On Wednesday I posted a link to an article on Seeking Alpha from Preferred Stock Trader–a sincere, although not always correct (who is 100% correct) writer. PST laid out a good case for owning preferred shares of Wintrust Financial (WTFC)–a $60 billion regional banker located in Chicago.
The 6.875% fixed rate reset preferred issue (WTFCP) will be outstanding until at least 7/15/2025 which is the 1st optional redemption date. As you all know a fixed rate reset has a dividend that is reset to pay the 5 year treasury plus a spread–in this case 6.507%. At todays treasury rate this translates into the 10.6% area in a year. Unless we get some crazy black swan which causes interest rates to shoot higher this will be called on 7/15/2025.
At this time the issue is trading at $24.78 which means a call at $25 will bring us around 8% in a year–right in my target area.
I purchased a position in WTFCP. I have been leery of buying community and regional bankers, but given the likelihood of a redemption on this one I went ahead and bought.
By the way the company just announced record earnings.
LOL I have been taking a second look at their financials/reputation in past couple of weeks. IF I find warts I tend to stay away. It’s kind of weird many who specialize in analyzing bank financials dont have write ups on WTFC. Then I went to look at their corporates and couldn’t find anything! This meets a lot of my requirements. They have performed relatively very well….. Not sure why I never held positions with them before this. And here as I’m looking. ‘others’, are bidding em up!!
WHAT to make of all the volume since June 17th??
I picked up an initial 300 shares of WTFCP
The “1 year CD” comment won me over.
Thank you for the idea, Tim.
Reading everyone’s comments > thanks to everyone that shares the ideas they believe in that they think might benefit others here. I think that is most everyone’s intent, I hope that and I haven’t felt the overall pump and dump vibe that exists elsewhere.
Please keep posting interesting ideas Bea and others.
Thank you Tim.
I sold a ton of stuff this week so this was perfect timing for Ol’ Winny.
I don’t know if anybody might be interested in visiting/revisiting INBKZ. It floats now and not many years left to maturity.
Per FIDO
9.70717%
6.30.29 Maturity
FF
$24.6801 closing price
Not really a bet the house situation, but some level of exposure may be appropriate.
As always DYODD
take a look at ASBA and CUBB.
YTM > 9%
I’m long both.
Hey Peppino,
I just sold ASBA, but would buy it back again.
I also like CUBB (didn’t sell). The balance sheet looked good last time I checked on this one. I also had an oversized allocation when it was in the $16’s if I remember correctly.
Maturities on these two choices are beyond INBKZ though.
I think we’ll be in for some end of the year turbulence. The new notes are also coming in steady now with nice coupons. Easier to sit back and just let the market help me buy lower.
NWGG, I hold both and not selling ASBA as I got a good price last year, but watching to see how they are doing so waiting for their 2nd qtr report. CUBB I would add if it drops in price.
Isn’t CUBB an 19.75 = more like 8.47% YTM? Thanks for making me check… I’ve been meaning to look for awhile but since I already have too much CUBI-F I’ve kept making excuses not to look into CUBB
I calculate CUBB slightly over 9% YTM. though long dated issues don’t fully adjust their price for awhile. Unless you expect several rate cuts then there could be nice capital appreciation. For now I’m not considering switching over from E and F cash cows.
I feel like I’m reducing myself to a one trick pony – lol… My normal online calculators, https://digital.fidelity.com/prgw/digital/priceyieldcalc/, and https://quantwolf.com/calculators/bondyieldcalc.html disagree with you, Martin, and agree with each other on 8.47% YTM.
27.1% capital gain to par in 10.45 years, That’s over 2% per year after adjusting for compounding. Plus 6.83% current div yield tops 9%. Basic logic simpler than some of the wrong formulas out there. Unless they define YTM differently.
Standard Securities Calculation Methods (Volume 1, 3rd Edition) , a publication of the Securities Industry Association, is used to calculate the Price/Yield. Fidelity is unaffiliated with the Securities Industry Association. While Fidelity believes the information provided by the Securities Industry Association to be current and accurate, Fidelity in no way warrants or guarantees the currency and accuracy of this information.
https://www.securityindustry.org/about-sia/
https://www.fidelity.com/learning-center/investment-products/fixed-income-bonds/bond-prices-rates-yields
What’s important is that given the formula used by this calculator is the standard for the industry, it will equate what you’re calculating with any list of yields you’ll find on any bond desk showing offerings of comparable bonds/stated maturity preferreds. So it will compare directly with other bonds’ printed yields.
Any math genuises out there who can weigh in on the difference? Seems to me that formula uses an ever decreasing net dividend as the imputed price approaches par. The direct approach uses a fixed net divvy based on the current purchase price with the capital gain figured separately since it doesn’t affect the dividend amount. What am I missing?
> https://quantwolf.com/calculators/bondyieldcalc.html
Do you happen to know the difference here between the “Yield to Maturity” and the “Annual Equivalent Yield”? One of the confusing parts for me about YTM (if I’m understanding it correctly) is that it assumes immediately reinvesting all money paid, but usually one can’t actually do this in a thinly traded preferred. I’m guessing the AEY is the continuously compounded rate with the same final return, but I’m not sure what rate or price they are assuming for YTM. More generally, can you explain what YTM actually is?
Also, I was a little scared to notice that if you push this calculator to extremes, it seems to return nonsense answers. For example, if I put in a $12.5 clean price, a $25 face value, and 2% interest, July 22 2024 Settlement, and Dec 30 2034 Maturity, it tells me I’ve got a -0.000 YTM. If I increase the interest rate to 3%, it’s seems more plausible, but I’m not sure anymore if I should trust that it’s exact. Do you know what’s happening here?
Thanks!
re: Annual Equivalent Yield – https://www.investopedia.com/terms/a/aer.asp
I pay it no mind…
That is odd on the Quantwolf calculator…. just for kicks, I changed your maturity to 12/15/34 and it seemed to come out right but not 12/20/34 on another test… I have no answer why…. but when you see something that just doesn’t seem right, try the other calculator…. Fidelity’s does seem to come up with a rational yield on your 12/30/34 example
Thanks! “Seemed to come out right” feels like living dangerously. Hopefully it’s right when it looks right, but the problem with just using a different calculator when the answer looks wrong is that the error might not always be obvious.
For the Fidelity calculator (https://digital.fidelity.com/prgw/digital/priceyieldcalc/) it looks like it always gives you a “clean” price, while Preferred and BB’s trade “dirty”. Is it safe and accurate just to subtract its calculation for accrued interest from the “price” so the “total cost” equals the actual price?
I especially appreciate this discussion, because it made me realize the difference between the spreadsheet formulas YIELD and YIELDMAT. You might intuitively think that YIELDMAT is what you want to calculate Yield To Maturity, but you’d be wrong. Instead, it’s only used for calculating Yield on a security where all the interest is paid at maturity. For a preferred stock or baby bond, you need to be using YIELD, since YIELDMAT will be subtly wrong. This discussion helped me catch a place where I was doing it wrong, so thanks to all involved!
Nathan – One valuable trick I was taught in math probably way back in Jr High or earlier is to always estimate what the answer should be when doing a math problem. It can save you from accepting wrong answers indiscriminately. And that’s all I meant in what I was saying…. Your example gave an obvious incorrect answer, so I just played with the calculator until I found an adjustment that most likely provided a realistic one… Were it important, I’d probably taken it farther to see if it was coming up with a repeatable answer using a third method…that’s all I meant..
Yes, deducting the accrued and recalculating will give you accurate info… To test, use https://quantwolf.com/calculators/bondyieldcalc.html as your backstop as it shows you both clean and dirty yields on a single click and also shows the amount of accrued….. They almost always match and when they don’t I suspect it has to do with timing and how they compensate for the 360 day in a year that is standard for dividend/interest payment calculations.
Not a “math genius,” but I believe 2WR is correct. I use the YIELD function (Excel or Google Sheets) as referenced by Nathan, and that comes up with 2WR’s number, within rounding. This YTM can be verified by using it as the discount factor to calculate the net present value of the future payments (interest and principal). The net present value using this YTM as the discount factor is equal to the current price.
The method used by Martin to estimate the YTM does not take account of the average investment over its life. If you used the average investment over the holding period (say (19.75 + 25)/2) as the denominator, the estimated YTM would be closer to 2WR’s YTM, but it’s still only an estimate.
2whiteroses, I am looking for around 7% on yield on cost. CUBB isn’t quite there “yet”
I guess a lot of people look at YTM but that is icing on the cake. I keep my head down and look at the here and now. The bird in the hand proverb, things you already have are more valuable than things you might get.
Love the ads on KCBS advertising fortune tellers and saying if they don’t make a life changing prediction you can get your money back. I don’t even know for sure what the future will be in 6 months let alone 10 yrs from now.
I can make some guesses. The market continues up, the market rolls over due to a recession and muddles along or we get a reset, a drop in the market and after a period of time starts going up again. How’s that for seeing the future ?
Funny, just thought of an obituary I read on SA by the Barnacle, about his mentor who taught him a lot on a certain style of investing. Harry his friend always analyzed a company and part of his criteria was what he would get as a dividend now then he looked at the strength of the company and if past history showed increasing dividends AND it was a large cap company. Pretty common sense stuff. It’s a great strategy for long term growth of your savings. Unfortunately in my stage of life I don’t need compound growth. Harry’s lifetime of learning to invest with his method is more suited for a mid-life or younger person. One last thing, Harry believed in dividends.
https://seekingalpha.com/article/3323205-harrys-plan-buy-hold-and-collect?hasComeFromMpArticle=false&source=section%253Amain_content%257Cbutton%253Abody_link
I know you’re looking for 7% YOC, but do you have a floor on the coupon rate you would accept from a preferred stock to get the 7%?
Jimmy, I am not sure I understand your question.
I suspect he’s asking if you’d buy a $25 par 4% coupon issue if you could buy it at 14.28 as an example, providing a 7% current yield.
BHFAM Would consider adding if it dropped and gave me a current 8% yield. If WAFDP dropped and gave me a current yield of 8% I would add more. BFS PE, CHSCM @ 24.65 ( close enough ), REXR PB @ 21.00 All these are on my watch lists and more.
2whiteroses That is correct.
Peppino:
Has the interest rate for INBKZ adjusted to a floating rate based on SOFR?
Nimzo
Nimzo,
Yes, they converted to SOFR.
Page 28 in INBKs latest 10-Q, filed 5/8/24:
Note 8: Subordinated Debt
In June 2019, the Company issued $37.0 million aggregate principal amount of 6.0% Fixed-to-Floating Rate Subordinated Notes due 2029 (the “2029 Notes”) in a public offering. The 2029 Notes initially bear a fixed interest rate of 6.0% per year to, but excluding, June 30, 2024, and thereafter a floating rate equal to threemonth Term SOFR plus 4.376%. All interest on the 2029 Notes is payable quarterly. The 2029 Notes are scheduled to mature on June 30, 2029. The 2029 Notes are unsecured subordinated obligations of the Company and may be repaid, without penalty, on any interest payment date on or after June 30, 2024. The 2029 Notes are intended to qualify as Tier 2 capital under regulatory guidelines.”
Note that the 4.376% spread = the original 4.114% spread plus the adjustment of 26.161 bps. Actually, 4.376% is just a rounded number. 4.114% + 0.26161% = 4.37561%, not 4.376%.
Thanks MPG!
I bought today, just not enough. I’ll try again next week.
A couple of years ago I had to deal with the trust side of wintrust. It was not a good experience. So I’m gonna be Peter Lynch here and not invest in a company unless I like their product.
WTFC is really well run and has been, not in this name but was post Silicon VB crash and the common. I think I wrote on them here! esp the Treasury Reset one. 2023 was a banner year for me but a lot of trading.
They give us a ticker, the rest is on us, but of course there is ‘discussion.’ Trapping Value and PST post their results all the time on the free side of SA. TV on every article, thru May was up 47% since inception, a not bad return given the markets and the idea to be ‘conservative’ which I have always found him to be. I think PST donates all his writing/service money to charity. Like Tim says who is 100% perfect. Trapping Value donates heavily to charity, as do many of us here. Oh well. ‘Discussion’ comes with the territory. We do try to help one another. TV’s blog shared PSTs 18mo record 5/2024 btw. Good investing/trading to all. Personally I have taken ‘cash’ back up from 36% to 41% yesterday to 45% today. Bea
https://seekingalpha.com/instablog/47392447-trapping-value/6024515-preferred-stock-trader-18-month-performance-review
Bea, like the name implies, Preferred Stock Trader buys and sells rotating in and out. Which for some like yourself is fine. Especially if it’s timed well. But some of us are more buy and hold. I think some of the preferred and common mentioned here that PST recommended several years ago might not have been good for long term hold.
I do not understand the ‘someone like yourself comment’ which implies I am a day trader or something, I am not. Maybe like Grid I should post less… hmm. Which some may appreciate!! lol. Have a good weekend.
Keep posting Bea. Most people don’t follow my strategies but I post away if there’s useful information in it.
of course I always read all folks, Martin G, Charles M, Tim of course, who give us good ideas!! so many of you. Tim’s Bridgewater Bank idea last year for example. From his limited public articles I think PST is recommending a lot of hold to maturity ideas; some ‘switching’ to improve relative yields. Give us a ticker and we do the rest, it is certainly on us. I just recommended the site to two more folks and have since inception. While our pfd/bb community has enlarged in the last few years, still lots of folks new to the niche area who can use our help. Tim’s site is our own little ‘marketplace service’!
I do notice I have more ‘set it/hold’ type issues in the pot these days fwiw. Those Taper Tantrum 2018 or Bank Crisis 2023 moments come along and we will be ready! Always learning, Bea.
I sold ONBPP this last week at 25.15 close to the high for the week. It goes x-div in two weeks so time for someone to collect. I don’t see much in the account I manage for my wife to sell but will look again this weekend to add a little cash to the SPAXX. Still sitting at about 1/3rd MM Have a few trades set up to sell. Like Bea would like to build up a little more cash in case we get a buying opportunity. I was expecting something in June like we had last year but it didn’t happen. August and Sept. have been known to be active months for trades so hopefully we see a market pull back.
No please Bea, I wasn’t meaning any offense. Always like having your thoughts.
I bought some yesterday and a little more today, using free cash from recently maturing US treasuries.
Bought some after yesterday’s comment already sold half of it today to buy something else. For a nickel profit but that wasn’t my goal.