Income Issues Holding Up Well

Even though the equity markets are tumbling fairly hard today the income issues are generally holding up well—there are times when selloffs in common stocks spill over to the preferred stock arena, but that time isn’t now.

As we peruse the markets it is kind of obvious that investors do not take a 1% or so selloff in common stock as any big deal–and it isn’t. If we had a 3-4% drop in 1 trading day there would be a concern–but 1% or even 2% is being looked at by a lot of investors as a time to pick up some commons stock bargains. With the ever grinding higher stock prices over the years most have kind of forgotten what a real selloff–or even market top looks like–but it will come, but will not be announced with the ringing of a bell.

For us we watch for the spillover into preferred stocks–it just ins’t there today for sure. As we look at todays losers the biggest preferred stock losers are some of the usual characters. We notice that the TeeKay Offshore Partners (NYSE:TOO) preferred, which got a bit of a bounce recently as Brookfield took control of the company, are sliding today. All TOO issues (TOO-A, TOO-B and TOO-E) are off 5-10% in the last few days giving back most of their previous gains. You can see them here.

We will mention here that there will be a very busy ex-dividend period the last week of May. While many companies are dragging there feet on getting their declarations of dividends announced we can see the buildup because of the late February declaration. Our daily updated ex-dividend listing can be found here.

For now we are sitting tight with everything we have in the portfolio. We have 2-3 “flippers” in the portfolio and they aren’t moving higher much, if any, lately–maybe the sweet spot for flipping and dividend captures has passed us by for now. We are content to hold these issues right through their coming ex-dividend dates and then unloading if pricing is right.

27 thoughts on “Income Issues Holding Up Well”

  1. Made a small frustration trade today after getting jumped and shares being sold $20 under my bid several times past few months, Ugh…Anyhow this may be of interest at a better price and if their market makers run it through a better flow than my has…
    SLMNP… I wanted 50 at $1025 or under, but called brokerage and the best they could find me was 1065. I bought 10 shares just to be done with it and own it to the collection. This has went on for 5 months and I had had enough. Bought a little to pay up and be done with it.
    Anyhow for the patient and correct entry point (lower than mine, lol) this is a unique preferred that can be put back to LyondellBasell (LYB) at $1000 anytime. It doesnt trade much. About 125,000 shares were issued by Shulmann as a convertible but it lost convertibility after LYB bought them out. So now they can be tendered anytime. Only about 10,000 have been tendered. LYB who is responsible for payment is Baa1 long term investment grade. This flow chart shows the credit rating, and the Shulman preferred and tender option if one is so interested in such an issue.

    1. Grid – Do you know whether this obligation was officially assumed by LYB or are they just responsible for payment? I see where Shulman still exists as an entity but is this now officially an LYB issue? In other words would the rating agencies essentially rate it equiv to an LYB preferred? Yeah, I’m getting lazy and asking instead of investigating………

      1. Our redeemable non-controlling interests relate to shares of cumulative perpetual special stock (“A. Schulman Special Stock”) issued by our consolidated subsidiary, A. Schulman, Inc. (“A. Schulman”). Holders of A. Schulman Special Stock are entitled to receive cumulative dividends at the rate of 6% per share on the liquidation preference of $1,000 per share. A. Schulman Special Stock may be redeemed at any time at the discretion of the holders and is reported in the Consolidated Balance Sheets outside of permanent equity.
        The redeemable non-controlling interests were recorded at fair value at the date of acquisition and is subsequently carried at the greater of estimated redemption value at the end of each reporting period or the initial amount recorded at the date of acquisition adjusted for subsequent redemptions. Dividends on these shares are deducted from or added to the amount of Income (loss) attributable to the Company shareholders if and when declared by the Company.
        Page 77 annual filing
        Page 89
        Redeemable Non-controlling Interests—Our redeemable non-controlling interests relate to 124,347 shares of cumulative perpetual special stock issued by our consolidated subsidiary, A. Schulman, Inc. acquired in the acquisition. Holders of A. Schulman Special Stock are entitled to receive cumulative dividends at the rate of 6% per share on the liquidation preference of $1,000 per share. These shares may be redeemed at any time at the discretion of the holders. In 2018, 8,973 shares of A. Schulman Special Stock were redeemed for approximately $9 million. As of December 31, 2018, 115,374 shares of A. Schulman Special Stock were outstanding.
        At the acquisition date, the fair value was estimated using the Black Derman Toy binomial lattice technique, which models the decision to redeem or hold by considering the maximum of the redemption value and the hold value throughout the term of the instrument and chooses the action that maximizes the return to the holder. This model requires assumptions on credit spread, yield volatility and risk-free rates.

        I am under assumption being this is LYB statement and they are a consolidated subsidiary it is LYB obligation…..I used to flip this thing often when it was Shulman and a convertible. Some good flipping money in the 600-800s. But of course this is a different animal now as a perpetual owner optional par conversion. And also why it doesnt trade much anymore.
        It has traded about 2500 shares this year. But two 1000 share blocks traded out of that 2500 on same day January 18. Those transactions like the others went around me. So really only about 500 have been divied out to the peons this year. Maybe some around 1025 can be had with right dealer. God knows I tried and failed for months with my options.

        1. Thanks, Grid – I suspect I will not have the patience you always have (or normally have up until this one) in attempting to get an execution, but I love situations like this where “maturity” is in my hands thanks to the put.. Also, I’m especially gratified to know that “At the acquisition date, the fair value was estimated using the Black Derman Toy binomial lattice technique.” Say what?????????

          1. Hmm 2WR, you are publicly displaying your amateurism admitting you do not know know the Black Derman Toy binomial lattice technique. I mean its practically used in every other sentence on this and every other forum! 🙂
            I have had 5 months to muster up the desire to research what its true meaning is. Never got past the first snicker when I read it and just left it at that.

        2. Well…there goes my open buy limit at $785 if there was a panic sell during market cascade. Sometimes the Hunter relies on scare and fear reflex. There will be a stack of orders now. Been watching for many months, this one and about a dozen others too and was hoping to get as lucky (skill, preparation and execution!)… as the Blues!
          Actually, I have been using this tactic with some thin IGs and there really is no replacement for being at the screen on a panic day. I think that with these thin issues and well as many mainstream prefs, relying on a sell limits, rather than a sell at market trigger may be more risky exit strategy and a false hope of protection. As the old saying goes, “you make your money when you buy, so buy right!”
          Happy Stalking! JA

          1. Joel, I am just 8 wins from cashing my 50-1 bet now…Halfway home….Thrilling game…. When you have an issue with an investor par put, I doubt you would ever see $750. The trading on this issue changed immediately once the terms were announced last fall. I thought about going in during acquisition phase again (I have traded frequently in past) but never could get definitive terms of how this would effect the preferred. So by the time this occurred the securities went into deep freeze.

              1. CW, the Sharks and Stars have always been my second and third favorite teams. Dont get to watch Sharks as much anymore because I cant stay awake anymore to watch the left coast action. Always have wanted to go the “The Shark Tank” for a game. Still on my bucket list. Hopefully the goal tending wall will spring a leak again. As that is their achilles heel when it shows up. Pavelski is about good to go again. I would be very surprised to see Avs pull it off tonight.

                1. Grid, I’m in Reno for the weekend and just checked the line at the sports book. They have St. Louis +1.20 against San Jose in game 1, and also for the series. All the regulars at the bar were humming the Baby Shark song as I went up to the window. There was no sign of Laura Brannigan or her friend Gloria in the lounge. Two great teams, but only one can advance to the finals…good luck!

                  1. Im jealous CW. I actually prefer Reno for my betting adventures. But its a dreadful 5 1/2 hour connecting flight instead of a 3 direct flight to Vegas. So I rarely go, though I was there in February via Tahoe this year.
                    Allowing for home ice advantage plus 120 really means a pick’em game. I only bet series playoffs and season point total over/unders as individual games are too random in NHL. Here is some trivia on Laura Branigan…she died over 15 years ago. A brain aneurysm. She wasnt real old either. Enjoy life while we are alive!

      2. Answering myself, I just found this from S&P –

        “In August 2018, LyondellBasell Industries N.V. announced the completion of its acquisition of A. Schulman Inc. for $2.25 billion. We are raising our issuer credit rating on A. Schulman to ‘BBB+’, the same as the issuer credit rating on LyondellBasell. We are raising the senior unsecured issue-level ratings to ‘BBB+’. We are withdrawing the ratings on the senior secured debt because it has been paid down.
        We are removing all ratings from CreditWatch with positive implications. The rating outlook is stable based on our expectation that all of Schulman’s debt will soon be fully redeemed.”

        Interesting they spell the name wrong.. Go figure….. This would imply to me a rating of BBB or BBB- for the preferred were it rated.

        1. Ooops – it’s actually Lyondell’s chart that misspells the name… it IS A. Schulman, not Shulman..

          1. 2WR, Yes I have seen the spelling both ways and it messes me up. Just like the word “receive”. After 50 years I still try to slide the i in front of e. I cant seem to change either.

    2. It is good to see someone spending money to keep the trade engines going. 🙂 Me, I’m not finding anything at all worthwhile to buy. I have sold my last investment from the Dec buys… still sitting on 50+ in total ownership, but down from 80. Things are way too rich and everyone is becoming content with 5% preferreds…

      1. Ah, but 5.63% with a shareholder only anytime put at par. How many of those perpetuals do you see on the market? So that mitigates the downside sting somewhat. Besides for me anyways, I have 4%ers, 5%ers, 6% ers, 7%ers, 8%ers, 9% ers, and even a 10% er thrown in for good measure… Perpetual, adjustable, reset, past call, call protected, perpetual noncallable. A rated investment grade down to lowly B3. I run the gammut, lol… Would I like better deals? Yes but it is what it is.

    3. Interesting unique preferred. For example excluding commissions I figure about 4.68% yield to put at $1065 per share purchase price if put at $1000 in 5 years vs. 5.62% at $1025 purchase price and put in 5 years if I compute correctly.

      1. Thanks for figuring it Dave. I was too mad to as I had been eyeing 1025-30 for 5 months. Not $1065. Broker said there were shares there at 1065. I dont know how many. I had a order at 1050 backing it up incase that 1065 woke it up for a spill down trade. I had no such luck….These are all the trades for 2018.
        05/07/2019 14:30:49 1,065.00 10 35.00
        04/10/2019 11:29:02 1,030.00 150 2.50
        03/27/2019 14:56:07 1,027.50 19 2.50
        03/27/2019 14:55:31 1,025.00 19 -10.00
        03/18/2019 14:15:24 1,035.00 100 15.00
        02/11/2019 10:05:20 1,020.00 297 15.00
        01/18/2019 15:42:36 1,005.00 6 -27.50
        01/18/2019 15:03:19 1,032.50 1,000 2.50
        01/18/2019 15:03:01 1,030.00 1,000 -5.00
        01/10/2019 12:13:35 1,035.00 50 32.00

        1. Thank you Gridbird. I can empathize with your frustration with the last trade. Looks like most trades this year executed in the $1020-1030 range. That seems more reasonable.
          A $1065 spike (+3.0% in a down day) reminds me a little of the PWR-A trade at $29.84 which is now underwater.
          Good job finding SLMNP. Well done sir!
          – Dave

          1. Dave, I sold all my PW-A at 28.52, but have been trying to rebuy at $26. Only because I had almost $3 in my pocket from the trade. I threw in the towel late today and just used the money to buy more RLJ-A at 25.37. Slowly adding to my noncallable subset of preferreds I own.

  2. I made $700 today on a trade ooops. Yesterday I was long /QM with a stop When I closed the position the software didn’t close my stop. I woke up short 1 contract +$700ish, to my surprise. So I’m actually in the green today, lol.

  3. One “casualty” seems to be the Golar GMLPP, down about 2 percent. Not far enough below my entry price to add more, just watching for now.

  4. Once you hit the stop loss price or percentage, it becomes a sell at market. If you have a lot of shares, you may be selling much lower than your stop loss amount or your percentage. This is due to the light trading volumes on most issues.

    1. SteveA, Very true. Etrade has a stop limit setting in addition to the standard stop loss which can be useful in the situations you mention, but of course the risk is the shares don’t sell at all which one may regret if the share price continues to slide for days or weeks. Another alternative at Etrade is to set alerts so you get a message when a stock hits a certain price which can be handy too, depending if you can react quickly enough. I find this one handy for buy orders because i can still think about it before buying, whereas when it is an alert to bail on a stock I often have a hard time pulling the trigger and instead, convince myself to give it more time.

  5. Tim, do you set a stop loss on your preferreds and baby bonds? After the last plunge in Dec. I’ve set a few but not on all.

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