Great Resources for Preferred Stock Investors!






Issue 161


Subscribe: CDx3 Notification Service

  See Preferred Stock Investor Reviews


Preferred Stock Investing, 5th Edition

  See Reader Reviews


Free Preferred Stock Resources


In This Issue:

High Quality Preferred Stocks

Preferred Stock News

Special Announcement

More Preferred Stock Research




"The notification service gets me a better price for the stock...and keeps me alert to new issues.

- from Bob W., CDx3 Notification Service subscriber. See more preferred stock investor reviews here.














by Doug K. Le Du


Preferred stock researcher

SeekingAlpha contributor

PortfolioChannel contributor

Syndicated writer






109 Reader Reviews


See Reader Reviews

Table of Contents

Free Excerpt





































Already a subscriber?

See page 1 of this month's issue of the subscriber's newsletter, CDx3 Research Notes, for symbols.








Top Investment Grade, Cumulative Preferreds Available Under $25



As confidence returns to the U.S. stock market, security prices have edged up including those of U.S. traded preferred stocks. But that's not to say that high quality preferred stocks are out of reach. To the contrary, of the 125 high-quality preferred stocks currently trading on U.S. stock exchanges, eight are now trading for a market price below their $25 par value, selling for an average price of $23.13 per share (July 31).

The search engine parameters seen in Figure 1 look for preferred stocks and exchange-traded debt securities (ETDS) that are currently trading below their $25 par value, have cumulative dividends (meaning that if the issuing company skips a dividend payment to you, they still owe you the money) and offer investment grade ratings from Moody's Investors Service.


Currently priced below par

Purchasing shares below $25 is an important consideration for many preferred stock investors. In the event that your shares are redeemed (bought back from you) by the issuing company, shareholders will receive the security's par value in cash in exchange for their shares. By purchasing shares below their par value ($25 in most cases and in all of the cases shown here), preferred stock investors are able to add a layer of principal protection to their investment while also positioning themselves for a downstream capital gain in the event of a future call.


Figure 1 shows the complete filter used to find the eight highest quality preferred stocks available for less than $25. Of the twenty-five preferred stock characteristics that can be set, the four arrows highlight the keys for this search. Setting the "Currently priced below par" parameter to "Yes" does the magic here.



In addition to finding the highest quality issues that offer cumulative dividends and are currently trading below their $25 par value, this filter also limits the list to issues that have not suspended their dividend payments. And by setting "Today's price, at least" to $0.01 and "Today's volume, at least" to 1 share the filter will exclude less liquid issues (securities that have not traded today).

This is just one example. Click on the filter image to see another one along with a more detailed explanation.


The above search finds a total of eight high quality preferred stocks that are curently trading on U.S. stock exchanges for a market price below these security's $25 par value.

Figure 2 shows the results when this search is applied to our Preferred Stock List
TM database (please note that to protect the values of subscriptions to our CDx3 Notification Service, the trading symbols are obscured here). Already a CDx3 Notification Service subscriber? See page 1 of this month's issue of the subscriber's newsletter, CDx3 Research Notes, for symbols.

There were a total of 933 preferred stocks and ETDS' trading on U.S. stock exchanges as the month came to a close (including convertible preferred stocks). Of these 933, there are currently 125 high quality preferred stocks selling for an average price of $26.28.


And of these 125 high quality securities, eight have a current market price (seen in the Last Price column) that is below their $25 par value (as shown in the Liquid Price column) and enjoy an investment grade rating from Moody's.

Keep an eye out for sub-$25 buying opportunities such as those listed here. The lower your purchase price, the more principal protection you'll have.

Please consider becoming a subscriber to our CDx3 Notification Service today. Check out these features:

















New Preferred Stock IPO’s, July 2020


July’s five new preferred stocks are offering an average annual dividend (coupon) of 7.2 percent, an average current yield (which does not consider reinvested dividends or capital gain/loss) of 7.2 percent and an average Yield-To-Call (which does consider reinvested dividends and capital gain/loss) of 6.9 percent (using July 31 prices).

Note that I am using IPO date here, rather than the date on which retail trading started. The IPO date is the date that the security’s underwriters purchased the new shares from the issuing company.

A special note regarding preferred stock trading symbols: Annoyingly, unlike common stock trading symbols, the format used by exchanges, brokers and other online quoting services for preferred stock symbols is not standardized. For example, the Series K preferred stock from Public Storage is “PSA-A” at TDAmeritrade, Google Finance and several others but this same security is “PSA.PR.K” at E*Trade and “PSA.PK” at Seeking Alpha. For a cross-reference table of how preferred stock symbols are denoted by sixteen popular brokers and other online quoting services, see “Preferred Stock Trading Symbol Cross-Reference Table.”

There are currently 125 high quality preferred stocks selling for an average price of $26.28 (July 31), offering an average current yield of 5.3 percent. By high quality I mean preferreds offering the characteristics that most risk-averse preferred stock investors favor such as investment grade ratings and cumulative dividends.

There is now a total of 933 of these securities trading on U.S. stock exchanges (including convertible preferred stocks).

About the new issues

Convertible preferred stocks come in two flavors – mandatory convertibles where the issuing company determines when your preferred stock shares will convert to the company’s common stock and optionally convertibles where the power to convert, or not, is in the hands of shareholders. IVNCP/IIVIP is a two million share, unrated, mandatory convertible preferred stock issued by II-VI Incorporated on July 2 offering a 6.0 percent annual dividend. While it is identified as a mandatory convertible, there is also a provision allowing shareholders to convert their preferred stock shares into the company’s common shares, making this security somewhat of a hybrid. The prospectus for this security defines a Maximum Conversion Rate that limits the upside to shareholders upon conversion (wouldn’t want anyone making too much money), but also provides a Minimum Conversion Rate in the hopes of making you feel better. Note that this security has a very unusual $200 liquidation preference, meaning that in the event of redemption shareholders will receive $200 per share in cash in exchange for their shares. This is a complex security; those considering investing should read the prospectus very carefully. II-VI is a very interesting $4.6 billion company, developing a wide variety of laser devices. The company was founded in 1971 and is headquartered in Saxonburg, Pennsylvania.

ARGO-A is a speculative grade (S&P BB-) traditional preferred stock from Argo Group International Holdings, Ltd (ARGO) paying an annual non-cumulative 7.0 percent dividend. This coupon resets every five years, beginning September 15, 2025, based on the then-current five-year U.S. treasury rate plus 6.712 percent. September 15, 2025 is also the call date for this security, meaning that the company re-gains the right to redeem your shares rather than pay a higher coupon at that time. The company is using $125 million of the proceeds from this security to repay debt maturing on November 2, 2021. Doing so converts $125 million in debt costing the company about 2 percent in annual interest into equity costing the company 7 percent in dividend expense. ARGO is a $1 billion insurance company headquartered in Bermuda.

CSSEN is an unrated Exchange-Traded Debt Security from Chicken Soup for the Soul Entertainment, Inc. (CSSE) offering 9.5 percent annual interest. ETDS’ are also referred to as baby bonds and are recorded on the company’s books as debt (rather than as equity, as in the case of preferred stock). As bonds, ETDS’ are often seen as having lower risk than the same company’s preferred stock shares. ETDS’ are very similar to preferred stocks and are often listed on brokerage statements as such. Unless the prospectus says otherwise, the interest paid by ETDS’ is cumulative, meaning that in the event the issuer skips a payment to you they still owe you the money (their obligation to pay you accumulates). CSSEN is the company’s second income security and its first ETDS. While most ETDS’ have a five-year call period and a maturity date decades into the future, CSSEN becomes callable on July 31, 2022 and matures on July 13, 2025. This security raises about $21 million, $14.4 million of which is being uses to pay down debt. Some or all of the remaining cash may be used “…to pay certain obligations to CPEH (an affiliate of Sony Pictures Television) and affiliates thereof that may otherwise be payable in shares of our Series A Preferred Stock.” CSSE is a $110 million video production company founded in 2014 and headquartered in Cos Cob, Connecticut.

NREF-A is an unrated traditional preferred stock from NexPoint Real Estate Finance, Inc. (NREF) offering 8.5 percent cumulative dividends. NREF is a brand-new mortgage investment company founded in 2019 with the intention of becoming a REIT shortly. The COVID pandemic has injected quite a bit of uncertainty into the real estate mortgage market, specifically with respect to the value of mortgage backed security bundles. Several mortgage REITs faced margin calls earlier this year as lenders began insisting on additional cash collateral. Launching a new mortgage REIT in 2019, only to be welcomed by this COVID mess, presents a host of challenges that NexPoint will now attempt to navigate. NREF-A is the company’s first and only income security. NREF is a $75 million company headquartered in Dallas, Texas.”

TSTFL/TFC-R is a double-investment grade traditional preferred stock from Truist Financial Corporation offering fixed 4.75 percent non-cumulative dividends. This 37 million share security, raising $905 million, is the highest rated income security among July’s offerings. Truist, formerly known as BB&T Corporation, is a $50 billion regional bank operating through about 1,900 financial centers in the Southeastern and Mid-Atlantic United States making it the nation’s sixth largest bank. Truist has five income securities currently trading, all nearly identical preferred stocks. Two of Tuist’s previously introduced income securities, TFC-F and TFC-G, are currently callable and both are 18 million share securities offering a 5.2 percent coupon. While it has yet to be announced, with the new TSTFL/TFC-R being a 37 million share security with a 4.75 percent coupon, it would not be surprising if the bank uses the proceeds from the new TSTFL/TFC-R to redeem all outstanding shares of TFC-F and TFC-G. This maneuver saves the bank just over $4 million per year in dividend expense.

Sources: Preferred stock data - CDx3 Notification Service database,


Preferred Stock Tax treatment

The 2017 Tax Relief Act included a provision aimed at small businesses that also delivers an enormous benefit to those holding shares of preferred stocks issued by REITs (which is pretty much all of us). Most small businesses are incorporated as a Limited Liability Corporation (LLC). Under this structure, the company’s earnings are passed through to the owners who then pay the tax on their personal returns. The Act allows those receiving such income to deduct, right off the top, up to twenty percent of this “pass-through income.”

But remember that REITs do the same thing as LLC’s – at least 90 percent of a REIT’s earnings are passed to the REIT’s shareholders primarily in the form of preferred stock dividends; the shareholders then pay the tax on their personal returns. In other words, preferred stock dividends received from REITs qualify under the Act’s “pass-through income” provision and are therefore up to twenty percent deductible. Such income is reported to you on the 1099 for received from your broker as “Section 199A” income.

The tax treatment of the taxable income you receive from income securities can be a bit confusing, but it really boils down to one question – Has the company already paid tax on the cash that is being used to pay you or not? If not, the IRS is going to collect the full tax from you; if so, you still have to pay tax, but at the special 15 percent rate.

Unless specified otherwise, traditional preferred stock dividends, including those paid by partnerships as pass-through income or are otherwise paid out of pre-tax profits, are taxable as regular income; you pay the full tax since the company has not (no such securities were issued during July).

Companies incorporated as REITs are required to distribute at least 90 percent of their pre-tax profits to shareholders. Doing so in the form of non-voting preferred stock dividends is the most common method of complying and because these dividend payments are made from pre-tax dollars, taxable dividends received from REITs are taxed as regular income (NREF-A, once NexPoint's REIT application is approved).

Interest that a company pays to those loaning the company money is a business expense to the company (tax deductible), so the company does not pay tax on the interest payments it makes to its lenders. Since Exchange-Traded Debt Securities are debt, ETDS shareholders are on the hook for the taxes. Income received from ETDS’ is taxed as regular income (CSSEN).

Lastly, if a company pays your preferred stock dividends out of its after-tax profits, the dividend income you receive is taxed at the special 15 percent tax rate. Such dividends are referred to as “Qualified Dividend Income” or QDI. QDI preferred stocks are often seen as favorable for holding in a non-retirement account due to the favorable 15 percent tax treatment (IVNCP/IIVIP, ARGO-A, TSTFL/TFC-R). See the Status column in the first table in this article.

In Context: The U.S. preferred stock marketplace

The following chart illustrates the average market price of U.S.-traded preferred stocks over the last twelve months.

Many things affect the market prices of these securities such as the proximity to their call or maturity date, proximity to their next ex-dividend date, industry and/or overall health of the issuer, perceived direction of interest rates, pending government regulatory or policy changes, cumulative versus non-cumulative dividends and tax treatment of dividend payments. So what we really need to look at is current yield, which calculates the average annual dividend yield per dollar invested (without considering re-invested dividend return or any future capital gain or loss). Current yield is a “bang-for-your-buck” measure of value that normalizes differences in coupon rate and price to give us a single, comparable metric.

Moving down the risk scale, the next chart compares the average current yield realized by today’s preferred stock buyers when compared to the yield earned by those investing in 2-year bank Certificates of Deposit or the 10-year Treasury note.

U.S.-traded preferred stocks are currently returning an average current yield of 7.0 percent (blue line) while that of the 2-year bank CD is at 1.0 percent and the annual return being offered to income investors by the 10-year treasury is 0.6 percent.

For comparison, I have set the Yield column in the first table above to show the current yield of the new  preferreds on July 31. It is into this marketplace that July’s new issues were introduced.










See Reader Reviews

Table of Contents

Free Excerpt









Preferred Stock Investing, Fifth Edition

Learn how to screen, buy and sell the highest quality preferred stocks


Preferred Stock Investing is one of the highest reader-rated books in the United States with over 100 reviews posted at Amazon.

The Fifth Edition addresses selecting, buying and selling the highest quality preferred stocks during the market conditions that we are currently facing.

See: Reviews | Table of Contents | Free Excerpt | Paperback | eBook

The Fifth Edition has 21 chapters organized into six Parts over 334 pages. Here are some highlights:

- Part I, "The Preferred Stock Market," introduces a new suite of charts and metrics specifically designed to measure and track the preferred stock marketplace.

- Part III, "Buying the Highest Quality Preferred Stocks," includes several new chapters such as "Buying 'Fed-Free' Preferred Stocks," "Keeping Up with Increasing Interest Rates" and "Buying Less-Than-Perfect Preferred Stocks."

- And chapter 8, "Managing the Risks," has been completely rewritten and expanded to include risks that are unique to preferred stocks during the increasing rate environment that awaits us.

You can pick up a copy of the new Fifth Edition of Preferred Stock Investing at your favorite online retailer such as Amazon (paperback) or directly from BookLocker, the book's publisher (BookLocker provides paperback and PDF eBook formats).













Recent Preferred Stock Articles by Doug K. Le Du


Here is a list of some of my recent syndicated articles. To view an article, just click on the headline.











Book (Preferred Stock Investing)

  - Paperback provided by Amazon

  - eBook PDF provided by BookLocker


Notification Service

  - eMail alert features

  - Spec Sheets

  - Database features

  - Preferred stock search engine features

  - Access to experts

  - CDx3 Research Notes newsletter features

  - Pricing


Free Resources

  - CDx3 Newsletter (published by email the first week of every month)

  - Research article library (hosted by Seeking Alpha)

  - Test your knowledge (online preferred stock quiz)





(c) 2020 Del Mar Research, LLC. All rights reserved.


Trademarks of Del Mar Research, LLC:

  - CDx3 logo

  - Preferred Stock List, CDx3, CD Times 3, CDx3 Income Engine,

     CDx3 Investor, CDx3 Portfolio, CDx3 Preferred Stock


Notification Service

  - Individual Subscription Agreement



The content of this newsletter, and the materials that it links to that are owned by Del Mar Research, LLC, are to be regarded as educational, rather than advisory. There can always be exceptions to trends and/or generalizations that may be presented herein. Consider your financial resources and goals before investing. You, and not Del Mar Research, LLC, are solely responsible for your own investing decisions.