I have many current issues of baby bonds and preferred stocks that I am watching for potential purchase—in general right now I am targeting a current yield of 7% for these issues.
I target mid-quality issues–of course mid quality is in the eyes of the beholder as many, if not most, of the issues I am watching are not rated by the major ratings agencies. I avoid shippers and MLP’s–I simply do not have long term faith in those companies although many would disagree I have found through experience that these issues may well be dangerous to your wealth (over years and years).
I consider few of the fixed-to-floating issues suitable at this time (for me) as the reset rates have generally been too meager and until short rates are in at least the 2.00% area most will not attain coupons in the 7% area, although there are some fixed rate reset issues which may well be attractive. No doubt readers will add their favorites and give more specifics.
Below is the start of what I am watching which includes 2 issues which I currently own. I will break this ‘watch list’ article into 3 pieces published in 3 weekly installments.
First of all a few issues I own and now are considering adding a little more are from mREITs. I like 2 issues from Arbor Realty Trust (ABR). The ABR-D 6.375% perpetual which is trading around $22.84 with a current yield of 6.98%. The ABR-E 6.25% perpetual is trading around $22.33 with a current yield right at 7%. I own the ‘D’ issue.
mREIT Ready Capital (RC) has 6.50% perpetual preferred that is trading at $23.10 with a current yield of 7.03%. I own this issue. RC has a number of other baby bonds available with current yields between 6 and 7% which may present opportunities, although I have not looked closely yet.
There are 2 other mREIT perpetual preferreds that I do NOT own, but may own in the future. These 2 are TPG Real Estate Finance 6.25% perpetual (TRTX-A) which currently trades at $22.74 for a current yield of 6.87% and the KKR Real Estate Finance 6.50% perpetual (KREF-A) trading at $24.89 and a current yield of 6.53%. These 2 commercial mortgage REITS hold many multifamily loans and I need to study their portfolios further before purchasing–the more multi family loans the better–office buildings are a negative–and they both hold a blend.
Brighthouse Financial (BHF) offers a 6.75% split investment grade preferred which is non cumulative (being an insurance company), but current trades at $25.68 for a current yield of 6.54% with a optional redemption being available to the company in 2025. This is excellent quality to carry a 6.54% current yield–of course the ‘yield to worst’ is lower There is 30 cents of accrued dividend in the price.
Triple net lease REIT Global Net Lease (GNL) offers 2 perpetual preferreds with coupons of 6.875% and 7.25% respectively, which have current yields of 6.88% and 7.15%. Obviously GNL is just ‘mid quality’, but they have $4.2 billion is assets and $1.6 billion is equity and shares are approaching a reasonable risk/reward.
No matter what an investor should try to do at this time of rising interest rates I would encourage them to ‘leg into’ positions. If you would normally buy 400 shares of a given issue instead of purchasing it in 1 purchase divide it into four 100 shares purchases over the course of months. In these days of no commissions there is no reason to go all in at once–none of us know where rates are headed in the next year and how much of the rate increases are already ‘built in’ to the price of a given issue–so why not average in?
This ends Part 1. I will be adding these to my ‘watch list‘–although some are already on it.
None of the above is a recommendation to purchase, but should be considered potential ideas for further due diligence.