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The Well Is Running Dry – What to Buy?

I typically like to have a watch list of potential ‘buy’ preferreds and baby bonds available to work from, bor dividend capture or short term capital gains–but in the crazy times we live in the redemptions have come fast and furious–and the prices of outstanding issues just keep going up.

My watch list is depleted – at least depleted of buyable issues. Many of the issues on my list were great capture plays – over and over you could buy them and take a 1-2% capital gain in a matter of just a few weeks. Unfortunately prices have run to levels, that in my opinion, have increased the risk while reducing the reward.

In the past I have tried to stay with the mid grade quality issue–i.e. Urstadt Biddle, UNH Properties, US Cellular etc., but these are becoming less viable because of valuations. So on the search goes.

I will start to buy many of the new issues as they come out and hope to capture a few steak dinners – what other choice is there?

38 thoughts on “The Well Is Running Dry – What to Buy?”

  1. Bought a few shares of RILYM earlier this year @$25.20 . It is currently $25.68 and callable, but the conditions in the prospectus are currently covering you if it is called before maturity. Also have some RILYK shares.

    The issuer may redeem the 6.375% Senior Notes Due 2/28/2025 in whole or in part, after 02/28/2021 but prior to 02/28/2022 at $25.75 per note, at $25.50 per note prior to 02/28/2023, at $25.25 per note prior to 02/28/2024, and at $25.00 on or after 02/28/2024 until maturity.

  2. Tim, besides some new IPOs you mentioned, you just got to keep “the list” expansive and look for mature issues that do a one off sell off, or higher relative ok issues with higher yields with little call loss and exD a month out (or a couple days out as many dump into exD). Although I picked the wrong horse from the same stable, I snagged 400 shares of CDR-B with relative ease at $25.15 last week and its already near $25.60. But CDR-C was laying for the taking at $24.85 at same time and its up a buck already. I went with the more call anchored yield and shouldnt have. I will ride this up a bit more and dump it. IPLDP had a dump a week or two ago into mid 25.50s and is crawling back towards $26 again. I would like 26.25 and then pull the rip cord again if I can.

  3. Johnkcal,
    I have to disagree with you about the Zyskind/Karfunkel cabal. I agree that the son-in-law was a stupid CEO, but he was really just a puppet for the smarter guys in the cabal.

    Cabal family members held chair, ceo, and other senior exec. positions in AFSI, MHD, and NGHC, and they used those positions to their personal advantage.

    Barry Z got spanked for some slimy things he did with AFSI shares when it first went public. IIRC, Zyskind created charities, put a bunch of shares into the charities, but later got in trouble because he kept control of the charities (IIRC, actions were questionable under SEC regs and not allowed by the IRS). The family seemed to be playing financial games through the company that benefited nobody but themselves. Not what I would expect from the senior management of a public company.
    They tried to “paper over” some of the shady stuff in cryptic footnotes of the company’s financial statements (again, IIRC). Seemed both slimy (shouldn’t be doing that) and stupid (did they really think they could get away with it, especially if it is documented in the footnotes?).

    Yes, MHLD got a lot of business from AFSI, but losing that wasn’t what killed it.
    When the cabal took AFSI private, they brought in Enstar as a new shareholder in the (private) AFSI. They then arranged to have MHLD sell out most of its income-generating assets to Enstar in what looked like “sweetheart” deals. Because it no longer had assets to generate income, that crippled the value of MHLD. Keep in mind that it was the same guys on both the MHLD and AFSI/Enstar sides of the table. The transaction appears to have been done to pillage MHLD for the benefit of AFSI and its “friends” at the expense of MHLD shareholders.

  4. Great time to pay off any debt you may have. We’ve seen this show before (maybe not to this extreme), but credit spreads will widen out eventually.

  5. Tim:

    You mean you don’t want to buy IIPR+A at $36/share? This is a straight 9% cumulative preferred that is callable on 10/19/22.

    I can’t find any conversion rights into common shares of IIPR unless there is a change of control before then. Little chance of that, as IIPR does about $170 million annually in operating cash flow and has a total enterprise value of $5+ Billion.

    YTC on the preferred is -20%. Just another indication of the absolute insanity out there in yield land.

      1. There are literally tens of thousands of corporates at great yields. I just refuse to buy them. They never seem to appreciate for me. I had JPM 6 3/4’s corporates. Over 5 years I earned like 1/2 of % a bond over coupon. Meanwhile JPM C’s went up 12%+…Right now we need a 5%+ coupon and a 4% YTC. for it to be interesting!!

        But yes we do need to own the lower coupon area of the market too. At least for a small portion of the book. So I keep buying the….(see new Affiilated) new issues when they come thru the channel.

  6. I make no claim about viability. Handle caveat emptor.

    Ivr C
    Mfa c
    KREF A
    Opp A
    Sce h and L

    And some wells Fargo are interesting

    The mere fact that some of these group with other completely broken pfds is enough to give you pause!!

  7. My “watch” list was pretty depleted as well, so a few months ago I started working with some common stocks that pay dividends in the 6% range. Not sure if this will work out for me, but looked at the track record of all the stocks with no dividend cuts in the past year and it is working out well for me. Wishing everyone here continued success!

  8. REXR-A – maybe called next month but might be worth a 1/2 position


    hold your nose for the TRTX-A issue

  9. What are people thinking about CBB-B?

    How about AmTrust?

    And speaking of delisting, is WTREP going to plunge the way the AmTrust issues did?

    1. Is WTREP going to plunge like AmTrust upon delisting???? We can only hope… I know I’ve got throwaway bids already queue’d up just in case.

      1. alas, Fidelity has the training wheels on for WTREP – no online trade allowed – must speak to broker.

        With so many prefers being called I have had to move back to purchasing blue chips with good dividends and writing calls – like VZ and T. T makes me a bit nervous with dividend being cut late in the year to shepherd the Discovery purchase of WarnerMedia.

        1. Talk Dollars
          I like LUMN in the telecomm space. It’s fiber assets are great and I think they are managing their cash flow and debt refinancing really well. I have a large position and sell calls against it every month.

    2. My vote is no. AmTrust had little trust to begin with and was intwined with Maiden which was on the ropes at the time. Throw in the fact they did a 180 lie when they delisted after saying they werent, people were afraid of getting screwed over.
      The Golar preferred scenario would be the most optimistic outcome when it dived a couple bucks. But this float is already largely roached out, and decent quality, so Im not scared of a drop. If it does, I will happily buy more!

      1. Grid, actually the son in law Zyskind was just a stupid CEO, made many mistakes like hiring a private detective attempting to trash the analysts who trashed his stock. Got caught, then FBI plus SEC investigation. Always running a tight ship so there was an insider whistle blower. Maiden got all their biz from Amtrust. So, when Amtrust caved in, Maiden has insufficient biz of their own to sustain. Funny thing is: their non cumulative preferreds price has been increasing still no dividend. I may sell some or all to take tax loss by year end. Amtrust preferreds cumulative and baby bond are priced just about $1 different. I will not buy but will keep all my legacy unsold shares . Karfunkel’s son, National Growth Insurance was the best of the three. It got acquired by Allstate. Smart son, why trying to convince analysts with its horrible past reputation. This is like guilty until proven innocent.

    3. Re: CBB-B
      I would advise caution. S&P rates preferred as CCC- as of 4/9/2020. They have a lot of debt relative to earnings carried over from overpaying on a previous unsuccessful venture and for overpaying for the purchase of Hawaii Telecom in July 2018.
      Not clear. Post consummation of the buyout is CBB-B a busted convertible? Is CBB post buyout effectively a “change of control”? The company has stated that it will continue to be a listed preferred. So then will financials continue to be filed with the SEC post merger for the preferred? If not it could be subject to delisting.
      – Dave

      1. Thanks for the response, but I don’t understand the points you are raising. The ratings downgrade is only relevant if the buyout fails – do you think that’s going to happen? It’s already a busted convertible, why does that matter? What are the change of control provisions that are a problem? They said they will keep it listed, why do you think they won’t do what required for that? I’m not saying these are not concerns, but please spell it out.

        1. Thanks for the contribution to III. Mr. market seems to be pricing the common for the buyout to happen by September 13, the outside date. I assume that the California regulators will approve before then. So, yes, I expect the merger to happen. I am doing my dd (due diligence). This is not a 4.5% ute preferred. There is no free lunch. If one wants a higher yield, one must accept more risk. A present current yield approximately 535 bp over the 10 year treasury implies that there are substantial risks. Just want to accurately define better what those risks are and if I am being adequately compensated for those additional risks. That is all. It is not meant negatively in any way. 6.70% current yield is great as long as there are no black swans. PE as a common owner with public preferred (like GLOG-A for example) is something new for me. PE will do what is in their own best interest.
          Again I thank you for mentioning CBB-B. But wanted to do my own dd and identify any and all risks before I decide. It is the way I evaluate things.
          The III contributors on many occasions have been very helpful in identifying aspects of many preferred’s and BB’s when I did not see the broad side of a barn door and am grateful for their insights, observations and opinions.
          Many thanks especially to Tim for his unstinting work with III.

  10. Sometimes, discretion is the better part of valor—or so I’ve been told. I’m personally afraid to reach anymore for a decent yield. Sooner or later, an event will cause the hammer to come down, rates will move higher and yield spreads will widen dramatically. The problem is when will that happen. No one knows, but I’m personally going to err on the cautious side. I’ll sleep better, even if I’m poorer.

    1. Randy
      I agree the drop March 2020 was not really a correction, artificially created. But the big bull which at this point one of the longest run in history, must come to end . In addition the market is more highly valued than anytime in history or damn close to it. I’m very cautious now, only buying rated Preferred , and accepting 4.25%. I will sleep better this way IMHO.

      1. Max – I share your concern. However; there is a “battle” of the evils, that being credit risk versus interest rate risk. Personally, with the assumption we are in an improving economy, I am more concerned with interest rate risk. The “safe” 4.25% issues will get crushed as rates rise. Of course, credit risk is still there and there is a deluge of risky issues out there. I am trying to target 6%-7.5% issues with terms (no perpetuals) with decent financials. This is my “middle” ground between the two evils.

  11. I’m in the same boat as many here. Despite that I still have 54 pfd holdings in my fixed income section many of my holdings got called this year which increased my cash reserves. More will be called through YE. Personally, I’ve been picking up common shares with ok dividends like VZ, O, and PFE recently. Let go XOM last week which got assigned from selling calls. Looking to sell calls on the commons I hold. Rinse and repeat is all I can do right now since I don’t want to chase pfds. Also, transferring what cash accumulated in my ROTH IRA that held pfds to a capital appreciation fund that I’ve been holding for at least 20 years. That fund does quite well and closed to new investors, at this time.
    GL to All

  12. I suppose you have to figure out what yield, duration, etc.. is acceptable for a longer term hold right now if you do not want to watch the action on a daily basis. I think trying to swing for the fence is a poor idea for too much money. Meaning a 6.8% and up yield. Being able to buy right out of the gate on the OTC is about the only real advantage I see right now. Don’t be shy paying 25.40 for a new issue and lower your expectations for buying at par for quality issues. The ones I have paid 25.40ish on the first or second day are often the ones sitting at 26.50 right now. That recent JPM comes to mind as well as the .K. I am patiently waiting to see what comes out and have some money in a holding pattern. Digging deep into spreadsheets is becoming more and more pointless as the gems have been dug up for the most part.

    So what to buy right now? That RNR looks interesting to me.

  13. I had a nightmare that I made a ton of money and couldn’t figure out what to do with it.

  14. Times are tough out there. I’m considering just paying off my house with the cash I’m sitting on and using the rest as a down payment for a place on the beach. There is literally nothing else to do with the money at this point.

  15. Back in March of ’20, I bought a few stocks. A couple were adds to preferreds I already owned, and a couple new ones consisted of a CEF and a new preferred, NNN. I thought of buying more then, but chickened out. Shoulda, woulda,, coulda.

    As Tim says, pretty arid landscape these days.

  16. Tim, it feels like being hit with a triple whammy. 1) not finding anything to buy; 2) looking to sell preferreds that I believe will be called in the next few months (SOJB, PBC,…), and 3) not willing to sale preferreds with greater than a $3.00 per share gain (ARGO.PA, HWCPZ), because there are no replacements.
    And near term, I don’t see things getting better.

  17. I am holding some risky Floating Issues with good reset terms like AEL-B, RZB, AGNCO, ATH-C, CHMI-B, CIM-B, DLNG-B, DX-C, FHN-C, EFC-A, FTAI-B & C, GLOP-A, NLY-I , NRZ-A, NYMTM , OCFCP , PMT-B, TGH-A , TGP-B , TNP-E , TWO-A, WTFCP , Risk has it’s rewards

    1. Nikolas,
      Well said. I have many of the same name. Coupled with some SWANS. Recent one is CMSEP, only 4.2% preferred, plus parent with excellent reputation. Yield is too low if there is taper. So, just 300 shares. And 400 shares of ACGLN.

  18. Tim,

    Would you consider the Tectonic Financial preferred mentioned in the Sandbox this morning?

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