Certainly there has been more than enough activity reported in the economy to keep one vigilant with their holdings, but for us personally we only bought or sold a couple issues.
We purchased a “sock drawer” holding in the new Gabelli Dividend & Income Trust (NYSE:GDV)–of course we paid a little more than we wanted at $25.10, but our hope for a purchase below $25 was simply a dream. This issue is a 5.375% cumulative, perpetual so we may be holding it for a lifetime anyway–what’s a dime or quarter–nothing at all. The new issue is trading on the OTC Grey market right now under ticker GDVVP at $25.23–lots of folks want the safety of the strong investment grade.
We sold a full position yesterday in the WR Berkley WRB-D 5.75% baby bond which I had bought just for a dividend capture. “Captures” are more difficult now and although we are happy with the 1% we gained we were spoiled by the 1.5% or 2% I had been able to nail down earlier in the year. This was the 2nd time this year we owned this issue and the Berkley baby bonds seem to be good for a 1% monthly gain on a capture. Additionally they are investment grade so if it doesn’t work out a person at least holds a quality issue.
The jobs number this morning was kind of weak at 75,000 jobs added and the 10 year treasury is off 5 basis points to 2.07%. The stock market is doing a bit of partying and up over 1%. The “put” that Fed Chair put under the market is disturbing–I don’t like this never ending yakking from the Fed. Markets need to move based on market conditions–not the suggestion of never ending easy money. Eventually this will end–and it will end badly, but that could be years away–who knows.
Definitions for new readers.
“Sock Drawer”–where we put our quality long term holdings.
“Capture” or “Dividend Capture” — shares bought prior the the ex-dividend date with the intention to hold for a short period of time (for me about 30 days) for the sole purpose of receiving the dividend/interest.
Tim, I trying to understand the Dividend Capture strategy a little better. Do you have particular preferreds that you “like” to use for this? Do you have a criteria I could borrow (steal) that helps you decide which stocks are good candidates?
And you don’t hear this enough….thanks so much for this website! I’d be wandering in the wilderness without it.
Tim…thanks for linking me over here from SA….I have a question…I live in Minnesota like you and own CHSCL…..is there any worry about all the problems farmers are having and how that might relate to CHS or even the perception of them being related…thanks….I just got here so there is a lot to look at…..Craig
Shipping company Tsakos Energy (TNP) posted Q1 numbers on Thursday and during their earnings call informally disclosed that they would be redeeming their 8% preferred series B as expected. TNP-B is somewhat unique as it has a FTR (failure to redeem) penalty that is due to kick in after July 31st 2019.
In response to that disclosure, on Friday the TNP 8.875% preferred series C, which also has a FTR penalty that kicks in next year, rose over 1% on heavy volume to close at $25.45.
The .45 cent premium for TNP-C is still less than the quarterly dividend payment of .55 cents to be paid next month. If I didn’t already have a full position, I would consider buying TNP-C here and holding until it also gets redeemed as expected next year.
Citadel – I don’t follow TNP at all and appreciate your post, especially about TNP’s talk of refunding TNP-B to get out from under the upcoming failure to redeem provision. My question, though, is, with the plain vanilla TNP-D 8.75% trading at 10.44 current and the 2 f/f preferreds with coupons of 9 1/4% and 9 1/2% trading at discounts that provide even greater current yield with future float rates not much different than the beginning coupons at this point and both not being subject to f/f until 2027 at the earliest, what’s the incentive for TNP to refund TNP-B? Based on where those 3 issues are trading and assuming TNP doesn’t have the cash to call TNP-B, would they be able to issue an offering at a price that would be economically better than the new coupon 10% on TNP-B? I guess my point is that it doesn’t seem to be a slamdunk assumption TNP-B will get called as the market already seems to assume based strictly on the trading markets of the other 3 preferreds excluding C. Maybe I’m being too logical on something I know nothing about… A credit such as TNP is normally well beyond my risk tolerance, but please do keep any new info as it becomes available….
2WR, without question TNP has the cash on-hand to do a $50 million series-B redemption…and the escalating 25% FTR penalty provides them with a great incentive. Here is the relevant section from the Q1 earnings call that pertains to TNP-B.
“Our balance sheet remains strong with over $119 million cash at March 31st. And cash flow from time charters remains secure with quarter one EBITDA at $64 million over 50% higher than in the prior quarter one. This comfortably allows us to redeem our B-series of preferred shares and to pay our remaining dividend for the year and of course as George has mentioned to continue our perfect debt service. “
One way or another, we’ll find out by the end of the month as the B-shares require a 30 day redemption notice.
Citadel – Thanks for the follow-up. Given TNP’s cash position and the public statements made, there does seem to be opportunity here, however, I just know myself too well to jump in. Given my own level of risk tolerance wouldn’t allow me to own a TNP in the first place, I’d probably flinch at the slightest hiccup that might come up were I to attempt to play B or C for the short term play. So I’ll have to maintain my discipline. I do, however appreciate you bringing the story to the table… Assuming I continue my wimpiness, I’ll probably end up buying B around 10/1 or so and will still most likely not be willing to take a flyer on C even when they do what they say and act on B. I almost got burned doing that buying MHNC in front of a call 18 months away once MHNB was called. Interest payments on MHNC and a prescient sale bailed me out from disaster on that one.
I followed the lead of someone here (I forget who) and traded my NNNprE shares for NNNprF shares. The slight drop in coupon is cushioned by the price difference which also allowed me to buy more shares. E is callable, F has a few years to go. Geez, buying preferreds at good discounts is a lot more difficult than it was a few years back. I also filled my position in the Allianz NCZprA issue and have almost no cash left in my IRA which is heavily invested in preferreds. With all the talk about a compliant fed, I expect preferreds to provide less bargains short term.
I keep reading comments about trading out of past due pfds and settling for lessor yielding options (or chase bid-up new IPO’s). At this point with good prefers already bid sky high, could swapping into a preferred ETF be a better alternative. The ETFs still offer yields in the the upper 5% area, pay monthly, and are more liquid. Just wondering.
Bob, you would have to comb through the funds holdings to definitively know. It could be loaded with near call issues descending towards par from approaching call, or past call and above par also. A perfect example was WFC-J, an 8% par preferred. If one owned the 2 years prior to call date and held they literally made no money, as it was way above par and spent the final 2 years descending towards par. The only people who really profited owning was buying once it went past call and back near par when people were guessing on redemption date.
AZB, The lessor yielding options with call protection may turn out to be the higher yielding options if comparing to past call issues well over par. Rates have been declining and it’s reasonable to expect redemptions to increase, including for long past call issues with higher coupons.
If rates maintain the current trajectory, there will be surprise redemptions, just not the good kind.
I held a couple of those last year. I regretted it in December. The BB’s and pref’s saved me and resulted in far better opportunities. PFF … never again.
AZBob, certainly one of the issues is that all of the preferred/income ETF’s have real fees associated with owning their portfolio’s; most are not worth the costs (like PFF) and are just too leveraged. Further, many of the income ETF’s always underperform the individual buy and hold preferred/income investor because of these enormous fees, bad management and poor market timing. PFF has a whopping market cap of $15+ billion and has averaged a paltry +4.47% for the last 5 years(!) and +3.19% the last 3 years; these are horrible results (you’d probably would have been better buying longer term CD’s are investment grade individual bonds/preferreds. We have been in one of the greats interest rate bull markets of all time during these periods. Please do your own deep due diligence before investing and I’m sure many of us would be glad to help in anyway we could…
Expect the best. Prepare for the worst. Capitalize on what comes.” – Zig Ziglar
Be Well, Nomad
Nomad, Thank you. I recently parted ways with a “professional” adviser that had me heavily in PFF. I looked at this and realized I was paying fees to the fund and fees to the adviser. I support my family and to be fair as a working mother, was totally overwhelmed building a business and raising children. My children are off to college and I have sold my business. I am grateful for this site. But, it is disheartening that many in my former position – with no time- rely on good professionals and even the “top-rated” provide this disservice. Oh well. I guess I could rant about “on-line” college courses which I pay thousands for and the universities are probably at 99% profit margin. But, this is not the site for that. This is a long-winded way of saying thank you.
Nomad…are you 100% certain those poor returns are total returns or returns based on price only…there is a big difference and sometimes they report it just on price….
Craig, these TOTAL RETURN figures are directly from Morningstar
https://www.morningstar.com/etfs/xnas/pff/betaquote.html
Wishing you profitable investing, Nomad
Thanks for all the replies. That’s why I posed the question. I think like many here, I’ll continue to search out individual preferred opportunities. Appreciate all the educational expertise.
I concur with Nomad; being enticed by yield, went into PFF about 2 years ago. Tracking performance for a few months it became evident yield was not assured due to leverage, fees, volatility and manipulation ( depending if one had to sell ) – did not bother to dig deeper, but was able to see that individual Preferred Stock resulted in less anxious moments and a better SWAN situation.
I will not return to Preferred ETFs again.
U.S. President Donald Trump said on Friday that he has indefinitely suspended the threat of tariffs against Mexico after reaching “a signed agreement” on immigration.
https://www.reuters.com/article/us-usa-trade-mexico-deal/trump-suspends-tariffs-on-mexico-after-deal-on-immigration-reached-idUSKCN1T900S
Today my BB and preferred (40+) are all up except for one, my SPY up, my IG bonds up. Everything is up. This broad based euphoria is based on data suggesting the economy is slowing. Bad is the new good. My head full of outdated notions is itching. I’m scratching my head.
In the last week I have had several Pfrd sales triggered, where my sell price was set at ~5-6% profit (ARCC, USB-P, BANC-D, GLIPB, GLP-A, CFG-D, STAG-C, CHDCL). All goodies and all gone!
I did the same thing in March and now those Pfrds are even higher. So I am not sure if this is a good strategy.
libero, I’m fully invested and have been scrounging tidbits because of called issues and income payments. I only sell something if there is something I want more than the least of what I have, or if a strategic rotation. Of course that is all subjective decisions. I feel I’m pretty high graded already to where I pretty much want it all. I do hold some past call date stuff and have been parceling that out when need be. I’ve been hit with a few calls already this year. Some remaining issues are higher risk of call than others but the market risk spread doesn’t always align with mine, again is subjective decision which past call to sell and if my plan was perfect I wouldn’t have had any calls, lol. If shooting for a 6% return but have 40% cash it’s essentially shooting for a 3.6% return unless go way up on the risk factor on the other 60%. Neither 3.6% nor high risk is my deal (well, I admit to a limited high risk). I usually consider bonds a replacement for cash but interest on them has shriveled again. So everybody and everything is getting boxed in everywhere and the squeeze is on. Something will give eventually and the game will be on.
Yeah i am about 30% in cash. Hopefully i will get a chance in the next year to get back in but it’s also possible given the search for yield that these pfds will just keep going up and that’ll be the new normal.
Again Tim, I ask why you and others were so eager to buy GDV-H above par for an effective yield of perhaps 5.3%, when the existing Allianz preferreds could be bought for say 5.5% yield. With (in my mind) equivalent safety.
I appreciate any insight.
Hi Larry–I have both of the AllianzGI issues. It is just about diversifying.