固定利率优先股-完整审查

Our regular review of fixed-rate preferred stocks.

All the preferred stocks are sorted in categories.

What has changed over the last month?

In this article, I'll review the most popular fixed-income securities, the fixed-rate preferred stocks, sorted into several categories. There are 360 issues in our database that trade on primary exchanges, excluding the convertible preferred stocks, 58% of which are part of the largest primary exchange-traded fixed-income ETF: iShares Preferred and Income Securities ETF (NASDAQ:PFF). As we can see in the chart below, 40% of the PFF's market capitalization consists of fixed-rate preferred stocks, which corresponds to almost half of the fund's holdings. This means that we are talking around 6.5B in dollar value.

First, let's take a look at the main indicators that we follow and their behavior during the last month.

TNX - CBOE 10-Year Treasury Note Yield Index ($TNX)

iShares Preferred and Income Securities ETF (

)

SPDR S&P 500 ETF (NYSEARCA:

)

The most significant indicator for all fixed-income investors, the 10-year Treasury Note Yield (TNX) has fallen again to the current rate of 1.52% after it previously had bounced from its over 3-year low to a rate of 1.90%. As a result of the Federal Reserve's decision to lower borrowing costs for the second time this year and signaling a further interest cut before the end of the year could come, along with the increased market expectations for rate ease during the October meeting, the treasuries turned bullish again, sending bonds and preferred stocks higher. The fixed income securities have followed the bonds' rise after it had previously entered a slight correction, and as we can see in the second chart, PFF is trading at no more than $0.20 from its peak. As for the equity markets, the S&P 500 had retraced from the top with the ISM U.S. manufacturing index showed the lowest level in more than 10 years as exports dived amid the escalated trade war. However, this has sharply changed after the expectations for an October rate cut jumped to 93.5% from 77% on Wednesday, October 2, and the unemployment that hit a new 50-year low, at a rate of 3.5%, a level unseen since December 1969.

1. Redemption Risk by Years-to-Call and Yield-to-Call:

In simple terms, these securities are trading above their par value and can be subject to redemption at any time. The immediate capital loss leads to negative returns. The lower the stock, the bigger the call risk. Be careful not to get surprised in these ones if you are tempted by the higher yield.

Overall, there are a total of 97(!) preferred stocks that pay a fixed distribution rate and bear a negative Yield-to-Call. Otherwise, these are almost 1/4(!) of all examined securities. For reference, it is a decrease with 7 securities from the last month's article.

1.1 Long Time No Call

1.2 Short Time No Call

2. Stocks That Are Below Par (Stripped Price) and Have a Current Yield of Between 5% and 8%:

It should be noted that PG&E (NYSE:PCG) suspended the dividend on its preferred stocks beginning Jan. 31, 2018. Yet, their dividends are cumulative, and the reason for their suspension at this time is not the solvency of the company. At the end of the day, a suspended dividend means that we are not getting our money on time, and the time value of money does matter to us. Furthermore, on Jan. 29, 2019, the company has filed voluntary petitions under Chapter 11 of the U.S. Bankruptcy Code in the United States Bankruptcy Court for the Northern District of California.

There are only 2 investment grade preferred stocks in this group: RNR-E and WFC-O, together with COF-I (rated a BB), are the only rated securities to trade below their par value (with a Current Yield of between 5% and 8%), so the negative yields above should not be a surprise.

3. Current Yield < 5%:

There are 9 securities in this section that trade below their par value with a Current Yield of less than 5%. Except for the recently issued Fifth Third Bancorp Preferred stock, FITBO, the rest are with an average age of 68 years. Take a look at the full list:

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4. Current Yield Between 8% and 10%:

As in section 2, these are the preferred stocks that are trading below their par value, and the Current Yield is also their Yield-to-Worst.

With some exceptions, this group consists mainly of REIT and Shipping preferreds. None of these stocks bears an investment-grade rating, and they have to bring a significant additional risk to have such yields in this lower yield environment. And this is completely normal after their companies' common stocks are trading at their lows. Also, please note that the Brookfield DTLA Fund Office Trust Investor 7.625% Series A Cumulative Redeemable Preferred Stock (DTLA.P) has not paid any distribution since Nov. 1, 2008. Despite the fact that there is a solid amount of accumulated dividend, it is still suspended.

Qualified:

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This group is currently trading at the average Current Yield of 9.03% (0.37% higher since the last month's article). Take a look at the full list:

S

Not Qualified:

The not-qualified ones give an average of 8.77% (no changes for the month). The full list:

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5. Current Yield > 10%:

Overall, this is a highly speculative group, and the preferred stocks involved here come from companies that are currently in serious problems. It is also proved by the fact that 8 of the 12 preferreds have their distribution suspended. These are RHE.PA, HOVNP, NM.PH, NM.PG, MHLD's preferred stocks (MH.PA, MH.PC, and MH.PD), and CETXP. A real surprise is that CBL.PE and CBL.PD continue to pay their dividends and currently trade close to $8 (at 32c for every dollar).

Here is some more information about all issues:

6. Price > Par, Sorted by Yield-to-Worst and Years-to-Call:

Now, in the next few charts, I'll examine how the yield curve looks.

7. The Yield Curve for Rated Ones:

This is the hypothetical five-year yield curve of fixed-rate preferred stocks. For a better view, I have excluded MAA.PI, SPG.PJ, and AHL.PD, which become callable in more than 7 years.

What we see on the yield curve is the rising yields to the 2.5 years to call and then flattening, even a slight fall, to the 5 years to call. The reason why we can explain it is the future expectation of lowering interest rates.

8. The Yield Curve Investment Grade:

Qualified:

S

The average Yield-to-Call of this group is sitting at a rate of 3.07%

(0.20% lower from the beginning of the previous month).

Not Qualified:

The not-qualified ones are sitting at an average Yield-to-Call of 3.63% (0.22% lower for a month).

9. The Term Preferred Stocks:

By Years-to-Maturity and Yield-to-Maturity

By Years-to-Call and Yield-to-Call

Here is the full list:

10. Let's Try to Find a Qualified "Investment-Grade" Rated Preferred Stock With a Current Yield > 5% and YTC > 4.5%:

With the expectations of lowering the Federal Funds Rate and the continuous rising of all fixed-income securities, it becomes harder and harder to find quality preferred stocks with a decent return, without affecting the safety of the investment. In the following table, there are 6 preferred stocks with Yield-to-Call of above 4.5% (it is the Yield-to-Worst of 5 of the stocks) and a Current Yield of above 5% (the Yield-to-Worst of the other one stock) at the same time.

Again, the full list:

11. Ex-Dividend Dates for October 2019:

Which fixed-rate preferred stocks are ex-dividend until the end of the month? The date given is predicted on the base of the previous ones and may vary by a few days.

The ex-dividend dates are very useful for every fixed-income investor who practices the dividend capture strategy.

12. mREIT Fixed Rate for IRA Accounts:

13. A Look at Recent Redemptions:

There are 17 fixed-rate preferred stocks called for redemption since the start of the previous month. The average Nominal Yield of the group sits at 6.31%.

14. A Look at the Most Recent IPOs:

There are also 15 issues, called for the same period, with an average Nominal Yield of 6.21%:

15. Top Movers

Here is the general idea of how the fixed-rate preferred stocks moved over the last month. On the abscissa, the movement is given in absolute value.

This is what our small world of fixed-rate preferred stocks looks like at the start of October. After the amazing New Year's rally, where the prices of all fixed-income securities constantly have risen, last month's Friday the 13th was the worst day for 2019. However, only a few days later, after the FOMC two-day meeting, we see all fixed-income securities back to its local high, and the perspective remains bullish.

Still, there are a few preferred stocks you might find interesting for long-term holding: OTC:AFINP (after the company announced an additional offering, there is an opportunity to get it close to PAR, with a Yield-to-Worst of 7.36%), AHL-E and ATH-B (both companies have very good financials, these IPOs are quality investment grade preferred stocks and are currently placed quite higher above the Yield curve).

I am/we are long AFINP.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.