Sunday, May 31, 2009
Doug; I am a fairly new subscriber to CDx3 and am very satisfied with your service. I have two questions. I just received the third edition of your book and am wondering if some of your older recommendations; for example from the CDx3 preferred stock results during2002 (page 239) are still viable CDx3 approved stocks or are we just supposed to pick from the lists on the wesite that just goes back thru 2006. My second question is of the preferred stocks on the latest bargin table, if they are all equally as good in the sense that none of your approved preferreds have ever not made a dividend payment it seems to me that the most attractive stock would be the one that either pays the highest dividend yeild or has the highest effective annual yield. I am not looking for specfic stock picking advise; only your comments on the concept. Thank you
Thursday, May 28, 2009
Divergent Behavior of TARP Preferred's
I'm starting to notice some divergent behavior of the TARP preferreds relative to the underlying common shares. It used to be (a month or more ago) that when the common would swoon so too would the preferreds. Now, when the common sells-off, the preferred either don't move, or they move up. This is consistent with what I'm seeing in the corporate bond markets, too. For example, junk bonds seems to be out-performing the SP500 going back to even before the March lows. And high grade corporates are really out-performing the SP500. This is what we should see at an equity market bottom -- at least a bottom that lasts for at least three months. :<)
Monday, May 25, 2009
New Regions Preferred
Just received your updated book and it's great! Recent news accounts (Regions outlines details of $1B stock sale) say that Regions Financial is going to offer new preferred shares at 10% as part of their move to add capital to their balance sheet. Will this be a CD3x Preferred or is this some type of restricted offering that doesn't meet CD3x filters?
Tuesday, May 19, 2009
Preferred Stock Investing Reader Question (sign in to post your question)
Since new preferred stock issues have been slow this year, is there anything to buy? Beth C.
From the May 2009 issue of the CDx3 Preferred Stock Newsletter (free; what's this?).
From the May 2009 issue of the CDx3 Preferred Stock Newsletter (free; what's this?).
My research focuses on just the highest quality preferred stocks ("CDx3 Preferred Stocks") and documents the methods for adding them to your portfolio under different economic conditions - during a "buyer's market" (now) or during a "seller's market."
During a seller's market for CDx3 Preferred Stocks (which is the vast majority of the time, historically) CDx3 Investors purchase CDx3 Preferred Stocks when they are first introduced to the market as explained within chapter 11 of Preferred Stock Investing. Even with the ten CDx3 Selection Criteria eliminating about 90% of new preferred stocks leaving just the highest quality issues, new CDx3 Preferred Stocks are still historically introduced at a rate of about one to two per month so there is always plenty to pick from.
During a buyer's market, as dividend rates rise making new issues more costly to issuing companies, there will be fewer new issues so CDx3 Investors use the "CDx3 Bargain Table" to identify purchase candidates (Preferred Stock Investing, chapter 10).
During a buyer's market, as dividend rates rise making new issues more costly to issuing companies, there will be fewer new issues so CDx3 Investors use the "CDx3 Bargain Table" to identify purchase candidates (Preferred Stock Investing, chapter 10).
The CDx3 Bargain Table is created each month and identifies CDx3 Preferred Stocks that are at a point in time that, my research shows, tends to favor buyers. Specifically, these are CDx3 Preferred Stocks that are (1) more than two dividend quarters old, (2) have yet to reach their call date, (3) are just starting a new dividend quarter and (4) are available for less than $25 per share.
The above example is the CDx3 Bargain Table from April 2009. You can see that CDx3 Preferred Stocks are all rated "investment grade" (Baa3 or higher). Knowing when market prices will tend to favor buyers is the real trick and, as you can see in this example, a lower market price means that your yield (the annual return that you make on the money that you actually have invested) goes up. The average annual yield (see the column labeled Highest Dividend Yields) for this group of CDx3 Preferred Stocks from April's CDx3 Bargain Table was a very respectable 13.735%. It pays to know when to consider buying.
Preferred Stock Investing explains exactly how to produce this table on your own. Otherwise, the CDx3 Bargain Table is provided to subscribers to the CDx3 Notification Service each month. CDx3 Preferred Stocks from banks (blue diamond) and non-banks (grey triangle) are also identified for subscribers along with their current Moody's rating and other information for each issue so that you can see where the real bargains are (the trading symbols have been removed from the image here to protect subscription values).
The above example is the CDx3 Bargain Table from April 2009. You can see that CDx3 Preferred Stocks are all rated "investment grade" (Baa3 or higher). Knowing when market prices will tend to favor buyers is the real trick and, as you can see in this example, a lower market price means that your yield (the annual return that you make on the money that you actually have invested) goes up. The average annual yield (see the column labeled Highest Dividend Yields) for this group of CDx3 Preferred Stocks from April's CDx3 Bargain Table was a very respectable 13.735%. It pays to know when to consider buying.
Preferred Stock Investing explains exactly how to produce this table on your own. Otherwise, the CDx3 Bargain Table is provided to subscribers to the CDx3 Notification Service each month. CDx3 Preferred Stocks from banks (blue diamond) and non-banks (grey triangle) are also identified for subscribers along with their current Moody's rating and other information for each issue so that you can see where the real bargains are (the trading symbols have been removed from the image here to protect subscription values).
Even during a Global Credit Crisis.
Many Happy Returns.
Wednesday, May 13, 2009
Preferred Stock Holders Poised To Take Over Citi Ownership
A group of inv
estors who never wanted to have a voice in the management of Citigroup is about to find itself in the role of Citi's majority shareholder.
Last February, Citigroup exercised its right to convert its three convertible preferred stocks (C-I, C-P and C-M) to Citi common shares.
Then in March, Citi filed with the SEC to convert, on a voluntary basis, other Citi preferred stock issues to common.
Then on Friday, May 8, 2009, in response to the government's bank stress tests, Citi announced that it was expanding its voluntary preferred stock conversion to include even more issues, again on a voluntary basis.
If enough shareholders volunteer, Citi estimates that it will not only bump its regulatory profile well into the respectability range, but will also save itself a bundle in what has become a mountain of dividend expense owed to preferred stockholders every quarter.
The upcoming conversion also includes the TARP preferred shares held by the U.S. government.
Using Citi's estimates, converting these preferred shares (government, privately held and publicly traded) to common stock shares will boost the number of common shares outstanding from its current 5.5 billion shares to, get this, about 23 billion shares - in one step.
Current holders of Citi's common stock, who now own 100% of the company, are, under these estimates, going to hold a miserly 24% after the conversion. That's quite a haircut.
And who will the new majority shareholder be? Media stories over the last several weeks would have us believe that the U.S. government will end up in the driver's seat at Citi, but that's actually not the case.
Answer: the preferred stockholders who choose to convert their shares.
The conversion, using Citi's conversion estimates, will leave the current Citi common shareholders with only 24% ownership and the U.S. Government with 34%. The new majority shareholder will be the preferred stock holders who volunteer to convert their shares resulting in 42% ownership of Citi common stock (includes privately held, publicly traded traditional preferreds and trust preferreds converted to common).
Upon approval of Citi's plan, and in the event that Citi's conversion estimates hold true, it is Citi's preferred stockholders who are going to not only come to Citi's rescue here but will end up being Citi's largest common stock shareholder.
By originally investing in non-voting preferred shares, this group has a specific and expressed, by virtue of their original investment choice, desire to not include itself in the management of the company.
How ironic that it now looks like they are going to be running the place. All Hail preferred stock investors!
Many Happy Returns.
estors who never wanted to have a voice in the management of Citigroup is about to find itself in the role of Citi's majority shareholder.Last February, Citigroup exercised its right to convert its three convertible preferred stocks (C-I, C-P and C-M) to Citi common shares.
Then in March, Citi filed with the SEC to convert, on a voluntary basis, other Citi preferred stock issues to common.
Then on Friday, May 8, 2009, in response to the government's bank stress tests, Citi announced that it was expanding its voluntary preferred stock conversion to include even more issues, again on a voluntary basis.
If enough shareholders volunteer, Citi estimates that it will not only bump its regulatory profile well into the respectability range, but will also save itself a bundle in what has become a mountain of dividend expense owed to preferred stockholders every quarter.
The upcoming conversion also includes the TARP preferred shares held by the U.S. government.
Using Citi's estimates, converting these preferred shares (government, privately held and publicly traded) to common stock shares will boost the number of common shares outstanding from its current 5.5 billion shares to, get this, about 23 billion shares - in one step.
Current holders of Citi's common stock, who now own 100% of the company, are, under these estimates, going to hold a miserly 24% after the conversion. That's quite a haircut.
And who will the new majority shareholder be? Media stories over the last several weeks would have us believe that the U.S. government will end up in the driver's seat at Citi, but that's actually not the case.
Answer: the preferred stockholders who choose to convert their shares.
The conversion, using Citi's conversion estimates, will leave the current Citi common shareholders with only 24% ownership and the U.S. Government with 34%. The new majority shareholder will be the preferred stock holders who volunteer to convert their shares resulting in 42% ownership of Citi common stock (includes privately held, publicly traded traditional preferreds and trust preferreds converted to common).
Upon approval of Citi's plan, and in the event that Citi's conversion estimates hold true, it is Citi's preferred stockholders who are going to not only come to Citi's rescue here but will end up being Citi's largest common stock shareholder.
By originally investing in non-voting preferred shares, this group has a specific and expressed, by virtue of their original investment choice, desire to not include itself in the management of the company.
How ironic that it now looks like they are going to be running the place. All Hail preferred stock investors!
Many Happy Returns.
Citi Trust Preferred Conversions
It would seem that if you intended to take advantage of the conversion offer, you could simply wait until a day or two prior to the conversion and then sell your CDx3 shares at the current market price. This price should be very close to conversion value. This would save you any headaches associated with having to subsequently liquidate the Citi common shares at a price that could be lower than the conversion price of $3.25. However, if Citi common is trading significantly above $3.25, it might be better to take the chance.
Or, if you're REALLY brave, just hang-on to your new common. :<)
Or, if you're REALLY brave, just hang-on to your new common. :<)
Monday, May 11, 2009
Another Reason To Be A Preferred Stock Investor
Investors who count on an uptick in the value of a company's common stock (including those invested in mutual funds made up of common stocks) have really taken a beating over the last couple of years, especially those invested in the common stocks of big banks.
After almost two years of watching their common stock values lose most of their value, many of the country's big banks, in response to regulator's stress tests, have announced over the last few days that in order to raise more capital they are going to be creating and selling more shares of their common stock.
US Bancorp is selling $2.5 billion; Capital One, $1.55 billion; BB&T, $1.5 billion and Key, $725 million. And Wells Fargo has already sold $12.6 billion of new common shares.
Talk about adding insult to injury.
Not only do these actions severly dilute what is left of the common stock value of these banks, several of them are also reducing their common stock dividend in order to generate more cash. After two years of watching their portfolios, and the income generated by those portfolios, deminish, common stock investors are now going to get hit with massive dilution and more common stock dividend cuts.
I suppose one could say that as common stock owners, this is the risk they take. And I would agree; but that sure doesn't make it any easier to watch. Holders of these bank's common stock are getting hammered yet again.
Many preferred stock investors are starting to feel like the guy who owns the one house in the neighborhood that the tornado missed - best not to walk around asking what the fuss is all about. Preferred stock dividends are based on the number of shares you own, not market price and they cannot be diluted by new shares.
Today's dilution and dividend reduction news provides yet another reason to be a preferred stock investor.
Many Happy Returns.
After almost two years of watching their common stock values lose most of their value, many of the country's big banks, in response to regulator's stress tests, have announced over the last few days that in order to raise more capital they are going to be creating and selling more shares of their common stock.
US Bancorp is selling $2.5 billion; Capital One, $1.55 billion; BB&T, $1.5 billion and Key, $725 million. And Wells Fargo has already sold $12.6 billion of new common shares.
Talk about adding insult to injury.
Not only do these actions severly dilute what is left of the common stock value of these banks, several of them are also reducing their common stock dividend in order to generate more cash. After two years of watching their portfolios, and the income generated by those portfolios, deminish, common stock investors are now going to get hit with massive dilution and more common stock dividend cuts.
I suppose one could say that as common stock owners, this is the risk they take. And I would agree; but that sure doesn't make it any easier to watch. Holders of these bank's common stock are getting hammered yet again.
Many preferred stock investors are starting to feel like the guy who owns the one house in the neighborhood that the tornado missed - best not to walk around asking what the fuss is all about. Preferred stock dividends are based on the number of shares you own, not market price and they cannot be diluted by new shares.
Today's dilution and dividend reduction news provides yet another reason to be a preferred stock investor.
Many Happy Returns.
Tuesday, May 5, 2009
Preferred Stock And Short-Sellers
Preferred stock investors have been caught in the volatility surrounding many common stocks lately. There have even been cases where the market prices of a company's preferreds, which pay a relatively high fixed dividend, have been more volatile than the same company's common stock, which pays a relatively low variable dividend.
Such inconsistencies signal that something has pushed the normal function of the market off of its tracks. In many cases since last fall, this abnormal market behavior has been caused by predatory short-sellers.
It got so bad that the SEC had to suspend short-selling of many US bank stocks for several weeks prior to the implementation of the TARP program in October 2008. But the Fed's stress test program for big banks has provided another opportunity for prediatory short-sellers to distort the market.
Just so that we're clear, I believe that short-selling, as a practice, has some value and does lend some effeciency to the market in that the practice can signal what buyers are thinking about a company's future prospects (although the extent to which you believe those signals can some times require more than a little bit of clairvoyance).
But the promotion of market effeciency is not what went on last fall and, in the run-up to the Fed's stress tests, the same bad behavior on the part of some (large) short-sellers is again rearing its ugly head. When short-sellers launch coordinated attacks on a specific company and spread rumors around Wall Street to drive the price down (for their own personal gain but the devistation of others), we are witnessing dishonorable conduct more than market effeciency.
Just in time to be too late, the SEC will be implementing some new rules for short-sellers soon. The SEC has put together a collection of experts and other stakeholders to help make some decisions regarding the practice. The group is evaluating six specific proposals to limit the 'cascading failure' that can result from a coordinated short-seller attack. We should know the results in early-June.
Preferred stock investors are typically longer-term investors. They invest for reliable dividend income more so than a chance to strike it big when a company's common stock goes on the upswing. Common stock investors are placing a bet on that upswing and do so knowingly. As unfair as predatory short-selling is to common stock holders, it is preferred stock investors who are particularly blind-sided by the practice since they were never intending on attaching their fortunes to the common share price whatsoever in the first place.
For the benefit of preferred stock investors, I'm very anxious to see the SEC put an end to predatory short-selling and we may see them do just that in the coming weeks.
Many Happy Returns.
Such inconsistencies signal that something has pushed the normal function of the market off of its tracks. In many cases since last fall, this abnormal market behavior has been caused by predatory short-sellers.
It got so bad that the SEC had to suspend short-selling of many US bank stocks for several weeks prior to the implementation of the TARP program in October 2008. But the Fed's stress test program for big banks has provided another opportunity for prediatory short-sellers to distort the market.
Just so that we're clear, I believe that short-selling, as a practice, has some value and does lend some effeciency to the market in that the practice can signal what buyers are thinking about a company's future prospects (although the extent to which you believe those signals can some times require more than a little bit of clairvoyance).
But the promotion of market effeciency is not what went on last fall and, in the run-up to the Fed's stress tests, the same bad behavior on the part of some (large) short-sellers is again rearing its ugly head. When short-sellers launch coordinated attacks on a specific company and spread rumors around Wall Street to drive the price down (for their own personal gain but the devistation of others), we are witnessing dishonorable conduct more than market effeciency.
Just in time to be too late, the SEC will be implementing some new rules for short-sellers soon. The SEC has put together a collection of experts and other stakeholders to help make some decisions regarding the practice. The group is evaluating six specific proposals to limit the 'cascading failure' that can result from a coordinated short-seller attack. We should know the results in early-June.
Preferred stock investors are typically longer-term investors. They invest for reliable dividend income more so than a chance to strike it big when a company's common stock goes on the upswing. Common stock investors are placing a bet on that upswing and do so knowingly. As unfair as predatory short-selling is to common stock holders, it is preferred stock investors who are particularly blind-sided by the practice since they were never intending on attaching their fortunes to the common share price whatsoever in the first place.
For the benefit of preferred stock investors, I'm very anxious to see the SEC put an end to predatory short-selling and we may see them do just that in the coming weeks.
Many Happy Returns.
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