Stay Awake as These Calm Market Will Change

It’s another snoozer of a day not only in the interest rate sensitive areas but in common stocks as well. The SP500 is off 1/10th of 1% and the 10 year treasury has moved less than 1 basis points. Yawn.

We all know that after you start stringing together a bunch of days that are pretty quiet something is going to come out of the blue and send either stocks or interest rates gyrating (or both).

Last week, which was pretty quiet, we picked up a couple issues and we are looking for 1-1.5% gains before selling them off.

Prospect Capital 6.875% baby bonds (NYSE:PBC) took a bit of a spill last week so we got a larger than normal position at $24.87 and we see shares trading at $25.07–no immediate ex dividend in play here as it doesn’t go ex until 5/28 or so. Another nickel or dime and it could be gone–or we may just patiently hold.

Also we picked up a larger than normal position in WR Berkley 5.75% baby bonds (NYSE:WRB-D) at $25.20 and are looking for the same 1-1.5% in the next week or two. It goes ex on around 5/14 so I think we will see a lift prior to ex dividend. Again if we get the chance we may exit before the ex date–or we may hold right on through and pick up the dividend–depends on price action.

Both of these issues are investment grade so if we get ‘caught’ with them prior to our gain targets we are happy to hold them.

Remember we don’t advocate ‘trading’, but it is fun to do sometimes. We now have our “base” positions (buy and hold) and we are doing a little capture around the base.

28 thoughts on “Stay Awake as These Calm Market Will Change”

  1. I am reading the threads and suggest the commenters state clearly which preferred they are discussing, as sometimes there are multiple ones mentioned within one comment, running into one another ; also, some comments respond to previous comments which noted multiple preferreds and the replies do not specify which preferred is being discussed, so it can get a little confusing. Thanks

  2. If you are into buy and hold, this is a good time to be cleaning out the closet, disposing of those buys that you made during the yield chasing days that you should not have. Get rid of them, keep proceeds in quasi cash, and wait for the return of volatility. It will surely come.

    I always have buy (and sell) orders in but have not had a hit on the buy side since March.

    1. Exactly what I am doing Bob-in-DE. The closet has been cleaned and then reloaded and then cleaned again. A great buying opportunity sooner or later and 2.4% on a money market is much better this year than .05 or whatever last year.

    2. Agree with you Bob. My closet is now self-cleaning. My good to cancel order for RZA triggered again for another partial sale at 27.33 about a half hour ago. It delivered a tidy profit. Cash to a holding account.

      Every holding I have is available and will be traded at the right price which is some cases is 2 years dividend profits.

  3. Anyone own RPT-D? Mentioned in a SA comment recently, so I thought I’d check it out and it looks tempting.

    1. Gumfighter, I own some shares of RPT-D and will purchase more if I can get shares below $50. If I recall correctly, I got in somewhere around $49.50. Their financials look pretty good (but not great) and when it drops below $50 I’ll add more shares. Probably the easiest way for me to purchase shares is just to place a limit order at $49.95 Good-Til-Cancelled.

    2. RPT is a rather undistinguished retail REIT. I might trade it but it would never be a hold for me.

  4. I am holding pat, collecting dividends, waiting for new issues or a large pullback(s) for things I want to hold long term. Likely I will add small amount of Canadian reset Emera (25% position) in a few days. I see some longer term capital gains potential in this issue.

  5. Stuck in the doldrums for sure. Bought some KMPA $25.43 today. Divvy close, company looks solid, 7.25% yield, held up well through the selloff. Never owned it before.

    1. P, I also added to my position in KMPA. This is one of the few issues that seem reasonably priced in this market considering getting a dividend payment soon.
      Also I am thinking about deploying some cash in PPX under 25.50; ex dividend on 4/26.

      1. MFZ, I bought PPX not too long ago again under 25.30 then it spiked a few weeks later to over 25.70 so I sold. I then last week reentered pretty solidily again at 25.47 for reason you cited. Its one of those issues where your stealing a few basis points due to its issued yield price and anchored to par callability. But math wise, even though its a quarter point higher par yield wise than similar issues, its not enough cost wise to justify a redemption and reissue.

        1. MFZ, I also have some PPX. I agree with Grid that although a call is possible, it’s not likely. Trading flat the yield is as good as it gets for IG ute right now.

          1. Thanks Grid and P. I bought my first batch of PPX around $25.33 and I think I will add tomorrow if it gets below $25.50. I agree the chances of being called are slim.

  6. Nomad, this was actually just a sleepy Railroad reit, Norfolk spun off…It just owned the land to the rail line. Lassiter got control of it and turned it into a tiny holding company with the rail line, and then bought some land to make solar farm reits. These now have long term contracts but puny 1% or so escalator clauses. The rail lease is fixed for life as always.
    This preferred was launched about the time they sued Norfolk. So I suspect the proceeds were used for their costly litigation loss. But I read his wife was a lawyer involved in proceedings, so what went out the front door, much wound up back at the house inside the purse, lol.
    They are looking to restart common divi as they have so much loss carry overs from litigation when it does begin, it will be return on cash, so no taxes. With solid contracts of $2 million and expenses including debt of about 1.2, this leaves about 850,000 net income. Preferreds eat up 280k of that so they have about 550k left over, so they could restart divi any time.
    Their cash is building up which could mean another purchase….or in due time redeem the preferred…or restart the common divi. Or maybe all 3. But we are back to the point where preferreds are no bargains and I am fine owning some “call trapped” issues again.
    Yes it is woefully inefficient being so small. But its all up to what the CEO wants as he owns a buttload of the common…And BOD get paid in common stock if memory serves. So there is some impetus to “unlock the value” somehow I would assume.

    1. Gridbird:
      Re PW-A. Please remember that in 2018 approximately 45% of the total revenue comes from solar farms in CALIFORNIA. PG&E, currently in bk, has asked the court for the right to renegotiate solar contracts to market rate. I do not know how much, if any, of the 2 solar contracts related to PW are with PG&E or could be affected indirectly by a court decision. By comparison the credit ratings of another solar company with long term contracts to an electric utility have been trashed. It will be up to the bankruptcy court in San Francisco to decide. Until there is a determination lets put a fair risk premium on any solar contract that could be subject to a renegotiated rate. Do you agree?
      Without the solar contract revenue from California there would not be sufficient cash flow to pay the preferred after P&I payments on the long term debt.
      Who knows. I sometimes wonder if the contracts might be subject to an impairment charge if the market value of the contracts were to decline IF the contracts were renegotiated to market rates pursuant to a court order by the Federal Bankruptcy Court???
      In summary, 45% of PW revenue is tangled up in California utes which should deserve a fair risk premium due to the uncertainty in the bk proceeding. California are NOT risk free.

      1. Good points Dave, and yes, I was totally aware of the SCE/PCG power contracts and PCG litigation of power contracts. Since I was suggesting not for people to buy it, I didnt go into it. Me personally, this is a very modest position and if history proves, I will be gone again, or the issue will be redeemed before any of this matters.
        Remember this is a land reit, not a power generating company. Tulware property for example is unencumbered. Land has inherent value. Worst case scenario, they could liquidate the land and just go back to the original reit it was a few years ago (or keeping the Salisbury farm, Mass) with just owning the rail line where it more than has enough to pay the dividend.
        But as always concentration risk, sector risk, and liquidity risk are variables one must assume in companies like this.

        1. For you that are amused reading about my little “play toy” reit, PW (PW-A) they just came out with new info for the upcoming yearly annual shareholder meeting (which an outhouse could probably fit all the attendees).
          As described in our investor presentation, our shares trade at a significant discount to the underlying value of our assets which should represent an attractive risk adjusted opportunity for investment. Power REIT continues to explore opportunities to invest capital on a disciplined basis that is focused on our goal of creating long-term shareholder value. Currently the market for utility scale solar ground leases does not appear attractive for investment given the efficiency of capital in the solar sector. Accordingly, Power REIT is currently evaluating a new area of focus for investment. We hope to report more details in the near future. We believe that as we roll out our new focus and complete some acquisitions, that our share price should improve.

          This isnt surprising as solar costs have come down so much, this little spec of a company cant keep up with the big boys. They initiated 3 solar farms over 5 years ago to go with their RR track lease, and havent done a thing since. Not conducive to a growth reit with 1% yearly escalator clauses. Maybe they are becoming an energy reit focusing on cow manure bio mass energy now, lol…
          Im still highly suspicious this preferred could be redeemed real quick, but if he is actually serious about more action this preferred may hang around as they will need capital to undergo any meaningful activity.

        1. Thank you Gridbird. Interesting article on SA. Little change on the common but I notice a 0.79 gain on the preferred from an apparent 3:00 PM ET 4-29 trade for a close at 26.65.
          Thanks for all your info in many issues. Very helpful to many sir.
          – Dave

          1. Dave, I made a mistake and read that article tired and while watching my Blues last night….Thus reading through the pretext the title was being declarative… wrong…This was an opinion piece and the court has not determined this yet…

  7. Crown Castle – the King of cell phone towers…
    CCI’s common stock chart over the past 5 years will make your mouth water… Anyhow, CCI-A… Might interest some. Still a very decent yield for a conv $1K pfd.

  8. Looks like the IPWLK liquidator figured out he could sell them higher today as now asks were not available below par and it closed up even more today another 50 cents today on very heavy relative volume. Someone bought over 3500 shares in one transaction. Looks like 6% of float has been turned over in 3 days. Biggest stretch of liquidity I have ever seen in tracking past 6 years.
    Tried to do a late interest payment cycle play on frequent flipper KTH of a 1000 shares at $30.78 but they only gave me 250 before it jumped again to close at $31.14. Continued my little attraction with call threatened tiny PW-A. Bought it after exD at 25.30 and flipped at 25.80 couple weeks ago. Regretted it, and bought back today at 25.60 and 25.65. I cant advocate a purchase here, from call risk, its just been in my blood playing this one on a usual infrequent basis.
    Tim, you need to give the preferreds some volatility, so I can have a bit more fun and quit being in such a defensive posture! 🙂

    1. Grid, IPWLK is a quality utility issue and the dip under par looked good to snack on last week. BUT PW ($11+ million market cap) and it’s tiny preferred, about $4.4MM (!) I will bet you that some of the people on this board have a higher market cap (HaHa) and Power REIT Power did less than $2MM in revenue last year. Just what am I missing my friend?
      All the very best of profitable investing, Nomad

      1. Nomad, it doesnt even have any employees either outside of the CEO, how is that for tiny? You can check out financials because they are so simple. A few long term solar farms with long contracts and an iron clad perpetual lease for all intents with with a railroad. In fact this reit origins came from it. The annual million dollar payment from RR more than covers the 280k annual payments of the preferred alone. Debt payments take half the 2 million or so, and preferred takes quarter of that. Very simple little reit. CEO children own 10% of preferred and they havent liquidated because they own 40000 shares give or take. Look at the stability of price through the years..Only dipped some on the lawsuit it was fighting RR over to extract more cash…It failed the contract is about 975000 a year and has been that way for 50 years plus. No step ups are ever allowed and that pissed CEO off..But then again the terms long ago were written when RR owned the reit, lol…So needless to say the contract is ironclad and was proven so in court a couple years ago.

        1. Grid, that’s a great story from a microcap with such a secure revenue stream. What did they do with the cash they generated from this preferred A in 2014 and when is any of their debt principle due? This would make a better private company REIT so they could avoid the cost(s) of the filing fees…

  9. Thanks Tim. I rarely trade bonds directly but did buy the current dip in U.S. Steels 6.25 at 91.50 currently yielding 7.7% with maturity in 2026, first call in 2021 at 103 and change. Added a bit of their 2025 6.75 also in the 95 range for a >7.6% yield. Next payouts are September and August respectively I believe. I don’t mind holding them until call or maturity if need be.
    http://finra-markets.morningstar.com/BondCenter/BondDetail.jsp?ticker=C746421&symbol=X4610547

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