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MARCH 2020

Issue 156


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Top Investment Grade, Cumulative Preferreds Available Under $25



Buyers – it’s time for you to start paying attention.

It took a virus scare out of China to make it happen, but the price relief that income investors have been waiting for since December 2018 arrived during February. Of the 123 high quality preferred stocks currently trading on U.S. stock exchanges, 19 are now trading for a market price below their $25 par value, selling for an average price of $24.85.

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 19 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 19 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 top 10 results (out of the 19 high quality securities found) 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 918 preferred stocks and ETDS' trading on U.S. stock exchanges as the month came to a close (including convertible preferred stocks). Of these 918, there are currently 123 high quality preferred stocks selling for an average price of $25.73.


And of these 123 high quality securities, 19 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, the top 10 of which are listed above.

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.

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New Preferred Stock IPO’s, February 2020


Finally, relief.

Preferred stock prices fell an average of $1.22 per share during February, delivering higher returns to today’s preferred stock buyers. The average share price of U.S.-traded preferred stocks is now $24.90, just below these securities’ $25 par value for the first time in a year, now delivering an average current yield of 6.7 percent to today's buyers.


February’s new issues

February’s eleven new preferred stocks are offering an average annual dividend (coupon) of 6.3 percent, an average current yield (which does not consider reinvested dividends or capital gain/loss) of 6.7 percent and an average Yield-To-Call (which does consider reinvested dividends and capital gain/loss) of 8.5 percent (using February 28 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 123 high quality preferred stocks selling for an average price of $25.73 (February 28), offering an average current yield of 5.4 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 918 of these securities trading on U.S. stock exchanges (including convertible preferred stocks).

About the new issues

With respect to how long they trade, traditional preferred stocks come in two flavors – “perpetual” and “term.” Perpetual preferred stocks trade indefinitely until the issuer calls them (buys the shares back from shareholders), but there is no obligation that they ever do so (CTA-B, originally issued by E.I. du Pont de Nemours & Co., for example, was issued on October 21, 1937 and is still trading). Term preferred stocks, on the other hand, are those that mature, like a bond or bank CD, on a specific future date.

When a term preferred stock reaches its maturity date, the issuer is obligated to buy back the shares held by shareholders (at a value described in the security’s prospectus, but typically the par value). Term preferreds are rarely issued, making up only about ten percent of all preferred stocks trading on U.S. stock exchanges. But during February, three of the month’s eleven new preferred stocks are term preferreds (OXLCP, MDRRP and PRIF-F). Here are some of my observations about the eleven new income securities introduced during February.

AGNCP is a 20 million share unrated, traditional preferred stock from mortgage REIT AGNC Investment Corporation (AGNC). AGNCP offers a 6.125 percent cumulative dividend until its April 15, 2025 call date. At that time, the dividend paid by this security becomes variable based on the three-month LIBOR rate (currently at 1.64 percent) plus 4.697 percent. Page S-9 of this security’s prospectus describes how the coupon will be calculated when/if the LIBOR is no longer published. Dividends designated as “cumulative” are viewed as having less risk than “non-cumulative” dividends since cumulative dividends that are skipped must ultimately be paid to shareholders (except in the case of bankruptcy). AGNC makes its money by raising cash (such as with a new preferred stock issue) and using the proceeds to purchase bundles of mortgages that, hopefully, pay a higher return. AGNC has a total of four preferred stocks trading, all of which have been introduced since August 2017 (none of which are currently callable). AGNC is an $8.7 billion company founded in 2008 and headquartered in Bethesda, Maryland.

OXLCP, an unrated term preferred stock offering cumulative dividends, was introduced by Oxford Lane (OXLC) with a 6.250 percent coupon in early February. OXLCP’s 3.5 million shares raised just under $87 million. The company is using about $30 million of the OXLCP proceeds to redeem 1.2 million outstanding shares of their older OXLCO, saving the company about $375 thousand per year in dividend expense. This is a partial redemption of OXLCO’s 5 million outstanding shares. From their website “Oxford Lane Capital Corp. is a publicly-traded registered closed-end management investment company. It currently seeks to achieve its investment objective of maximizing total return by investing in securitization vehicles which, in turn, primarily invest in senior secured loans made to companies whose debt is rated below investment grade or is unrated.” The performance of management investment companies like Oxford will be particularly sensitive to how the coronavirus story unfolds. Oxford Lane’s common stock has lost about 20 percent of its value of the last ten months, with most of this decline beginning last October.

RILYM from B. Riley Financial (RILY) is an unrated Exchange-Traded Debt Security offering a 6.375 percent coupon. 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 debt, the obligation to pay the interest on these bonds is cumulative. 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. RILYM is the company’s eighth income security offered within the last three years, its third in the last seven months. B. Riley always strikes me as a company that has a hard time saying no. During February RILY’s special purpose acquisition company B. Riley Principal Merger Corporation (BRPM) announced the acquisition of Alta Equipment Holdings, Inc., “…a leading provider of premium industrial and construction equipment and related services.” And previously, the company acquired magicJack VocalTec, a company that manufactures a voice over IP telephone device. Founded in 1973, B.Riley is headquartered in Woodland Hills, California.

Brookfield Property Partners LP (BPY) introduced BPYPN on February 10 just six months after its introduction of BPYPO last August. Where BPYPO carries a 6.375 percent coupon, the new BPYPN was introduced at 5.750 percent, an illustration of the prolonged downward pressure on the cost of money. Notably, however, BPYPN’s market price has yet to reach its $25 par value, indicating that market participants feel that this security’s 5.750 percent coupon does not offset the risk. BPYPN’s 5.750 percent dividends are cumulative and offer a BB+ speculative grade rating from S&P. BPY specializes in shopping malls, a segment that is under enormous pressure from online shopping. On February 14, the company announced that it would be acquiring a 25 percent stake of the intellectual property and operating businesses of the bankrupt Forever 21 teen fashion outlet (Forever 21 has 593 stores in 57 countries). BPY is a $17 billion commercial real estate company headquartered in Bermuda.

NRZ-C was introduced by New Residential Investment Corp. (NRZ) on February 11, just six months after introducing NRZ-B on August 8, 2019. The company has three preferred stocks currently trading, all of which were introduced during the last eight months. NRZ-C is an unrated traditional preferred stock offering cumulative dividends. The rate will remain fixed at 6.375 percent until this security’s February 15, 2025 call date. At that time, the coupon will float based on the three-month LIBOR rate plus 4.969 percent. NRZ is a $6.4 billion mortgage REIT founded in 2011. NRZ is a $6.5 billion mortgage REIT.

T-C is a speculative grade, fixed-rate traditional preferred stock from AT&T (T) offering 4.75 percent cumulative dividends. AT&T has four income securities currently trading, two preferred stocks and two investment grade ETDS’, none of which become callable until at least November 2022. The new T-C is the company’s second preferred stock offering within the last two months, T-A being offered at 5.0 percent last December 5. A recent three percent common stock buy-back, expenses related to fighting off the pending Sprint-TMobile merger (which finally appears to be making some progress) and preparations for 5G will likely see the lion’s share of the proceeds from this new preferred stock.

MDRRP is an unrated term preferred stock offered by Medalist Diversified REIT (MDRR) paying 8.0 percent cumulative dividends. As a term preferred stock, Medalist will redeem outstanding shares of MDRRP on February 19, 2025. The dividend rate for a new preferred stock is set by the underwriters at the rate they feel market participants are willing to pay the security’s par value for ($25.00 in this case). MDRRP’s dividend rate is set at 8.0 percent, but the shares have not traded anywhere near $25.00 since its February 13 introduction. Rather, market participants have been pricing this security between $19 and $21, indicating that the dividend rate of this security should have been set at about 10.5 percent in order to compensate investors for the risk. Also worth noting is that MDDR’s common stock value has lost about 70 percent of its value over the last twelve months. MDRRP, the company’s first preferred stock, has not been well received. Medalist is a property REIT specializing in commercial real estate primarily throughout the eastern U.S., its strategy “…to focus on value-add and opportunistic commercial real estate which is expected to provide an attractive balance of risk and returns.” Not clear how that’s working out.

DX-C is an unrated traditional preferred stock from Dynex Capital (DX) offering 6.90 percent cumulative dividends. DX-C uses the fixed-to-float rate structure, with the coupon rate pegged to the three-month LIBOR rate plus 5.461 percent once this security reaches its April 15, 2025 call date. DX-C is a 4 million share issue, raising about $100 million for the company. The company is using the proceeds from 2 million of the new DX-C shares to redeem all outstanding shares of DX-A (an 8.5 percent fixed-rate security issued in July 2012) on March 24. This maneuver will save the company approximately $800 thousand per year in dividend expense. Dynex is a mortgage REIT headquartered in Glen Allen, Virginia and founded in 1987.

BEP-A from Brookfield Renewable Partners L.P. (BEP) was February’s only new preferred stock offering an investment grade rating, barely squeaking over the line with a BBB- from S&P. Brookfield Renewable Partners L.P. is based in Toronto with its common stock trading on the NYSE as BEP (which has almost doubled in value over the last twelve months). BEP-A, raising about $200 million, is the company’s first preferred stock and offers a fixed-rate 5.2 percent cumulative dividend. BEP is a $9 billion renewal energy utility. The company has owned a 62 percent interest in TerraForm Power, Inc. (TERP) but on January 13, 2020 BEP submitted a non-binding proposal to TERP to acquire all outstanding shares of the company. While the prospectus for the new BEP-A preferred stocks does not specifically state that any of the proceeds from BEP-A will be put toward the costs for this acquisition, the document does say that “We intend to allocate an amount equal to the net proceeds from this offering to finance and/or refinance investments made in renewable power generation assets or businesses…” among other potential uses.

PRIF-F is an unrated term preferred stock from Priority Income Fund paying 6.625 percent cumulative dividends. Note that although this new security is publicly-traded, Priority Income Fund is not. As a term preferred stock, Priority Income Fund will redeem all shares of this security on February 25, 2023 that remain outstanding on that date. Priority Income Fund has six preferred stocks currently trading, and has issued all six of them within the last 18 months. All six of the fund’s preferred stocks are term preferreds. The fact that preferred stock trading symbols are not standardized is creating more than the usual amount of confusion with this security. The prospectus says that the NYSE symbol will be “PRIFF”, but that cannot possibly be true since the NYSE uses the “.p” convention for preferred stock symbols. This Series F preferred stock at the NYSE is therefore PRIF.pF. And with many other quoting systems, including ours as seen in the above table, the NYSE’s “.p” is replaced with a hyphen, so the symbol is PRIF-F in those cases. The fund is managed by Priority Senior Secured Income Management, LLC which, in turn, is part of the Destra Capital Investment, LLC stable. On their website, the fund’s objectives are stated in the most non-specific terms possible as “Priority Income Fund seeks to generate current income and long-term capital appreciation by strategically investing in broad pools of senior secured, floating rate loans made primarily to U.S. companies. The Fund's goals are to increase income and portfolio diversification and reduce correlation to traditional fixed-income assets.” (make some investments and make some money).

MFABO/MFA-C is an unrated traditional preferred stock from MFA Financial, Inc. offering 6.5 percent cumulative dividends. The 6.5 percent coupon rate will float when this security reaches its March 31, 2025 call date, equal to the then-current three-month LIBOR rate plus 5.345 percent. Calculating the coupon rate in the absence of a published LIBOR rate is described on page S-12 of this security’s prospectus. MFA has two older income securities current trading – MFO, a 4 million share 8.0 percent ETDS that became callable on April 15, 2017 and MFA-B, a 7 million share 7.5 percent preferred stock that became callable on April 15, 2018. Not coincidently, the new MFABO/MFZ-C is an 11 million share issue. The proceeds from this new security will be used to (a) redeem all of outstanding shares of MFO and (b) a portion of the outstanding MFA-B shares (no redemption date has been specified as yet). MFA Financial is a $3.3 billion mortgage REIT founded in 1997 and headquartered in New York City.

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 (OXLCP, BPYPN, BEP-A, PRIF-F).

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 (AGNCP, NRZ-C, MDRRP, DX-C, MFABO/MFA-C).

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 (RILYM).

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 (T-C).

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 the 10-year Treasury note or 2-year bank Certificates of Deposit.

U.S.-traded preferred stocks are currently returning an average current yield of 6.7 percent (blue line) while the annual return being offered to income investors by the 10-year treasury is 1.3 percent (the Fed’s multi-month effort to inject cash now pushing treasury yields down) and that of the 2-year bank CD is at 2.1 percent.

For comparison, I have set the Yield column in the first table above to show the current yield of the new February preferreds on February 28. It is into this marketplace that February’s new issues were introduced.










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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).













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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.