Out of New Residential Investment Preferred

As holders of the new 7.50% fixed-to-floating rate issue from mREIT New Residential Investment (NYSE:NRZ-A) already know the issue has been heading strongly higher. Today closing at $25.80 after trading as high as $26.05.

Our personal holding of a full position at $24.94 has now been sold. This position was bought on the OTC Grey market on 6/26 with the clear intention to hold for at least 1-2% of capital appreciation–fortunately with a spike the last couple days we exited with a strong 3%+ profit.

This does not mean we think it has peaked—it simply means that we bought with the intention to sell within a month—the goal was reached and we exited.

Additionally today we locked down a nice gain in the Pebblebrook Hotels 6.375% perpetual preferred shares (NYSE:PEB-E). We had bought this in a “dividend capture” trade. We purchased 1/2 the position on 6/10 for $25.29 and the second 1/2 on 6/19 for $25.20. Shares went ex-dividend on 6/27 and we let our shares go today for $25.20. This gives us about a 36 cent profit in about a month.

So now we go back to looking for the next couple of issues to buy.

57 thoughts on “Out of New Residential Investment Preferred”

  1. All- I enjoy this site and this great conversation. I guess I come down on the side that these aren’t the best vehicles to go to to earn a couple dollars on a flip. My reason is that the upside is way too limited to take on the risk of being in a non liquid asset given the unpredictability of the markets that can move based on a tweet. A flipper can only really expect to gain 1-3%, and that is without considering short term gains or trading costs. If we are talking 400 shares or even less, it seems like a poor way to add income given the risk…and I will actually say that this whole discussion might be an indicator that we are heading to a bear market.

    Now…a better way to possibly achieve the same results in a safer manner, with a stock market hitting new highs every day, it to sell call options against some of your blue chip stocks that hit 52 week highs every day. Better yet, pump up your return by doing this in front of their earnings report. If your stock gets taken away from you, you pocket your steak money (like that term) and you sell out of those blue chip shares at a 52 week high, if your blue chipper struggles a bit, you pocket your cash from the option as it expires and you still own a blue chip. This seems to me a more sound strategy that watches your backside.

  2. Tim, Are you posting your dividend capture trades in real time somewhere. Love this blog btw. Especially the new issue posts. Thank you.

  3. Flipped quite a few shares in the last couple days. Issues with LIBOR and the lack of liquidity are making me a little nervous about holding anything but the best for the remainder of the year.

  4. Made 334.89 flipping on 500 shs of NewRes over the 2 weeks.
    Bacprm ..blew that small 1% flip
    Aqnb…Paid the rent for June

    Holding 500 rf-pc for medium term
    holding 400 Nlypri as well
    I learn so much from you guys.

    Thanks Guys

  5. Those of you that do this sort of trading, and don’t mind answering a nosy question: how many shares do you flip, that “This gives us about a 36 cent profit in about a month.” could accomplish anything worthwhile?

    I’m asking because to me, 400 shares would be an abnormally large position. Flipping lots for $50-$100 profit, seems like a tough way to make a living.

    1. Larry—your observation of course is as usual astute. I have the largest part of investments in “base” positions, so just when I have extra cash do I mess with this stuff.

      The Pebblebrook profit was about $140 net (400 shares). The New Resi issue (600 shares) was around $450 net–but that was not a capture, but instead a flip of a new issue.

      1. Tim
        i don’t understand the term ‘ extra cash’. Why not use that $ to increase your ‘base’ positions by adding to , or adding new. As a buy/hold investor for income, it is difficult to me to understand the rapid flips some of the ‘members here are doing . Is it just ‘play’ money to earn a few dollars on new issues ? When I buy I never think of selling because it is solely for the income, which was usually the primary reason for purchasing preferred issues. You folks are turning that theme on it’s head. I always have money coming in and I either add to my positions or add a new position for income.
        I only sell if I can purchase a safer product or a better product and I don’t care about a few pennies up or down on the cost. I buy to hold until the pfd is called or let it ride as long as it will go. My largest holding by far is a Canadian closed-end fund which has 5 year terms , pays over 10%, and has kept renewing at least 4 times to date; In fact, I added shares today. The diff with me is that I am probably older than most viewing this site and trading quickly is not in my best interest. ALl my holdings will go directly to specific heirs through a TOD vehicle and they will be able to earn the income I already receive, pro-rated as to their holdings. Thanks.

          1. I am a U.S. citizen, Bob-in-DE. I know how to buy/sell on the OTC- bb-markets, even when new products have a new Cusip or are trading with a temp symbol. I try to avoid the stress by advising my broker TDA the day before trading starts that they need to post the product for trading. I find
            they are very good about doing so. Investors who hold jobs are really at a disadvantage with the new issues trading under temp symbols. They cannot trade early enough to get the starting share prices. I only own a few Canadian issues and no preferred’s with resets. Incidentally,’ Quantum Online’ has caught up with posting new IPO issues. They sure had a bad server problem a few weeks ago. Approx 65% of my portfolio is in individual preferreds and another 10%-15% in funds holding preferreds, the rest being CEF’s that I like, and a few misc products like utilties. I used to be a viewer of Tim’s Yield Hunter site and a follower of him on S>A>. Nice to follow an honest fellow without an agenda. Thanks for reply. Take care.

            1. Thanks, Howard, I was curious how the interest in Canadian CEFs came about.

              You are right about the full time employed being at a disadvantage in new issues. It’s hard enough getting in early even if you don’t have an office to get to. Before departing the world of the full timers I would never have done so. I will try working with TDA. Vanguard just won’t do it. I spend 45 minutes on the phone only to be told it won’t be up until later in the day, or the next day. Then I buy at 30-40 cents over the open.

              I never used to time, or flip, or invest in the more esoteric until I had the time to research and execute. I find a lot of opportunity in doing so and the results have been good enough to make the investment of time worthwhile. Playing the yield curve has made good money for me. Right now I’m mainly waiting for the next market convulsion.

              I also do a much better job of managing taxes that I used to. The goal is to pay zero federal income tax and I’m not too far from it. State taxes are another matter.

              I agree what you say about Tim. Especially for a newbie (many here I think) one of the few honest people out there. The SA crowd, with a few exceptions, is just shameful.

              1. Bob, Here is your shameful SA article for the day… I read Achilles Research reco on AHT today. He said it had 50% upside from todays price. Well that is all fine and good except 50% gain wont come close in price to his reco in January of AHT at $4.35, lol…He forgot to mention that in his article.

            2. Is there a particular person or phone number at TDA that you contact about posting the product for trading.

        1. Howard, that is exactly the point I’m trying to make. I’m glad to see that I’m not the only one that’s struggling to understand. It just seems like too much work, using up too much capital, for too little profit.

          I make no value judgment on who’s right or wrong here, clearly this is a question that has no answer. I’m just trying to learn the motivation and possibly integrate something new into my investing strategy.

          1. Larry, I get your point and while i have cash at hand (it was headed for bonds but yields are so lousy it’s just parked) i don’t flip preferreds because if I buy something at a price I know is going to go up, it’s always an issue i want for income. And if I don’t want the issue for income, then i don’t buy it just to flip it because i don’t want to take the chance of being stuck with it! When i buy things to flip i do that with stocks that i know well and that take a hit because some analyst has downgraded it and the market has overreacted or some other reason not related to the true value of the equity. That said, i absolutely see why people flip the preferreds,;if anything, right now, they seem a little more predictable to me than anything so you can make a nice percentage on the flip. The prob, for me, is you can’t buy enough shares to make bigger dollars.

            1. Hi All, long-time reader, first-time poster. I want to offer another often-overlooked reason for flipping: it’s fun! Investing like my grandmother was very lucrative – she died with more than 10,000 shares each of Procter & Gamble and Kroger. But man that is no fun at all. I set aside roughly 5-10% of my investment money essentially to play with. I won’t be out on the street if it all evaporates, but it can really goose the yield. And in turn, that allows me to keep the bulk of my assets in very safe, stable IG issues, muni funds, treasuries, etc. And I have to offer one more tidbit: I occasionally flip common shares, especially those that are breathlessly fawned over on SA. Abbvie is one – that went down the toilet the other day, and I grabbed 200 shares that are now up over 5%. The same today with Iron Mountain. I just know Brad Thomas will post a “backing up the truck” article and make me a nice profit.

              1. Hey Jonesy…your mention of Iron Mountain made me smile. I recently held IRM for about two weeks before getting out for a 6% gain including dividend, and I believe it was one of Brad’s articles that got me interested in the name.

                As they say on Broadway, break a leg!

          2. Larry
            The ‘flippers’ are really just having fun with their ‘pin money’ so to keep interested. Buying to hold for 5 years or more is boring to them. So they play games with the new preferreds which they know will move up over par as long as they can get in around par or let’s say below $25.25 and make 50 or more cents in a few weeks. A few hundred $ in profits on each trade increases their annual yield. It;’s all in the perspective and being informed of the new issues in time to buy at the right price. Once these shares hit $25.75 it isn’t a safe investment to flip any longer. I am of course speaking of $25 par issues. (They keep the bulk of their investments in stable holdings which they derive income from ). It is a rush to them like going to a casino. We all have different outlooks. I never buy to flip but I don’t condone those that do.

            1. Howard

              While some “flippers” may be doing this for fun, others are not. I don’t flip shares for fun. I flip some as part of my overall investing strategy because doing so can help goose my returns. No rush to me. I don’t gamble in casinos nor the market. I make a calculated risk / reward assessment. And with a portion of my portfolio, that includes making a very calculated risk / reward assessment of buying and flipping some shares. It works for me.

              I am glad your style works for you
              That is what it is all about

          3. It seems to me flipping BB’s and Preferreds is a pretty low risk way to trade. If you buy an issue and it goes up, you sell and make some easy cash. If you buy an issue and it stays flat or goes down, you keep it and collect some pretty decent dividends until it does go up or matures/called. About as close to a win/win as you’ll get, so why not ?

        2. There is no reason you can’t hold for income and still flip a few issues here or there. Think of it as diversity of strategy as well as allocation.

          I can give you at least one good reason to flip preferreds and that is time out of market. It is a given that there will be companies who run into difficulty, that interest rates will trash fixed income prices etc… at some point in time. And those times are unpredictable. That being the case, your chances of missing them are greater in proportion to the time you are out of the market. So if you can get the same gain, while spending less time in the market, then you are providing a layer of protection. So let’s say you get 4% return on the New Residential stuff in a week or two. That is the same return as if you held it for over half a year and you achieve the same gain without market exposure. You also lessen your opportunity costs because you have the money available to put in other opportunities which come along.

          Nobody does this with their whole portfolio because then you have risk concentration, and frankly it would be too much work. But it can goose your returns because the same money can be recycled, and as discussed it can insulate you from some of the vicissitudes of the market. If you get 7% out of two or three flips, and are out of the market for all but a month or two then that is less time your money is at risk. Or conversely, if you redeploy it often, your exposure might not be much less, but your return can be much greater.

          1. Back when I had time to dabble in options, I had a big spreadsheet that calculated effective APR’s on various puts and calls. e.g. tying up $10K to sell a cash-secured put for $200 with 1 month to expiration. Anything with over a 10% effective APR on a stock I’d like to buy anyway, I might sell the cash-secured put instead. The time and effort required was enormous and I don’t do it any more. I agree that flipping preferreds is the same kind of math.

        3. Well said Howard.

          My all my portfolios are income-based, so picking up these IPOs on the OTC is done with the goal of establishing permanent positions at below call prices.

          The fact they run up (like NRZ-A) quickly is actually not that helpful to me. I would like to be able to add to my positions in the future at reasonable prices, and these big runups have me looking elswhere to place any fresh dividend cash.

          I predicted on this site NRZ-A it would easily get to $25.50, and do it quickly. That said, I only bought my usual new issue positions totalling 4000 shares. Got those at $25.15 as I was slow on the draw. Calculating ‘flip” profits on this transaction comes to $3,000 at todays prices. A nice profit for sure, but if I flip, there goes my extremely well-covered 7.5% dividend issue. (I own a lot of NRZ also). If I can’t find an equivalent, then my gain turns into opportunity cost as each month goes by without the approx $630/mo dividend.
          To each his own of course, buy I can’t see selling out of nice issues for a few hundred bucks of flipping profit.

    2. Love your posts, Larry.

      $100 worth of flipping per month would pay my electric bills. Not a bad way to go green without worrying about cow flatulence and gas powered engines. lol

    3. Larry, for this you need to go “big” or go home especially if you pay a commission to buy it and then again to sell it. Everybody has to define their own version of “big” and then do the math on that. This year the market has been steady up for preferred because of sentiment on interest. Result is very kind to this type trading if you have enough capital. Do it successfully ten times in a year would get you 20%-30%. Obviously this can’t work forever or everybody would just stop investing and do flipping. Like with tulips or something.

      1. P, at this point in my investing life I have about 10% of my investable assets in preferreds. I have about 30 different issues, the typical lot size being 200 shares. Bigger lots in CEF preferreds, several hundred up to 1000 shares in those issues. I view the income from my preferreds as a the high-yield kicker to my overall dividend income which I hope to fund my retirement with. The remaining 90% of my investments being in so-called “dividend growth” common stocks and growth-oriented funds.

        Tim describes flipping 1250 shares of NRZ-A, which would have tied up over $31K that he describes as “extra” cash. I will of course not ask about anyone’s net worth… but it seems to me that many of you have idle cash in at least the six-figures, with which to “play” in this hobby. Am I close to being right? Can I at least ask that?

        1. Math correction: I was using the .36/sh profit from a different issue, to calculate 1250 shares. Tim wrote that he had 600 shares. OK, that’s still tying up about $15K. $15K in that issue at 7.5% coupon, would pay $1125/yr. Others have written that NRZ’s numbers and business model seem hazy. Tim, is it correct to say that you would not hold NRZ-A for the long term over concerns with NRZ itself? The flipping being an educated guess about the price movement of new issues recently? That seems to be a curious (if expensive in terms of capital outlay required) game to play… I mean, it works unless it doesn’t?

          1. Larry—I simply don’t follow mREITs close enough to feel comfortable holding their securities long term. Yes it works until it doesn’t–and so far this year about 1 in 5 doesn’t work out, but net gains are worthwhile.

            1. I’m out of NRZ-A as well this morning @ 25.99 – couldn’t pass up the 4+% gain. Any ideas on what to do with the cash are appreciated…

        2. Larry, I can’t answer for others but I have always been a better saver than spender, always invested, and I’m pretty old now. That usually means you acquire some money. I invest in all asset classes but heavy to BB and preferred. This year I haven’t had any cash “laying around” because it’s been invested although that cramped my style a bit. I am finally getting a little cash of late because bonds rolling off are not going back into bonds. I’m not the brightest mind on this site but this year has been so easy for me to make money. I’m not calling it a Goldilocks year, I’m calling it a Geico year. Thing is persistence and time is what gets you where you want to be. Lessons and knocks along the way notwithstanding, just don’t weaken.

    4. Larry, my 3% profit flip of NRZ-A was for a standard position or 3% of portfolio. Also, there was no trade fee in either direction as I had a few “freebies”.

    5. Larry –
      I bought 2,000 shares — a ‘double’ position for me — in NRZ-A, with the intention of flipping half, and retaining the rest (my normal full position) for long term. I sold 1k shares yesterday, and plan to hold the rest. I do this frequently when I enter a position. If I don’t have the opportunity to flip, I will usually unload the 1/2 after the first div. I netted just over $900 on this flip. Doesn’t always work out, but too many times I have entered positions only to watch them soar $1 or more and if it’s a name I like, I don’t want to sell just to capture the gain. This way I can do both.

      MB

    6. A few hundred here, a couple hundred there and pretty soon it adds up to real money

      You guys who keep questioning this should realize there is more than one way to skin a cat. if flipping is not for you, fine, But it may be for others

      I just don;t get the continual angst and questions about why people sometimes flip an issue

        1. Maverick61 and Gridbird, don’t go there. You’re better than that. This is not about “angst”, it’s about learning and sharing knowledge.

          1. When comments are made or the question is asked multiple times by you and a couple others – and has been answered several times before, asking and questioning / commenting on the same thing yet again to me shows angst.

            Maybe you don’t see it that way.

            Oh well, we are all entitled to our opinions just as we all make our own decisions on what works for us with our money.

          2. Larry, I was responding in agreement to the fact the couple hundred adds up quickly, as that is the point I have made many a time myself…… Maybe if my post was unclear you may have been better served by asking instead of assuming being it was addressed to someone else? But, I most certainly will apologize for the confusion it caused you.

            1. Gridbird – yes, those couple of hundreds can and do add up. Perhaps this example will help show that . I am going try to keep it simple and use round numbers

              Lets say I have $25,000 available. I buy 1000 shares of a new issue at $25 yielding 7%. I can hold that for a year and earn $1,750 in dividends.

              But lets say those 1000 shares run up to $25.50 (we have seen far bigger run-ups than this). And I sell my shares after 2 to 4 weeks, lets be conservative and say 4 weeks and generate $500 in profits.

              The $25K goes back in my brokerage money market earning 2%

              A month later another new issue comes on the market – and I do the same thing, and generate another $500 in profits.

              Just doing this every other month – or 6 times a year, under my example I generate $3,000 in profits from the trades (and the $25K while in the money market the other 6 months earns 2% or another $250.

              So I end up with $3,250 total gains for the year vs $1,750 if I just bought and held for the dividend

              And I used conservative numbers here assuming you use the same money to flip just 6 times a year

              1. Outstanding Mav… Great explanation of this twist on ‘investing’. This is the game I play with a portion of my cake.

                Of course, this is the best case scenario when nothing runs afoul. But even if you had a loser or two in there, you’re still likely to come out ahead of the game with this method. But then there is something to be said for the safety of that capital while it’s sitting in the MMA also, instead of being exposed. GLTA, really.

              2. Hey Maverick, I have done this for many years, so I totally agree. Ironically though, I havent been as aggressive in the recent new market flips as I should have. Mostly because I have a personal self made up rule that has prevented me in doing more. That being before I buy I ask would I be happy holding longer term if the thesis didnt play out? Most issuances didnt fit that criteria for me, so I begrudgingly passed.
                These self imposed rules can benefit one or at times be a detriment also as in my case it has limited my ability to jump on a few of these recent gravy train IPOs. But I am fine with it though. And I better be as I cant do anything about it anyways, ha.

              3. Maverick, As a “newbie” simply trying to learn might I ask for guidance? In your example it would seem to me one would have to look at any potential capital gain (or loss) for the security held (not flipped)? If after one years time one collected the dividend and had the option of selling with a capital gain? What am I missing? Thanks again, I enjoy these posts.

        2. Here here… I ‘day trade’ quite frequently, so diving in and out of holdings is just a normal routine for me whether on the common or fixed income sides. I get that some are trying to learn new tricks but I think maybe the wording comes across a lil offensive at times when the questions are asked. I’m likely the youngest (or one of the youngest) on the site and have been here since very early on. I know my ‘strategies’ differ from most, but I respect how each of us play the game. Sometimes you round the board and collect $200 and sometimes you crap out in the Community Chest. Yet, we still take another roll of the dice. GLTA, seriously.

          1. Affinity4Investing, I appreciate your input. But don’t fan the flames. We all know that in online forums, you have absolutely no control over who’s going to take offense at what. This is not SA. Everyone here is sincere and well intentioned. So don’t perceive anything as “the wording comes across a lil offensive”. That’s entirely on you, especially when I wrote

            “I make no value judgment on who’s right or wrong here, clearly this is a question that has no answer. I’m just trying to learn the motivation and possibly integrate something new into my investing strategy.”

          2. Indeed A4I, indeed.

            If someone has found a style that works for them and makes them money, I am happy for them.

            Everyone is an individual with different needs, outlooks, thinking. Which thankfully means that everyone will have a different investing style and approach.

            if there was only one successful way to make money in the market, everyone would be doing that one way. The fact is there are an endless number of ways to put your money to work. Find what works for you and be happy others find what works for them

    7. For me a minimum of 1000 shares is worth trading. Less is a waste of time. Sometimes it turns out (if things go wrong) a little bit too aggressive positioning that’s why I prefer to invest more in less risky holdings. Otherwise I would end up having a very diversified portfolio seeming low risk but instead being quite risky because of some hidden zombies that when you recognize as such it is too late to get out!

  6. Tim, my daughter and I thank you for your sharp eyes and mind on PEB-E. This is a defacto SWAN from the merger. Like many said, I should be paying you the subscription to your great WEB Site instead of Doug Le Du. He does not have the PEB-E in his “dictionary”. The E is a hidden gem for sure. This one reminded me like the entity acquired by NLY. Or the CYS acquired by TWO, which for a year or two not recognized by market until one SA writer pointed it out. Thank you! She finally asked Schwab to let me trade in her account after the horror of AHT preferred. I was looking at UTG. Too late, it is almost close to 52 week Hi and the ask is now at the Hi. Too late. I picked up about a month ago. Closed end fund now with premium.

    1. johnkcal–PEB is quality (as far as lodging REITs go) and quality issues seem to work the best now so I did the capture–$140 bucks isn’t much but I had the cash idle so it beats the money market.

      1. Tim, yes PEB is a strong hotel. All PEB preferreds trade EXACTLY opposite to the junk hotel (AHT) or weaker SOHO. That is why I said you got the keen eyes and mind. Actually I am staying with NRZ-A. I am working on replacing the lower coupon preferred such as AHM-G (5.875%) trading way above par with PEB-E). Kudo to you for sure.

        1. John, I am not as nimble as you but all this talk about flipping has over stimulated me. I just sold some BPRAP for $25.06 today that I bought in December for $20.76. I mention this because the stupidest thing is YTW was -.24% thanks to Modern Economic Theory. Solution to a exploded bubble? Blow another bigger one, lol.

    1. Ed–600 shares on the New Resi—around $450 net. The PEB-E was just 400 shares x 36 cents–so just steak dinner money around 140 net.

  7. Ha, I did the same with NRZ/A. Tim Gains have been too easy to predict, makes me nervous. Also did a quick flip on GSL/B, as I could see that was going to run up in this market due to its improving fundamentals.

    I know a lot of people here hate shipping investments, but their Preferreds (minus troubling/murky situations at DLNG/TOO) have been for the most part wildly profitable. I actually think the shipping market is on the upswing, TGP Preferreds are very safe and offer a good Yield in today’s environment. I like some others but a lot of them have run up to the point where I’m not currently interested.

    1. Oops, I messed up the period in the 1st sentence (should have been after Tim) but you get the point.

      For those reaching for Yield, I think the TGP and NS Preferreds are good bets. NS stock pretty much at 52 week highs but their Preferreds still offer 9%+. I know they have a lot of debt but I am not concerned, at least in the near-term. I like pipelines.

    2. You’re braver than me Ken–I know the shippers have worked lately, but I have a bias against owning most of them.

  8. I wonder if we could make a list of div capture stocks. by that I mean ones that seem to work on a regular basis.

    1. bob–I have had that on my mind–something devoted to just capture candidates that ‘work’. Right now it seems to be better perceived quality that works best.

      I am holding a “capture” position on the a Colony Northstar issue right now where I am a net loser–by a 100 bucks. I should have known better.

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