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FYI: Tomorrow I'm adding Ally-B Preferred to my capital preservation portfolio. At it's present share price of $27.18, par being $25.00 the current yield is 7.82% Regards, Ted http://www.preferredstockchannel.com/symbol/ally.prb/
Last time I looked, its debt rating wasn't so hot. Given it is trading at premium, are you pretty sure there aren't negative scenarios, that could occur in the near-term, that would prevent them from having enough to cover (like financial system distress, causing another lock-up? another bailout unlikely, but a bail-in with your money not off the table)? Just musing here.....
Another thing that would concern me is the lack of call protection; specifically, the company can call in all or any portion of this preferred stock at $25.00 starting in 2016: ' "Ally may redeem all or any portion of the outstanding shares of Series A Preferred on any dividend payment date on or after May 15, 2016."
Compared to the current price of $27.18, this represents close to a 10% capital loss. If you're willing to accept the risk of this capital loss associated with Ally's calling in your stock (and it's likely to be called), you are braver than I am.
I own one of the CHS pfd shares (there are three different), partly because of the company and partly because the CHS pfd shares were incredibly stable in 2008. There are no common shares, only pfds. I remain on the look out for other pfds. I owned the Vornado pfds for a while and despite intending to hold, they did well and sold them.
well, at the present price of 27.18, and assuming no dvd reduction/suspension (min. risk) until 5/16, back-of-envelop calculation gives me a "call risk" (total impairment of capital, if it were to be called then) of..... about 2% (getting 3 qtrly payments prior to call). With an improving credit profile, and assuming the rating mark is accurate, it would seem to me that Ted is taking on risk that is not unreasonable here, for a pretty good reward. Interest rate risk would be negligible.
I'm not saying Ted is wrong. But I would be reluctant to pay higher than par. Then again assuming I were to buy a closed end fund, I would be reluctant to pay a premium over NAV.
A bit off topic, but I would also be reluctant to buy a closed end fund at a premium over NAV. I did it once, and don't believe I'll ever do it again.
I bought the fund at inception, and closed end funds have the cost of bringing the fund to market paid by the buyers at inception, so it sells at a premium to NAV. Was only about 5% over NAV, but something I would be very reluctant to do again.
I would be VERY cautious about buying any individual preferred stock. While the company might look very secure now, things could change quickly. We had a client who loaded up on GM preferred stock years ago. Why not, after all GM was America's company! When things turned sour, the client initially held on because the dividend was so good, but eventually bailed and took a huge loss, when the current administration screwed GM bond and preferred holders. Ally might be the greatest thing since rolled toilet paper, but I would rather diversify this kind of investment. We have used PFF with a number of clients and been pleased. Do not hold it right now. We are currently using KIFYX in our income-oriented portfolios and have been pleased with it. It owns mostly preferred REIT securities and has a 4.39% current yield. The fund recently reduced its yield, which is a sign of good management.
Comments
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"Ally may redeem all or any portion of the outstanding shares of Series A Preferred on any dividend payment date on or after May 15, 2016."
Compared to the current price of $27.18, this represents close to a 10% capital loss. If you're willing to accept the risk of this capital loss associated with Ally's calling in your stock (and it's likely to be called), you are braver than I am.
I've never purchased a Preferred, and suspect that most MFOers do not have much experience with this either.
I'd be quite concerned that Ally could call this issue, since you have to pay a premium to buy it.
http://investorinsights.morganstanley.com/content.do?action=displayContent&cid=1780738&oid=1573632&xsl=88/monthly/enewsletter.xsl
http://images.hnw.com/77/201407/OTM_July_2014.pdf
http://www.stockhouse.com/news/press-releases/2014/04/01/fitch-upgrades-ally-financial-s-idr-to-bb-outlook-stable
Doesn't sound like a very good credit rating.
But they have an awesome internet only, FDIC insured bank.
They consistently pay higher rates for online savings accounts and CDs
Regards,
Ted
I bought the fund at inception, and closed end funds have the cost of bringing the fund to market paid by the buyers at inception, so it sells at a premium to NAV. Was only about 5% over NAV, but something I would be very reluctant to do again.