Huge demand for high quality preferred stocks has pushed up market prices. The sudden increase in demand has been caused by a large number of calls, all occurring within a very short period of time. So far this year we have seen seventeen high quality preferred stocks called by their issuing companies. That has to be a record pace.
These calls have pushed a large number of suddenly cash-rich preferred stock investors into the marketplace as buyers, all looking to replace their called shares at the same time, hence pushing up prices. With this increase in market prices, many preferred stock investors are currently sitting on significant, but unrealized, capital gains in their preferred stock portfolio, leading many to wonder if they should pocket those gains by selling now.
If the issuing company decides to call (redeem) your shares, the opportunity to cash in those gains evaporates instantly, as the market price will fall toward par (usually $25 per share) as soon as a call is announced. Several of the issues called this year were selling for prices well above their par values just before the call announcement, so many of those holding shares at the time would have dearly loved to have known that a call was heading their way.
This is especially true of high quality preferred stock shares that are so widely held. Most of the 40 callable high quality preferred stocks that are currently trading on U.S. stock exchanges closed on Friday, April 20 for a market price above their respective par values.
What Is The Likelihood Of A Call?
In most cases, a company will call a preferred stock if it saves them money to do so. For example,...
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These calls have pushed a large number of suddenly cash-rich preferred stock investors into the marketplace as buyers, all looking to replace their called shares at the same time, hence pushing up prices. With this increase in market prices, many preferred stock investors are currently sitting on significant, but unrealized, capital gains in their preferred stock portfolio, leading many to wonder if they should pocket those gains by selling now.
If the issuing company decides to call (redeem) your shares, the opportunity to cash in those gains evaporates instantly, as the market price will fall toward par (usually $25 per share) as soon as a call is announced. Several of the issues called this year were selling for prices well above their par values just before the call announcement, so many of those holding shares at the time would have dearly loved to have known that a call was heading their way.
This is especially true of high quality preferred stock shares that are so widely held. Most of the 40 callable high quality preferred stocks that are currently trading on U.S. stock exchanges closed on Friday, April 20 for a market price above their respective par values.
What Is The Likelihood Of A Call?
In most cases, a company will call a preferred stock if it saves them money to do so. For example,...
Note To Readers: This article was chosen to appear on the popular investing website 'Seeking Alpha'.
By clicking here a new window/tab will open on your screen to this article as it appears at SeekingAlpha.com.
Receive my Seeking Alpha articles by email: When viewing one of my articles at Seeking Alpha, click on the "Follow" button under my picture. You will be notified by email when I post a new article to Seeking Alpha.
Please enjoy reading this article at Seeking Alpha.
Many Happy Returns.
