Spire Preferred Shoots Higher

Wow–I knew the new utility preferred from natural gas company Spire (NYSE:SR) would be a good issue, but not certain that I expected it to close at $25.70 on day 1 when the issue was fairly sizable at 10 million shares.

Buyers had to “pay up” to get a hold of some of these shares as public trading opened up around $25.45. I personally didn’t buy shares–I may pick up sock drawer volumes yet, but I know that many readers picked some shares up.

It is amazing that all of the preferreds sold by utilities in the last 6 months of so have been so sought after given the modest coupons of the issues. On the other hand just looking at the Master List of Utility baby bonds and preferreds one can see why a 5.90% coupon is so attractive.

16 thoughts on “Spire Preferred Shoots Higher”

  1. Hi Tim –
    Quick question – This SR issue started trading today on NYSE under the ticker SR-B. Is there a way to find out from a soruce the exact date of listing, or atleast know it a few days in advance about the exact listing date and ticker?

  2. Agree with what you wrote. The way I look at is AQNA (6.875% coupon) and NI-B (6.5%) are both trading around $26.60. NI-B is a low-end investment grade. DUK-A (5.75%) is trading at $26.40. Spire (5.9%) seems to be headed into the DUK-A, NI-B, and AQNA range. Naturally, if you buy around $25 that would be great. For those who want a “capital cushion” of about 3% (buying at $25.75 for a $26.50’s trading issue), it’s a good deal and seems like a sure thing at this point.

    My view of my long term holds which are what my utility holdings are, is they need to provide a capital cushion. Why? A pullback is inevitable they always are. If I want to move to cash, I want a cushion of safety. The idea is always to leave the table with all my capital having collected my dividends. My ideal safety cushion is one’s year worth of dividends. A half year (3%) is just not enough margin of safety for me, to get into my long term holdings. Do I want to buy it and flip for 3% (actually 2.9% 0.75/25.75) ? Perhaps, but not a long term hold for me because of the small capital cushion.

    I would feel much better about the pricing of DUK-A and SPIRE if the market price of AQNA and NI-B also rose. The fact that DUK-A and SPIRE are immediately spiking to similar prices to me suggest more of “a bubble”

  3. Utility preferreds historically just command premiums and get bid up to lower yields. Its just how it works. Partially because of the dearth of QDI issuances in this sector. From 2013 until late last year only IPLDP (2013)An Alabama 5% par from 2 years ago, and a couple SCE preferreds were issued. In past 6 months or so 3 have come to market (DUK-A, Spire, and NI-B). They have been very well received. There was a time when QDI utility preferreds dominated the preferred market…Electric, Gas, and several Water issues. Now its just single digits of the market. But then again IBM and even Exxon had QDI preferreds a while back. If DUK-A holds plus $26, it will only be time before Spire goes there too after the shares are doled out.
    Price entry points do matter though for the capital conscious. One needs to think hard on that before buying being of perpetual nature they are.

    1. Utilities also historically do well in recessions. People may be positioning for a significant downturn and willing to pay a premium for that

      1. Steve, anything bad can happen when shareholders vote with their feet…But from a historical perspective one could argue Spire’s preferred was issued at too high a yield at par at 5.9% in present environment. IPL-D which is issued in 2013 with just a credit notch blip above Spire was issued at 5.1%. IPWLK at 5.65% par was issued in 1998 when 10 year was over 5%…Yes over 5%! AILLL is a 6.625% par that was issued when 10 year was around 6%. I am only discussing QDI issues.
        And then you got all sorts of old ute QDI perpetuals still around with par yields of 3.5%-3.75%. One has to decide what sectors, yields, and comfort zones they feel is best for them. But ute preferreds generally cant be compared to other sectors because they will command a premium. That is just the way its always been.

        1. Gridbird, I have become your fan these days for sure. First I picked up 5 shares of SLMNP. Then I raised my limit order for SIPRY to $25.66. While I sold 250 shares of MGR at $25.4 taking decent profit (bought all in Day 1 or 2) way below par because many do not like this non QDI or believing that the quality is below (Moody). Following Simon Wadsworth’s old book, “Cash Is King” and Doug Le Du way back saying that if the issue is IG by either Moody or SP, it is usually good enough. I am not aware of eREIT filing for bankruptcy when it is IG rated. I thank you for SCE – L and I bought lots of SCE-H and did one round of buy and sell on the L enjoying a quick thousand plus dollars. At this time, I will not raise the Penny and Schwab’s gentle commission of $4.99 or was it $4.50 or so. Volume is around 224,000 shares. I see that the bid went up another penny to $25.67. Since I have a tendency of paying too much OR buying a bit earlier, I will not raise yet.

          1. Yeah, all my 350 shares got filled at 1 pm or so EST @ $25.66. It could drop a little, who knows. However, in this frothy preferred market, I do believe that eventually it should climb to the level of DUK-A or perhaps even higher as analyzed by Gridbird on a comparative yield differential.

            1. Thanks for the kind words John. Im just an average Joe though remember. I try to understand a lot in a small segment while abandoning the majority of the income world from lack of understanding, trust, or sheer laziness depending on the sector, lol…
              Some issues need to be a line in the sand core, and I the past year abandoned that philosophy a bit. I bought NI-B and DUK-A as cores and flipped them off (I really came out like a bandit flipping NI-B many times). Though it was very profitable it leaves one missing part of that core. That is why I think the Spire issue is a second chance gift for me. Im going to try and be disciplined and just hold….and hold…That is why I have a decent amount dedicated to hard core illiquids as they seem easier for me to ignore which I like. I just got my 3rd 100 share allotment of IPWLO at $83 today (5 year plus low). Previous 200 were at $88 and $85. Hopefully my next stop is at $79 this year sometime. 🙂 So my goal isnt always to make a quick buck flip!

  4. I think many, including myself, are beginning to feel a little uneasy. There’s the long in the tooth running bull market in the US, the deceleration in economic growth internationally, rising tensions in the Middle East, our trade tensions with China and Europe and the state of politics. It all adds up to a rather unhealthy brew. It just a gut feeling, but it certainly doesn’t feel right. I think people are seeking yield with safety and shunning riskier assets because of all the uncertainty whether real or perceived and that’s driving demand for assets such as this one. Maybe it’s just me.

    1. No Retired, I am with you 100%. Over the last 10+ years, most of the EPS growth of companies is stock buybacks. Plus, corporations, government, and people have huge amounts of debt. We have a stock market bubble and a bond market bubble. Preferred stock prices are now surging way too high.

      Things are not healthy at all. Plus we have lots of anger and disagreement in Government and are almost paralyzed.

      When will it come home to roost? The 1M question

  5. Today I looked at the new issue, but decided not to pick up any shares as my retirement accounts are fully invested and the only shares I would have been able to purchase today were in taxable accounts. After paying taxes, and I normally assume an inflation rate of 3%, the issue did not look attractive to me after taxes/inflation. Normally for the long-term I look for coupon rates of at least 6.5% before I’ll purchase a security.

    However, this is probably a nice hold for some investors that like the security of a solid utility holding.

    1. Steve–by the time I looked at it this morning the price was 25.68–I think I will pick up some sock drawer shares of National Rural utilities baby bond instead.

      1. Have been tempted but does not look like it will meet my margin of safety or cushion, You would think given its SUPERIOR credit rating it would. But in the last sell-off, an organization’s ability to pay seemed to matter very little. It was all about the coupon they were paying.

        I am probably just too bearish. That’s probably good for the board commentary. It’s just another view for people to consider and accept/reject because none of us really know.

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