It’s the Giving Season and Income Securities Have Joined the Festivities

This is the giving season–giving gifts, contributing to charities (even though we no longer can deduct our contributions) and trying to be a decent person (not always with success).

We all know common stocks have been “giving”–almost daily, but I am surprised that the preferred stocks and baby bonds I buy just keep on “giving” as well. Investment grade issues have been contributing greatly to good times, in spite of rising interest rates–at some point this will have to end–but now isn’t the time.

Some of us have looked for potential set backs with year end sell-offs or rebalancing and they just haven’t happened–so quiet–maybe too quiet

With the sortable spreadsheet I have posted I am able to drill down on what is happening in income markets really easily and below is a chart from December showing what income issues have done. I have removed issues that have suspended dividends.

The red line represents all $25 investment grade preferreds. The blue line represents all $25 issues–preferreds and baby bonds of which there are 655 issues. The green line is the 10 year treasury.

Of course during December we see a lot of ex-dividend dates — and there 100 more in the next week so we really need to see a longer term chart (I will keep tracking these numbers), but certainly for holders during the month of December the good gains continue.

I am anxious for the new year to start and am concerned that the easy gains of 2019 will become much tougher in 2020–we shall see.

52 thoughts on “It’s the Giving Season and Income Securities Have Joined the Festivities”

  1. Tim, I echo everyone else in saying thank you for all you do here, and thank you as well, to the contributors! Merry Christmas and Happy Holidays.

    PS Can anyone please remind me how to send a contribution to this site? Tried an “amateurish” search and didn’t find anything. Thank you!

  2. Grazie Tim per la tua generosità.
    A te e agli amici di III gli auguri per un sereno Natale e un anno nuovo in salute e felicità.

  3. Tim
    Does the new sortable spreadsheet replace all the other spreadsheets that were previously on the website?

    Also, Merry Christmas thank you for all your great resources!

    1. Richard G–it could replace most of them–but I plan to keep them active.

  4. Tim,

    Best holiday wishes to you and your family. Been following you since the Dividend Hunter days. I predict your new site will grow twice as large and be twice as useful in 2020.

    Alos plan on contributing a lot more in 2020. Hope others share that intent!

    Quickmoney

    PS: Love the new graphics on the Home Page.

    1. Tim
      all the best to you and yours for the new year. Much appreciate all your efforts and energy invested in this project. Best SC

  5. Thanks to Tim and all the posters and responders here!!! It has been amazing how much I’ve learned about preferreds and baby bonds in the last year. This site has provided numerous opportunities for me and also saved me from making a bunch of mistakes. Great site, great people. I truly appreciate the willingness of everyone to help each other. Hopefully, if my confidence and time will allow I will be able to contribute more instead of just mostly lurking and asking questions. Thanks again to all and Merry Christmas!!

  6. This is a great site and preferreds resource. Thank you Tim.

    Wishing you and all those here very Happy & Merry Holidays.

  7. Tim,

    Thank you for a great year. Best wishes to you and your family.

    p.s. love today’s imbedded graph

  8. Tim-
    Glad I found your site- great for learning from all who participate.
    I hope 2020 brings a healthy & prosperous year for all
    Thanks for your daily efforts.
    G

  9. Happy holidays everyone. Thanks Tim for a great web site we surely appreciate all the effort you put into it. Thanks again.

  10. I have been visiting your website for many months now (long time lurker, first time poster) and find it truly invaluable. I have learned so much thanks to you. Thank you, Tim!

  11. Hello Tim
    Happy Holidays to you and everyone here. Thank you for your insightful posts and all that you do for all of us.

    1. Georges – Like Gridbird has said before I have trouble getting by their history (postage meters) and not sure they can make a go of it–I have stayed away.

    1. It’s complicated, but for many people the standard deduction exceeds their itemized deductions (especially those in higher-taxation states due to the $10,000 SALT limitation) removing an incentive for many to make charitable contributions.

    2. David, if you did your own taxes last year (or read through the taxes someone did for you), you should have seen the jump in standard deduction you take. It was doubled. In a nutshell, it takes a L O T of deductions now to itemize your taxes. Below is the standard deduction chart.

      Year Single Married Filing Jointly Married Filing Separately Head of household Qualifying Surviving Spouse
      2019[4] $12,200 $24,400 $12,200 $18,350 $24,400
      2018[5] $12,000 $24,000 $12,000 $18,000 $24,000
      2017[6] $6,350 $12,700 $6,350 $9,350 $12,700

      1. Beside the standard deduction, married people over age 65 get another $1300 each. Singles over 65 get an additional $ 1650. Just something for us older members to be aware of.

    3. David–maybe you can, but I just use the standard deduction and have almost no deductions–we make about 5,000-8,000 in charitable contributions, but without mortgage interest (to speak of) we are not close to the $24,400 standard deduction.

      1. Tim—if u can get a mortgage at say 3.5%, and you can buy a preferred stock at 5.5% -7%, why would u not do it? Just wondering.

        1. randy, There are probably questions to be asked to provide a thorough answer, but a quick answer would be risk. A few considerations:

          1) Assume a $400,000 mortgage taken to buy an equal amount of preferreds. TNX then promptly climbs to 2.3%. During this transition you probably dropped 10%+ in face value, or $40K. You then change your mind and decide to pay off the mortgage with proceeds from the preferreds – not happening.

          2) On a cash flow basis, the payment on a $400,000, 30-year mortgage is $1,796.18 or $21,554 per year (includes principal). Dividends on $400,000 of preferreds at 5.5% is $22,000. $446 per year in positive cash flow is mighty scant compensation for the risk being taken. Considering probably $5,000 in closing costs on the loan, the equation skews out even further.

          3) So what of the 7%? Your investment risk just increased substantially – and this is mortgage money. No bueno.

          4) Barring any external considerations, paying off a mortgage is a 100% risk-free investment.

          Borrowing mortgage $$ for investment infers other funds are not available, the home is currently mortgage-free and a level of financial independence has been achieved. Once a person is “set” financially, there is no easily justifiable reason for taking on risk that could jeopardize that status.

          1. Alpha8 said: “Barring any external considerations, paying off a mortgage is a 100% risk-free investment.”

            Alpha, I used to agree that paying off a mortgage was a good thing, but have made a 180 degree change. I have managed accounts for several seniors that had paid off mortgages. In several cases, when they needed funds for 24 in home care or assisted living, they quickly depleted their financial assets. Commonly called “house rich and cash poor.” In that situation, you can get an expensive reverse mortgage. The better solution IMO is to carry as large a mortgage as you can into and through retirement. Obviously the downside would be if you spent the equity funds from house before the bad things started happening. For folks that have the investment discipline, I would NOT pay off the mortgage.

            Thanks

            1. I agree, especially if u are single senior,,,,,the interest on mortgage plus other deductions are most likely going to exceed the $13850 standard deduction……and with low interest on mortgages money can earn more in preferred, bond, etf etc.
              and new age 72 RMD rule would allow you to fund your roth with the money not spent on owning home

            2. An alternative would be having a HELOC on standby, if they are still available these days.

            3. Can’t disagree with your example Tex, but that’s where the “barring any external considerations” comes in. Just the same, taking cash out of a paid-off home in pursuit a few net percentage points – the risk of capital loss far exceeds the 1 or 2 point (potential taxable) return for most. A paid off mortgage is a guaranteed, 100% principal-protected return, with a higher “yield” than long-term treasuries. And if you have in home care – paying the mortgage “and” the caretakers – well that’s a cash-fed bonfire. Tim’s idea of a stand-by equity line is a good one. I’m not sure we’ll solve anything here though as the bottom-line is the long-term care (and medical cost in general) situation in this country is dreadful.

              I do own VTR and WELL, though someone made an interesting point here recently; what percentage of the population can actually pay the long-term costs of long-term care? Not many. It’s a mess.

              1. Alpha, I agree with all three of you, ha… I do have a mortgage, could pay it off but dont. My pension is essentially my working paycheck and it absorbs all my monthly living expenses so I just let it continue to roll at 3.75%. If I didnt have a pension, I would rather have the note burned being retired. But, this isnt the 1970s retirement anymore. Its completely backwards anymore.
                My mortgage payment isnt even one of my two biggest monthly bills. My health insurance premium is my biggest bill, and my car payment is second.
                Like Tim, mentioned I also have a home equity line of credit extended to me that is available on demand for 9 more years. At that point it would have to be rolled into a 20 year loan. Dont see that ever happening though.

        2. In addition to the risks detailed by aplha8, consider taxes, too.

          The IRC is not even handed on taxes. Depending on your situation, dividends on preferred may be fully or partly taxable, while interest on a mortgage may be non tax deductible.

          In the “carry” contemplated, one needs to figure their after tax cost of the mortgage and compare that to the after tax income on the preferred. With tax software it’s easy to do.

          And then consider the risk of the carry.

      2. Tim – So does that make for a tax return on a postcard so to speak? Nothing but the short form or does trade reporting for example still have you using the long form?

        1. Return on a post card? Oy.

          Yes, my 2018 Form 1040, page 1, was the size of a post card. Remaining schedules, all to be submitted, ran about 25 pages. Plus another 50 pages of supporting materials.

          Not to mention FBAR, gift tax returns, state returns, etc.

          What a monstrosity our government has created.

  12. Tim, You have created an awesome place for all of us to learn and share ideas. Thank you very much! Happy holidays to you and all on this site.

  13. Thank You Tim and others for sharing your thoughts and insights.
    I hope 2020 is a healthy and happy year for us all.
    Happy holidays to all.

    1. Thanks Newman–and in particular a healthy 2020–it is precious.

      Happy Holidays.

  14. Tim, Thank you for this wonderful site and all the work and good thought it represents. Site followers – thanks for your many insightful and often funny comments.
    Merry Christmas and Happy New Year to all.

    1. Ben–Happy Holidays to you–and yes, of course to all followers and contributors.

  15. Thanks Tim for all you have done this year. Just thank of all the improvements you have made in the web site this year. It has truly come along way.
    Thanks to all the members on this site that regularly contribute. It has been truly a great year in our investments.
    Merry Christmas to all let’s all be thankful.

  16. Thank you Tim for another year of sharing and helping people become better preferred/baby bond, income investors. You are really a good man, and more than a “decent person”. Happy holidays to you and this whole community.
    It would be outstanding If we could repeat the performance of 2019. If not,
    then I will be grateful for whatever we can do.

      1. Long-time follower, first time posting. Tim, I’ve followed your work for years and it’s invaluable. Thanks so much and I hope you and your family enjoy the best holidays ever.

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