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How Does A 6% Yield wWith a Tax Break Sound? Try Preferred Stocks!

TedTed
in Fund Discussions
FYI: “Preferreds” are one of the best performing investments, yet many investors still avoid them.

While it’s no surprise that US stocks are the highest performing stocks in the world in 2019, who would have ever thought that those boring, old preferred stocks would have outperformed small & medium capitalized stocks before dividends?

In fact, to students of financial history, the success of these stocks is not a big surprise.

Since over a century ago, beginning in the year 1900, preferred stocks have been by far the best performing income investment. As the following chart & table shows, there has rarely been a timeframe when preferreds have not outperformed corporate or treasury bonds.
Regards,
Ted
https://www.forbes.com/sites/kennethwinans/2019/08/27/how-does-a-6-yield-with-a-tax-break-sound-try-preferred-stocks/#28ab22ad6f0d

Quantum Online Com:
http://www.quantumonline.com/QuickStart.cfm

Comments

  • CrashCrash
    The key doesn't match the accompanying list. But OK, I believe him. Who knows about any preferred-stock funds?
  • rforno
    edited August 2019
    The only preferred fund (ETF) that ever interests me is PFXF because it isn't stuffed to the gills with 'non-cumulative' bank preferreds like pretty much all the others (PFF, etc). I view such preferreds as essentially a free loan to the bank since WHEN they get into trouble they can always suspend the div and b/c they're non-cumulative, you won't get paid for those you missed when they get out of trouble.

    That said, I rather hold individual preferred stocks anyway - quantumonline.com is a good starting point.
    Crash said:

    The key doesn't match the accompanying list. But OK, I believe him. Who knows about any preferred-stock funds?

  • MarkMark
    I agree with @rforno on both financial preferred and quantumonline.com. I also prefer to hold individual preferreds although I also hold a CEF preferred fund.
  • CrashCrash
    I'm just starting to dip my toe into the world of individual stocks. Not in a big way. Hopefully, all the homework I've done will serve me well. One of the (sometimes) nagging thoughts is: "OK, you've researched this thing, but are you misinterpreting the data? Can you trust the analysts whose opinions are a big chunk of the data?"
  • MarkMark
    Yes, one of the nasty elements of investing in individual securities is that sometimes you get it wrong. On the other hand, you could have it all right and the market would beg to differ. There's no easy, always true answer.

    Ditto with analyst opinions/predictions. They too have to deal with their own incomplete data and come to their best conclusion based on their experience and what they reasonably judge to be correct or incorrect.

    You must try to leave emotion out of the equation and not lose sight of the fact that you are buying a business and not a stock. Don't let anyone tell you that it's easy.
  • Old_JoeOld_Joe
    @Crash- The 6% dividends are nice, but don't lose sight of the fact that the market value of the stock itself will take a hit in the next downturn. That's of little consequence as long as you plan to hold the stock for a fair amount of time, but also keep in mind what rforno said about "non-cumulative' preferreds"- be careful in your stock choices so that you don't get a double hit of simultaneous reduced value and suspended dividends. That would really hurt.
  • Edmond
    This is the latest example of a poor article from a Forbes 'contributor'. Specifically, very poor timing. Where was this guy in late December? Probably busy selling all his preferreds. It is articles like this one with its incredibly poor timing that effectively provides newbies for existing pfd holders to distribute their preferreds.

    Most quality preferred are now trading well above their call/par value, having rocketed in price in reaction to declining yields. Yes, you can clip coupons until a call date arrives, but if rates stay low, those preferreds WILL be called away from you at par. The call price will act like an irresistible magnet as the call date approaches, inevitably pulling down prices.

    Investing in collective vehicles of preferreds (i.e. ETFs, OEFs, CEFs) doesn't escape this simple arithmetic reality. All (most) preferreds held in those vehicles are similarly trading at steep premiums to their call prices.

    OTOH, if (when) rates rise, pfds will fall harder than fixed-duration debt instruments.

    I don't pretend to know where rates are headed. But investor sentiment is overwhelmingly bearish on rates. That bearishness has certainly been reflected in the price you will pay for any preferred offering today...
  • johnNjohnN
    We have pff of and boa preferred since 2012..very happy w outcomes so far... If market tank that another story
  • MarkMark
    @Edmond - you said "All (most) preferred's held in those vehicles are similarly trading at steep premiums to their call prices."

    Please provide evidence for your statement.
  • Edmond
    edited August 2019
    Mark: I am not your "google valet". If you don't like the statement feel free to do your own research, or disregard it and load up the boat on overpriced preferreds! good luck.
    Mark said:

    @Edmond - you said "All (most) preferred's held in those vehicles are similarly trading at steep premiums to their call prices."

    Please provide evidence for your statement.

  • MarkMark
    Oh, my apologies. See I tried that along with other methods and found no evidence supporting your statement. I just thought that you might have some inside info or special knowledge no one else could substantiate.
  • Old_JoeOld_Joe
    edited August 2019
    @Mark- Well, it's no surprise that some folks feel free to make any kind of statement whatever these days and expect to have everyone accept it as fact without any question whatever. Leadership from the top, and all that...

    I knew that we were in big trouble years ago when DC began talking about "true facts", as if there were some other kind.
  • Edmond
    Mark, I own a substantial amount of prfds, and have traded them for years -- depending on market conditions. I have begun lightening up, this week. I don't keep a log of these to provide to strangers on the internet. Nor do I have a Bloomberg machine and don't make a habit of doing research for strangers on the internet, when they can do it themselves..

    The OP included a link to quantumonline. You can investigate yourself. Dividendinvestor.com also has a preferred link where you can investigate for yourself.

    If you have a real interest in preferreds, roll up your sleeves and get to work. Nobody has a right to expect other people to do their research for them. OTOH, we all have a right to express our opinions...
    Mark said:

    Oh, my apologies. See I tried that along with other methods and found no evidence supporting your statement. I just thought that you might have some inside info or special knowledge no one else could substantiate.

  • CrashCrash
    I won't be dealing in preferred stock. I was initially interested in preferred-stock FUNDS. I have no doubt that the Fund Manager would know a lot better what to do, and when, rather than myself. Common stocks are complicated enuff for me. :)
  • MarkMark
    Edmond, Well, just to be clear I asked you for none of that. I didn't ask what you own or don't own, I didn't ask you to do my research, I didn't ask you for any advice. I asked for your evidence supporting your statement that all (most) preferred equities held in funds were trading at steep premiums. Period.

    Before your post I had already mentioned that I owned individual preferred equities and a CEF of same. I know where to get schooled. What I wanted was evidence of your statement. Apparently you prefer not to answer or you have no evidence. Fine, but don't insinuate that I am too lazy, unwilling or ignorant to do it on my own. However, I do thank you for educating me in how to value your opinions and statements.
  • Old_Skeet
    edited August 2019
    Hi guys: From my perspective most income type securities are at premiums due to investor's strong demand for yield. The preferred securities fund that I track is CPXAX and it is now selling at it's 52 week high. With this, I am not a player on it until I see it selling, at least, 5% below it's 52 week high. I guess I might have a while to wait due to the strong demand for yield which has pushed the price for income generating securities skyward. Seems, to me, most things are now over priced. I've been watching preferred's for a long while and should have made my move on this fund about a year ago. Presently, for me, it is currently a sucker's buy due to valuation.

    Generally, I don't buy, or add to, positions that are selling at, or near, their 52 week highs.

    This is one of my "Take Heed" motos. And, another one is "When the Yields Get Thin ... It's Time to Trim."
  • PRESSmUPPRESSmUP
    I have a few CEFs focused on this area... JPS, PFF, and RNP. The last, a Cohen and Steers offering combines REITs and preferreds. My current plan is to ride these for a bit and most likely jettison them when higher rates are in the mix.
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