Massive Preferred Stock Volume Last Week

It was amazing to note the massive volumes of preferred stocks being traded last week. Obviously a lot of re-balancing going on with funds.

We have a page where we watch volume of preferred issues and we highlight those with 3X the normal average volume Normally there are 5-10 issues each day with more than 3X normal average volume. On Friday there were 124 issues with over 3x normal volume.

We witnessed huge re-balancing going on back in December and prices moved sharply lower—this time values moved higher.

The volume page can be seen here until Monday morning when volumes will reset.

19 thoughts on “Massive Preferred Stock Volume Last Week”

  1. Tim:
    Do you expect that those preferred stocks and baby bonds which popped up on heavier than average volume will eventually gravitate toward the mean over time? I ask because, if so, this could affect the probability of a positive outcome with future dividend captures on those high volume preferreds and baby bonds.
    Thanks,
    – Dave

    1. Hi Dave–yes I actually hope they will revert to the mean during April–but it will bring a hazard that a capture may not turn out too well if the share price falls.

      I think one should stick to captures in issues that haven’t run way up. My only position I have is the WRB-B (WR Berkey 5.625%) issue which I picked up recently at $25 and goes ex on 4/12–it popped Friday to 25.42 so if it stays there it will be gone soon. It is now callable.

      I would look for preferreds and baby bonds that are now callable and are trading around 25–and have an ex date out 2-3 weeks. I think those have the best chance of success. Next week we will see if the issues that go ex bounce right back up or if they fall by ex amount or even more.

      1. Do people think KMPA will be called? seems pretty decent here, Ex Date not until early May though.

        1. Ken, KMPA pays $1.8375 so that equates to amount 0.00505 accrued per day. At $25.30 the 0.30 cent premium takes about 61 days to be ahead and we are approaching that around 4/13. A good sign is that the first call date was 2/27/19 http://quantumonline.com/search.cfm and we are nicely past call. The next earnings date for Kemper should be about mid-May; there was no talk of redemption during their last earnings release February 11th http://investors.kemper.com/file/Index?KeyFile=396687166
          Wishing you profitable investing, Nomad

        2. I added KMPA the end of last Oct. I was thinking of adding some more in Feb 2019 but price never dropped much after ex-dividend. I expected it to drop closer to $25 a share. I have 5% of my holdings in KMPA. Might go to 6% or 7% if it goes to $25 a share on May 11th.

          7.375% yield on this kind of rated company is hard to find

          1. Steve, I have KMPA closing at $25.23 Friday. Mathematically speaking if you have the funds to proceed with you are better off slightly buying now at $25.23 than you are hoping for even par on next exD date. Because techically one is now buying under par when acknowledging the “accrued” portion of the flat trading BB interest payment.

            1. Thanks Nomad/Gridbird and others for the comments on KMPA. I agree it looks like a pretty good buy here, since at Friday close there is 0 call risk. Well at least in the sense that you risk losing money based solely on a quick call.

              Obviously I’d like the issue not to be called at all, guess we will find out.

          2. SteveA, I took a 3% position three weeks ago and being a newbie started second guessing the trade. My main concern was not so much the call risk (in at $25.24) but the Moody and S&P ratings on the issue. The common looks pretty good and the 2018 numbers seem OK, but I’m no financials guru. Guess I’ll just go with the flow for awhile.

            1. Mikeo, if you look at Kemper’s other bond http://finra-markets.morningstar.com/BondCenter/BondDetail.jsp?ticker=C625809&symbol=KMPR4214563
              You will see that the yield is currently 3.958%, these are senior unsecured notes, trading above par, rated Baa3/BBB-, $450MM outstanding, not callable until 11/15/2024. The KMPA is a note, but lower on the credit stack then the 4.35% due 2/15/2025.
              I am very long KMPA (for some time), but realize that (KMPR) is very solid financially:
              Market cap of almost $5 billion
              Gross profit $1.22 billion
              EBITDA of $505 million
              Just increased their common dividend last quarter
              The $150MM principle of KMPA would be nothing for Kemper to call. I read their last quarterly earnings to see if there was any talk or sign of a call and there was none, so I will keep holding on. Please due your own deep due diligence before investing and only buy securities that you can sleep well at night and not use your mortgage money…
              Not All Who Wander Are Lost, Nomad

              1. If this is called, is KMPR obligated to pay accrued interest through the call date?

              2. Nomad – I wondered about the Ba1/ BB rating also for KMPA. If I am understanding you correctly the rating applies to the individual bonds instead of the company as a whole. So bonds lower on the credit stack can rate lower even within the same company. What is confusing to me is that it seems at times that there are issues from other companies with less or equal credentials than Kemper that rate higher than KMPA, such as AMG and its new issue MGR which is rated at BBB. Any thoughts?

                1. Hi Pete, the KMPA bonds are classified as 7.375% Subordinated Debentures due 2/27/2054 rated Ba1/BB and the 4.35% 4/14/2025 CUSIP 488401AB6 Senior Unsecured Notes rated Baa3/BBB- they must be higher on the credit stack.
                  Hope that helps, Nomad

                  1. Sorry Pete, I only answered part of your question(s). The credit agencies are certainly not always accurate; look at the crisis in 2007-2009 and their rating of many companies, debt tranches etc that defaulted. Risk always seems muted until it’s not. Crisis and pain happens so quickly and the rating agencies IMHO are much more conservative with their rating (in most instances) after they were caught with their pants down in the great financial crisis that took down Lehman, Bear Sterns, Washington Mutual, General Motors (the biggest debacle of debt holders EVER), CIT Group, Chrysler, Thornburg, Capmark, Ambac, Colonial Bank etc etc etc Many Of these companies had A+ ratings from the “honest” rating agencies…
                    This is why I ALWAYS say to do your own deep due diligence before investing your capital, if the company “feels” wrong there will always be another train coming around the bend.
                    Be Well, Nomad

                    1. Thanks Nomad. Your comments are helpful as always. So, ratings are just another tool in doing your own due diligence and are definitely not infallible.

                      Caveat Emptor!

  2. Yeah Tim, I noticed yesterday as we moved closer to market close both volume and prices moved up and up right into the close. I’m sure all of us wish every quarter was like this quarter just ended.

    1. Gary–the quarter has been so good that us chicken investors consider putting money in the 2.4% money market and ending the year in December with a gain of 8%. But honestly I feel less pressure to chase yields–but will still be invested.

      Also last year I ended down around 1.5% so still have to play a little ‘catch-up’.

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