Sunday, December 30, 2018

Things to Watch For

I have been enjoying an 8.125% dividend on Barclay's Preferred stock for several years now.  To pay off the Jaguar and Jeep loans, I had to sell several bonds and some underperforming stocks.  There was a few thousand left in the cash account and then suddenly there was a lot more.  Huh?  Barclay's called the stock at its par value.  (Preferred Stock is much like a bond; in exchange for a fixed dividend, they have the right to buy it back at the par value, much like calling a bond.)

So now I need to find somewhere to invest that money to get a decent return.  At the moment, mutual funds do not look that attractive.  Some people think interest fears from the Fed are Swampers trying to destroy the economy to go after Trump.  Could be, but there are limit reasons for the Fed to raise interest rates.  Anyway, the net result is a market where buying equities or equity mutual funds is risky short-term.  High yield stocks sound better.  My Suburban Propane dividens are typically twice what I pay Suburban for propane each year.

Schwab used to have a Preferred Stock screener but it seems to have disappeared.  There are some high yield stocks (technically Real Estate Investment Trusts, or REITs), but they are riskier than Preferred Stocks (so named because they have a higher priority on assets in bankruptcy).

Found it: Under Research, Stocks, Preferred Shares.  The high interest rate high rated (A and above) stocks are gone.  The best that I can find is a Baa with a guaranteed $1.40 annual yield on a stock currently selling at $23.28 per share, so 6.12% annualized yield.  ASSURED GUARNTY MUNI HLDGS INC NT 5.60% 2103 AGO/PRF:NYSE   Perhaps look for something higher rated (lower risk) with lower yield.


ENTERGY ARKANSAS LLC 1M BD 4.875%66 EAI:NYSE looks promising: 5.48% annualized yield.  Fixed dividend, currently priced below par.

A lot of utilities have Moody A2 rated preferred stocks paying better than 5% yield.  Utilities used to be called widows and orphans stocks because they were quite safe investments paying a yield backed up by state granted monopolies.  All of these are below par at the moment, so if they get called, you get a capital gain along with the quarterly interest.

Government Agency bonds are much lower risk and decent returns.  Farm Credit System 4.65% 11/26/2038 Callable 3133EJV30: 4.594% yield to maturity 3.819% yield to worst.  Also the interest is exempt from federal income tax, so written about 28% more.  Also yield to worst means early call so your money is available for reinvestment.  I have owned a number of government agency bonds over the years, and they have never been called early enough to be yield to worst.  Typically these are called because the mortgages or other credit instruments these are financing are repaid early.  There is no urgency on this, and prices often fall end of year as people shoot their poorrly performing dogs or to offset capital gains earlier in the year, which many people likely had this year.  Even my mutual funds, as badly as they have performed, have had substantial capital gains which have reinvested, so some of my stocks sold at a loss earlier in the year will be offset, resulting little or no tax impact.  You are allowed to carry over $3000 in net capital losses from year to year.  Some losses from 2000 were still reducing my income taxes for several years after.

1 comment:

Unknown said...

Ever look at these funds? https://www.calamos.com/. Trying to understand the risk level... know someone who says they are the best (relative of a friend and not a broker).