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.