Some Potential Buy Ideas

Right now as as I search for something to buy the best idea I have is to add to positions in the US Cellular (USM) or Telephone and Data Systems (TDS). Of course these are related companies as TDS owns most of USM.

Both companies have baby bonds outstanding–USM has 5 current issues outstanding which you can see here. Some of these just went ex-dividend and are trading at $25.15–both 7.25% issues. I expect the company will call some of these soon as they have mentioned the possibility. Assuming they give 30 days notice of a call (not guaranteed) there is no real call risk here. They recently sold 10 million shares of 5.50% baby bonds, but these two 7.25% baby bonds have over 23 million shares out–so whether they call them all or not is anyone’s guess.

Alternatively they have a 6.95% issue which goes ex in a couple of weeks and is trading at $25.48 which is a reasonable alternative to the 7.25%. This issue is currently callable.

TDS has 4 outstanding baby bonds which you can see here–they are all currently callable. All of them are trading at a relatively attractive price.

TDS also just sold a new preferred with a 6.625% coupon which is trading around $24.89 under OTC ticker TDSUP.

For those looking to reduced share price movements it is always helpful to keep your eye on the term preferreds and short maturity dated baby bonds. You can find that list here.

I have taken a coupon small ‘leg in’ positions in some of the USM issues today and I bought the TDS new preferred on issuance. I know that Gridbird and many others are already ‘working’ these issues–so this has been discussed–but for those that aren’t owners I think these are pretty decent issues for a fairly tasty dividend/interest payment.

41 thoughts on “Some Potential Buy Ideas”

    1. Thats funny Razor, last year they intentionally reduced preferred equity capitalization at the subsidiary level, and now add it back and more to the hold co level.

      1. Grid,

        Your thoughts mirrored my own on this. Also at the time I posted the link, I was not aware that it was an institutional offering ($1,000 par).

        1. https://www.utilitydive.com/news/lets-bring-back-utility-preferred-stock-sort-of/531860/

          Grid,
          Because of you I discovered George Fisher. While reading the archive of GF’s articles, I discovered Utility Dive.
          The above link is to a UD article published in Sept 2018 about reviving Utility Preferred stocks. I keep the article in my cloud storage as a reference piece.
          In reflecting as to why EIX reduced preferred capitalization at the subsidiary level and is now increasing it at the holding company level, their move in a sense seems to utilize some of the ideas contained in this UD article.

      2. Grid – I’m not following this one and have no interest but why’s this funny??? On the surface it seems as though this is a logical extension of the throw more risk on the lesser secured while the market allows us to mentality? Off the operating sub and onto the holding co? Isn’t this just another way of extending covenant light issuing while they still can???

    2. Thanks razorbacka–saw the preliminary prospectus of this $1,000/share issue yesterday.

        1. The pricing seems very generous Grid/Tim. What are your feelings about the credit risk of EIX?

          1. Less debt than PCG, lol. Electric cars a nice upcoming bene to CA utes. Generous ROE, but of course fire risk of billions with inverse condemnation a toughie pill to swallow. Insurance fund set up mitigates some risk.. I will be a smaller player if I could land near “par”. Let me know if you find out the process!

            1. Grid,
              EIX is southern Calif. Yes with the Santa Ana winds there can be some serious issues with fires but nothing like what PCG has delt with.
              I own the SCE preferred and I live in N. Cali would NOT touch the PCG preferred even after they start paying the dividend.
              Calif is talking about limiting building in the WUI but so far its talk. The isurance companies may do the job for them. There is talk of not letting you re-build if the property is in a high risk area.

              1. Charles, I would never recommend it either. But these PCG preferreds have always made me money every time I have played them since they suspended a few years ago. But its alway been more of a small hobby play than stick my neck out thing. I really would like to keep them until they declare that divi in a year or threes time and see if any market fools bid them up for the privilege to pay taxes on a built in priced accrued divi.

                1. I would not disagree Grid with you ever on the game of flipping and dividend capture, your the master!
                  I guess my comment was more towards if a investor was looking at EIX or the SCE preferred to place some money for the dividend return.
                  Of course nothing is truly safe, look at what is happening to the ute’s in TX
                  I wish funding a retirement was just as easy as park it and forget it. What I am finding is its a exhausting game actively watching your investments.
                  I am not the only one I think. I saw Chuck P’s comment under Tim’s list of new issues since 12/11/20 asking if TDSUP was a safe place to park some money

  1. OTRK hammered today – down about 49%, and OTRKP off about 12% after earnings report notes they lost their largest customer- about 50% of business.

  2. I’ve been in and out of both names with some size over the past ten years. I’m pretty light right now. Some desks have spoken positively of the outstanding issues. I know there is cross ownership between the two. Though I don’t have any idea of their health…. . Was surprised to see USM was only a 3 billion dollar market cap. I thought they were much bigger?

    Alt telecom companies have always given me pause since worldcom.. .. And every spinoff ever from Verizon. In general you want to get these at discounts to par.

    1. If You Prefer, Yes its kind of an odd relationship. TDS owns 80% plus of USM. Yet USM market cap is larger than TDS is. I take it as basically a Hold Co/Subsidary situation with TDS playing the Hold Co. USM notes are higher credit quality because they sit above the TDS notes in cap stack. If memory serves USM is mostly just a strong player in a few regional areas of the country. I thought they were the number 5 carrier way back in the pack. But in a few geographic areas they are number 1 or 2.
      The key for them isnt so much their earning power, but some prized cell tower assets they control. My general take is they just muddle along. Your concern is of note because they and all carriers in general always have to keep cap ex spending going and going for the upgrades in technology and services off it.

      1. I have some friends in Iowa who are getting tired of sub-par service from USM. The key issue seems to be whether USM is going to step up and compete by offering 5G. MS research points out the value of their independent towers and has a PT of $40 plus for the common but the undertone of the research for me is that they need to sell out. The rural customer base won’t stand second rate service forever and converting to 5G is a huge risk for this company.

        1. MS and several other analysts including JPM have been saying that their best asset are the towers but the family that controls the group has been unwilling to sell the towers on a lease back or other agreement. Unless the elect to sell the entire business, does not seem likely. Just my view. best sc

          1. Control or access to communication has always been the goal of companies. Watch for more news as Musk builds out network of satellites for global domination of communications access. The biggest threat to this is the increasing push back of government against big tech.
            Goggle tried balloons ( lol ) and others are using stationary drones that need refueling or batteries charged. Musk is going big, I suspect traditional providers will need to adapt. Lets see what the next 5yrs bring.

  3. Got some REXR.PRA this week at 25.07 in ‘rate panic’ finally hit on a limit order.. a probable redemption in the fall so nice cash parking spot from an ultra strong industrial REIT.
    Starter position in CDUAF, Canadian Utilities Co., $24ishUS; 49yrs of dividend increases w strong hydro and bal sheet..an old name Tim and others will remember from the Yield Hunter days listings of CA income shares! 5.7%ish div w some currency risk (holding in IRA no tax w/holding)..
    Also started and will build a position in Kirkland lake mining, KL, amazing ‘blue’chip no debt/ heavy cash/ low cost safe country gold miner.

    PNW the AZ ute makes my hot/watch list to start a position. I made my 8% goal already this year and will make small bets here and there to keep capital preserved at all cost in retirement. Bea

    1. Ouch Bea,
      CDUAF down to 23.85 at open today. I was looking to see if this was a good buy for a ute. Chart for the past year looks pretty active. Looks like it would be a good hold to next dividend to flip.

  4. Tim, the recent 5.5% debt issue is sitting on the books as cash and already been declared by management to be used for cap ex spend out this year. They have big cap ex costs this year and such probably the genesis of TDSUP. Probably because they need to maintain 80% of USM common stock or they lose the ability to consolidate everything if memory serves.
    The last redemptions parent or sub did was both in 2011. Its like they forgot they can redeem and reissue. But the pricing is right to where calls are largely irrelevant anyways.

  5. Thanks Tim.

    Bought a full position in TDJ & UZA. Both going xdiv around 3/11. Also bought a half position in UZC 6 cents above par. It just went xdiv yesterday.

  6. I have been buying selectively lately CEFS, CS, PS, and ETFS. I recently sold LANDO for about a buck share profit and REIT GEO at a small profit while collecting the income. I bought the QRTEP issue slightly under par, but now I have a sell order after it went ex-d. I also added to OXlCM and my total position cost is now slightly below par.

    I also nibbled on the following;
    PHYL – I usually don’t like HY unless I’m getting 10%, but rates are so low now. Duration on this is about five years, there is an active manager, and the expense ratio is reasonable.
    NUSI – This is a covered call strategy, but adds a downside put turning it into a “collar”. It pays a nice yield and doesn’t move as much as the Nasdaq 100. I usually don’t like NASDAQ stocks as the yields are generally low and the prices and PEs are high, but this adds some diversification.
    BHK – Hate Blackrock, but this is a fund that has a decent yield and reasonable performance and fees (for a CEF).
    GFI – This is a SA gold miner that has a nice dividend and good financials. Great for the inflation theme that we may be moving into.
    BTI – Smokes always do well except when they get sued. Seems like the whole vaping scare disappeared and may actually have been COVID related, but who knows.
    AB – Great yield and financials, and a chart that shows a steady rise. Already ex-div now, but I liked them over Hennessey Advisors which had a 6% yield and good financials, but lousy growth.
    JHS – Management fee is steep, but they have had good performance and a solid money management team.
    DYFN – Primarily investment grade and an 8% yield with little or no leverage and a reasonable fee. The downside is this is a “sausage” fund and I am trusting the manger not be stupid and that they have reasonable diligence and skill as this area is their “wheelhouse”.

    Some other honorable mentions (very small purchases for now).
    UTG
    HPF
    GSK

    1. Thanks for your thoughts. I”ve sold a couple small positions in preferreds today do to concern with a rising rate, these will decline in price which is I think what you are trying to address. If I may a couple of suggestions for dd

      l.ABBV- strong payout with a good pipeline. This drug from has one large drug which will go off patent but has been preparing for several years and has strong pipeline. Worth looking at.

      Blackgrock in my experience has actually had a group of outstanding funds so I’m more positive to it.
      l. Bstz- tech fund selling covered calls with a reasonable yield. The fund manager has an outstanding record and manages two other tech funds BST and BGSIX. bstz holds some pre ipors so could have a better upside and is selling below nav.
      2.BTK Holds mostly IG grade mbses. Not a lot of growth but steady yield.
      3.NTB Bank of Burmuda- strong yield, stock has moved up. Note that they get about 30% of their income from non banking asset management so are well covered.
      4.If you are willing to consider cigs, try MO with high yield and growth potential.
      5.If not consider IRM strong payer with very shareholder friendly management. Just had cc which is probably worth a read.
      Since I’m concerned about potential declines in fixed rate issues both because of interest rises and potential inflation, would value further thoughts from others. I realize this is a bit off topic but actually is an issue of capital preservation so actually on topic. best SC

      1. Hi S,

        It is interesting to hear opinions from issues I have looked at and passed over for one reason or another. A fresh perspective can bring new light to old decisions.

        I have been trying to buy Abbvie for about a year. My limit order is too miserly! ha ha

        Luckily, I ended up buying Pfizer last year instead and sold it for nice profit after they released the vax. GSK has been kind of a turd, but the FTSE 100 dividend payers still seem kinda cheap against their American competitors.

        I’m not a fan of the TBTF club so I tend to shy away from GS, MS, C, BofA, JPM, Wells, and more recently Blackrock (who I believe are part of the bond buying program from the FED). I should be agnostic to making money, but the mortgage meltdown in 2008 hurt a lot of my peer group.

        I gotta a lot of smokes, MO, IMBBY, and VGR. With the ESG thing being in vogue now, these issues tend to be overlooked.

        1. NWGG
          thanks. I think my piece needed some editing. But abbv price has been rising for the last couple of weeks.It is always hard to figure what the fair price is but this company has bee hurt by having one big drug that will shortly come off patent. What people fail to realize is that they have a strong pipeline and recently bought another firm so that they are in good shape. It is a firm you can own both for yield and growth.
          Have been looking at PPL recently. Here again a strong yield which could go down on the sale of the u.k. assets. All a question of what they do with the money. But I’m quite tempted to buy some common.
          best
          sc

      2. IRM had a lot of price movement as a “tag along” with the recent Reddit issues. I bought and sold a couple of times for very nice profits. Not sure about the long term prospects of a business that relies heavily on storing paper documents in the age of cloud storage.

        1. It takes more than a day to build up the data center aspect of the business. If you read the last CC of a few days ago , it is clear that they are commited
          to diversifying their business. best sc

          1. That’s point A. Point B (to badly paraphrase Mark Twain) is that the demise of paper documents has been greatly exaggerated. In other words, they have more runway with the old business model than you probably think.

    2. UTG has a long history of being a very good dividend payer in the utility arena–currently approx 6.66%. And at the current price has some upside potential. This is a sock drawer investment for me and I have an overweight position.

    3. GSK is cutting their dividend and its said its changing direction from a R & D to trying to grow by acquisition, plus you have the exchange rate to deal with. Before it was announced about the cut in divy I was buying and selling it. I think I will wait for the dust to settle, after next dividend announcement it may drop.
      I had my BRG-PA called Friday was a good place to hide for 2 month’s and I backed it up with BRG-PC which is due to be called next. The CUBI-PC I bought at 24.85 is doing ok, as I said its floating and even if the SOFR doesn’t change much I am counting on the herd mentality of seeing F2F issues as being good.
      Was buying into some of those junkier issues Tim has been talking about so was down about 1% on Thursday and back up 1/4% on Friday. Enjoy the ride

      1. re: junkier issues:

        So-so companies that lack important and durable competitive strengths are not a great pond in which to fish. –Warren Buffett

        1. Guess who owns a big slug of 8% junky Occidental (OXY) preferred stock? Yep…Mr Buffett. 🙂

    4. I keep waiting for the CEF utility funds like UTG to go below nav since I see the individual utes down but it’s not happening and I’m not sure why.

      1. Dufus , This isn’t a CEF, a hybrid ETF with a twist, Northern Trust EMLP plenty of good ute exposure. The twist is “NO” k-1’s w/mlp’s and c-corp pipelines making for all distributions being “qualified dividends” rated “5-star” by morning star, no leverage here, so might be beneficial if rates continue up. {4.67%} Full disclosure I’m holding in a IRA planning to move to taxable account as RMD.

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