and it has approximately $141.0 million of availability under the existing unsecured line of credit.”
So they do not have enough cash to redeem the preferred on hand. They won’t have enough cash by the call date. Is the assumption they will borrow the money, use their line of credit, sell more common ATM, or issue new preferred? The way things are going the whole issue new preferred for much less then 7.5% is looking iffy? They need approx 50 plus million to redeem A.
I bought 200 shares. I am betting on them not calling it right away. They will probably want a bit more time or maybe deals will pop up they want to buy. But with only 200 shares bought I do not have much confidence with the above statement. Just puts some money to work with low risk.
Fc, for me its good either way. It will work great for me as a 10 month call induced hold, or out to 2024 hook, too. But I would gladly take another spike and dump like Rob recently got. I have in past got buck flips on them in quick manner. But that was during yield chase heyday.
I wouldnt put much stock in their cash on hand in terms of when they redeem. This preferred is not on the books as “asset capital”, its on the books as a liability, so its being treated as a term dated preferred. They can do all sorts of non cash transactions to rid itself of it like you said. Many times with these growing reits they just ATM the common.
Hot off the press! As of today, they do intend to call it next year:
https://seekingalpha.com/article/4489592-plymouth-industrial-reits-plym-ceo-jeff-witherell-on-q4-2021-results-earnings-call-transcript
Thanks 730, as that is good news for me. I can now hopefully count on one issue not going to hell anyways, ha.
Unless it goes to hell before it’s called.
Its never over until the fat lady sings the call notice and the money has been distributed that is certain. Fortunately or maybe unfortunately, I have a couple I own that I worry about more than this one for the time being.
“When Jeff talks about the importance of the next 12 months to 18 months in the life of Plymouth, the potential of simplifying our balance sheet with this Series B paper working out exactly as intended and the ability to pay off our $51 million of Series A preferred stock at a 7.5% coupon in early 2023 are two great examples. We’re looking forward to being able to take these two series of preferred shares out of our capital stack.”
Well the longer they delay into 2023 the better. Basically a maturity of early 2023 is pretty good in this env. Make a bit on the money without worrying about it getting trashed price wise like Grid said.
The CFO, Dan Wright, talked about calling PLYM-A in early 2023 like it is a sure thing. I wonder if they are going on the recent past trends of how everybody and his brother could float relatively low coupon preferreds? How confident are you that PLYM or any other company can get those attractive rates one year from now? We can buy MNR-C with high confidence it will be called within this week. Maybe your crystal ball is good for 3 months out. How about 6 months or 12 months or 24 months?
There are ways a company could lock in the rate one year from now, but they are not free and would hit earnings/FFO this year. (Cross-over refunding, revolver, interest rate swaps, new debt offering, etc.)
The issue for us investors is to handicap the call probability of every issue that is coming up say in the next year or two. A wide range of possible interest rates translates into a binary choice of call/no-call on specific issues.
Bottom line to me regarding PLYM-A is that an early 2023 call is less than 100% probable like management implies. And if the company is NOT able to call it, where does the price go to since not calling it would be viewed in a negative light?
We do not currently hold PLYM-A in any account. We used to have it many accounts but sold it a while back.
Tex, Yes, anything can always happen. But if it is or isnt redeemed these typically have nothing to do with a reissue. It will be paid off with debt or typically more likely common stock ATM. Fledgling reits like these want preferreds disposed of. He sure is implying the typical playbook of a baby reit growing into adolescence.
At companies origin, they issue cap stack of common and preferred with yield.
With anticipation of company growing into itself with stock appreciation and then issue more equity to pay off this liability. As you can tell he mentioned directly “simplifying the balance sheet”. This means the goal is to knock out the preferreds. They have two the Series A which is this, and a Series B convertible/redeemable. This one actually is more onerous due to its provisions and private placement price at $17.
They also have that two year window before yield adjustment kicks in on A so its not a necessity to immediately act. I have read on more than one occasion about a preferred being redeemed and it not happening. Maiden CEO stated in conference call MH-A was going to be redeemed later that same year a few years ago. Well, things happened and now in 2022 not only has MH-A not been redeemed, its dividend was suspended later that year and is still suspended over 3 years later and running.
Grid, if things go south, PLYM’s common price would be below NAV, so using their ATM to issue more common would be dilutive. They could do it, but it would probably tank the common price even more and get into a negative feedback loop. Yes, they could always float bonds, but at what rate? It might force them to leave the -A outstanding even if the rate kicker starts up. Not quite as bad as Maiden suspending payouts and actually if you held it, you would probably be happy. But at the same time, it would be indicative the balance sheet would be worsening by the day. . . Unknowable at this point.
My comment was more intended to apply to all potentially callable issues, not just PLYM. What management thinks and says today, might not be possible in a year or two. . .
True, but one could say that about any issue, any company, any time if they had a financial problem.
I took your original post to be a concern if interest rates went up to where they couldnt reissue a preferreed lower as that was what you were discussing. So I was just explaining the process that they wouldnt be looking for a lower coupon preferred to issue.
Thanks for bringing up the bad memories…. Fortunately my experience centered around Maiden Holdings North America, not Maiden Holdings, Ltd but I got sucked into MHNC after watching MHNA being called in 2016 and then buying MHNB in advance of its call in 2017… What the heck, what could go wrong? MHNC was only .25% lower than MHNB and it was investment grade, so why not jump on board? So yes, good example of when a company says one thing and then never comes thru. Lucky the “North Amerca” aspect was saved from as dramatic fall of the Ltd issues but it still hurt.
BTW, no panic if MNR-C doesn’t get called today…. The only thing promised is a call, “on the fifth business day (the “Closing Date”) after the day on which the last of the closing conditions to be satisfied or waived…” Normally, but not always, the shareholder vote constitutes that last closing conditions, but this might be another example of the MNR situation being the exception to the rule.
Well we had this discussion about PLYM-A about a year ago and it is still paying and I cannot find anything in recent news saying it will be redeemed. It is definitely acting like a pinned to par security. I was trying to determine if there was any meat left on the bone with this preferred but at approx ~25 a share, callable, and no hint of what might happen it looks like there is no point in selling or purchasing. Just hold what I have. The longer they take to call it and keep paying the better.
On the November CC they still seemed to intend to redeem the Series A, but maybe a little less definitive about it than on previous CCs. It could have been called on 12/31, but it does not appear they have even given 30 day notice yet. Seems like they have plenty of capacity on the revolver, so not sure why they are waiting.
Call announcement could come any day. But if not, I don’t think we will learn anything until next CC on Feb 23.
730cap,
Before I posted I searched through the Nov earnings call transcript. Lots of talk about the B preferred but I did not see any about A. But then I was searching the doc for “preferred” and other key words. But yes.. I agree it seems they would like to call it.. I am just not sure they will get to it any time soon. Wasn’t sure if I missed something. I will have to read the doc more closely.
Todd Thomas
Okay. And just one more, actually. Any change to the current thinking around the $50 million Series A redemption in early 2023 at this point?
Anthony Saladino
No, not presently, there remains a positive arbitrage should we use the line to redeem the Series A. We’ll also have a portion of free cash flow after dividends that we can allocate toward the redemption. And then, when the share price becomes more constructive again, we could evaluate the use of the ATM.
Todd Thomas
Okay. And just one more, actually. Any change to the current thinking around the $50 million Series A redemption in early 2023 at this point?
Anthony Saladino
No, not presently, there remains a positive arbitrage should we use the line to redeem the Series A. We’ll also have a portion of free cash flow after dividends that we can allocate toward the redemption. And then, when the share price becomes more constructive again, we could evaluate the use of the ATM.
AND
Anthony Hau
Got you. And can you guys remind us what your target net debt to EBITDA is for next year?
Anthony Saladino
We didn’t articulate a specific target, Anthony, but we’re looking to obviously turn that down. We have the benefit of incremental EBITDA, including the contribution from the stabilization of development and repositioned properties that will result in a half turn down on net debt plus preferred. And then, if we are in a position to use a leverage-neutral source to address the redemption of the Series A, that metric will more meaningfully improve.
Grid, thanks for the heads up. Picked up some shares of PLYM-A. They should be a good replacement for my MNR-C shares that will soon be redeemed . With the 47 cents divi in 3 weeks at $25.50 these are selling almost at redemption value. And the likelihood of them being called in 2024 should hopefully limit any potential downside
Just sold ABR-F @ $24.17 and
bot ABR-E @ $22.49.
Could never understand this imbalance. Can somebody?
F has a min float rate. From 10/30/2026 dividends will be paid at a floating rate of the Three-Month SOFR plus 5.442% per annum however, that in no event shall the Floating Rate be lower than 6.125% per annum.
qx,
Right, the difference is the min float rate of ABR-F, but in my mind the difference in prices seemed to big when ABR-E has a fixed 6.25%, unless of course if one believes that after 2026 SOFR will be so high and for long enough to justify such difference in price today?
Both “flipping” and “dividend capture” as strategies may become less reliable in a rising rate environment than it would be in a stable or falling rate scenario, as prices go in a downtrend. Another strategy that I have used at times is a spread trade, where you find an issuer with more than one series of exchange traded debt. you follow the price differences between the various series and switch from one series to the other as the spread narrows/widens favorably relative to where it was when you entered your position. Worked well with some of the Southern company (utility) preferred and ABR-A/B before they were called. If they are trading at a premium and one is approaching call, be careful, because the issue approaching the first call date may approach par to prevent a negative YTC scenario
When there is volatility the wild price movements can drown out those small gains, making it hard to tell if the strategy is working. Avoid risk when stacking nickels.
Spread trades you describe are always a good idea for something you plan to keep through the storm. There’s often more price divergence between similar issues when there’s volatiltity.
I don’t have a problem selling XYZ-A at a loss if XYZ-B gets whacked and offers a much better yield, all else being equal.
As Martin G stated, when there’s volatility, usually there are more divergences between similar issues. However, that has not been the case in this correction as the spread between the highest yielders and the lowest yielders has contracted.
Long/short pairs trading has worked well in previous volatility divergences. It’s pretty much dead in this contraction because the low yielders issued over the past few years have been whacked much more.
I like to swap between similar things like two separate issues from the same parent company. When they should be moving in tandem but dont. I also trade different types with different rates but I don’t consider it a direct swap.
I bought a couple financials around 6%. Maybe I’m too early but I like to gradually buy into the price drops I never know when it wil turn..
DDT is the perfect example of not buying and holding on spikes. I sold out a few days ago at $27.50 and got them all back today at $26.23 today. When you bank profits, it makes it mentally easier to hold if you reenter lower and it would sag more. SR-A scores yet again for me. Got in at 26.04 and 25.88 and sold yesterday all at $26.50. Hopefully it falls back into the buy zone soon again. I blew it on NSS this morning as it sagged into low 24.70s and I missed it, as it has already bounced back to its more normal $25 range.
Grid do you think this would be ok to buy and hold if bought in 26.50-27 range?
qxjm, I just follow the credit quality and price action within the relm of current interest rate sentiment, so everything is subjective. That being said, I personally wont buy at that price point. History shows you will in time get that shot again around $26. It always seems prone to spikes then fall backs.
Bought back all my SR-A 1000 shares at 25.95/25.90 today after redumping yet again at $26.50 last week. I really like this sub 6% ute, but I had to trade it hard last few weeks to get this recent batch cost basis well under $25. Investing is part mental, and using my mental math, I can feel comfortable owning this if it drops further. Of course if it bounces high enough, bye bye again you go for the zillionth time.
I have been doing this with C-N also, and was forced to sell some today as it went back near $27. I may not get another drop significant enough to repurchase so if it rises more, sadly the other big chunk will have to go at some point. As risk/reward being past call is too penal.
Grid – I have a suggestion – I bet there are III’ers who’d love for you to get into the details of the math calculations and how you keep track of them over time when your trades “get this recent batch cost basis well under $25.” The reason I say this is that I don’t think you ever see that actual under $25 number show up on your brokerage account, right? It’s a number you have to track based on using your flipping profits to rejigger your actual cost, right? I mean right now in your example of your purchase of 1000 shares of SR-A, your broker’s always going to show your cost @ 25.95/90, but mentally you know your cost is under $25. how do you keep track of that number over multiple flips???? I know it’s not rocket science, but it might be worth sharing.. I’m always willing to suggest even more ways for you to share your winning ways here than you already do.. as if it’s not enough… ha
Yes, that is why I said “mental math” which is fake and contorted. Basically I have done 3 recent 50 cent round trippers. They are close enough in time together, I consider it the “cost basis”. But its not, as unfortunately these all were done in tradeable account so I have STCP tax on these come filing time.
Investing is part mental to me, so if this drops to $25 tomorrow, I wont feel like a loser buying them back, knowing I have had quick strike gains recently with them which would help salve the wound. If a few weeks ago, I bought in 25.80s like I did and just had held them down to $25, I would be ticked. But mentally I can handle it now after quickly trading them a few times. If it spikes up some again, and I cant get back in thats fine, there are others. I have sat this one out for 6 months before waiting for an entry point.
My theory has been the general trend has been downward biased pressure, but they dont go down on a slide. Some issues like SR-A and C-N are putting up “fights”. And they have the liquidity to be able to exploit the trends either way in modest proportions.
Like anything, it will work…until it doesnt….
Was not familiar with NSS, but, upon examination, it looks to be a candidate for a spread trade with NS-A. Both are floating rate at this point, the floating rate is very close, the credit ratings are close (same for Moody’s, 1 notch different S&P), the spread fluctuates in a 10% range fairly often, and as an extra bonus, the ex dates are in a different month, making it a candidate for dividend capture as well. For flipping, NS-A has greater volitility than NSS, if you can time it right.
The volatility may subside since NS-A just recently started floating
Anyone privy to news on Southerly Hotels preferreds? Dividends were suspended at the onset of the pandemic but accrue. The three outstanding preferreds have had strong upside movement the past week, from about $16 to $19, with slightly increased volumes. The price increase may be due to an expectation that the common divvy will be reinstated requiring a catchup on the deferred preferred divs. It may be too late to get in or not. The common seems to trade from about $2 to about $2.5, and could be a better bet if an announcement to reinstate the divs was imminent. Thoughts?
I used to flip SR-A, taking advantage of the ups and downs it used to have with some measure of predictability. That hasn’t been true (from what I can tell) for a year or so, so I’ve just sat happily owning it.
In the last few months, and especially in the last few weeks, it has been going lower, right before ex-div (1/24), so I’ve been accumulating. Sure, the common got downgraded to neutral from buy, but that’s not a concern of mine. I haven’t been able to figure why it’s dropping a bit, other than (I suppose) the same thing that is happening to others, but still, SR-A, current yield near 5.5%, I’ll bite — a big bite. I hope I’m not being stupid…
Got 200 shares for the div capture. Would’ve bought more if it went lower. Hard to tell if it’s a good play or just falling with the tide,
Martin, I already executed my SR-A divi capture about 2 weeks ago, and am out the door. Sour market conditions throw another variable into these things. I did buy back some of my SB-D Thursday, in effect saving about 20 cents dumping pre exD and rebuying.
SB update, things look great but clouds on horizon. Leverage end of 2020 was 66% with $616 million debt, now its 34% leverage with $418 million debt one year later. Preferred payments in past could eat up most of profits (if there were any) this past year they were 7% of total net income. However, dry bulk index has just flat out collapsed dropping 4% Friday and 36% in past month.
Its basically back to upper 5 year end range which means one needs to keep a more active eye on things as this ultimately works its way through the income statement if it stays down.
The thing about arb trades is they work no matter where the underlying price goes. Down markets tend to have more price divergence. So I’m still mostly invested, for better or worse. As long as there’s no bankruptcy I’ll be fine. I did add a little cash on the sidelines waiting for a crash, sometimes that works but most of the time it’s just sitting there doing nothing.
I remember the crash of March 2020. Some days I would make $1000 on trades but lose 4 or 5000 in price drops. When the market bounced back my previous trade profits started showing up in the bottom line. Maybe it worked too well because now I aint afraid of no crash. Only a wave of bankruptcies scares me.
Yes, volatility doesnt scare me either, because I have enough illiquids to exploit the liquid volatility. What should concern one in terms of awareness anyways, is a permanent “price rerating” of preferred securities.
If ones model is to assume say a 2.5% 10 year, 4.5% issues might as well drop the par value as it wont anchor anything. I love looking at 1970s-1980s charts of 4%-7% IG $100 par preferreds. All of them mired in the $25-$50 range. . What a multi decade long ass whippin going on there with preferreds issued the previous decade! UEPEN still has never returned to par and it was issued over 80 years ago!
Ah yes, the 1970’s. I graduated in 1979 and my first job was an accountant for supermarkets. I remember the owner of “Dan’s Supermarket” complaining about the interest on his bank loan which at the time was 21.5%!
DHCNI
I have been accumulating this one for a flip just under $22. It is very volatile in price as the coupon is low and the duration (for me) is long. It is also not IG, so it is the worst of all worlds in terms of buying the perfect bond.
Still some time to put in some bargain basement bids if you it fits your needs.