Grabbing yield in this market can be difficult, especially for those that are in need of dividends for their retirement portfolios. A new preferred stock began trading and I believe it provides a compelling opportunity, which many income investors should jump on.
NorthStar Realty Finance (NRF) has issued its series D cumulative preferred stock. The shares were issued this month and are not callable until April 2018. The yield on this a nice 8.5%. Normally, when companies issue preferreds with nice coupons, investors jump in and the price shoots up well above par. As of 4/19, the share price was $25.02, which is only a 2 cent premium.
This premium is nothing and investors will make it up when they receive the quarterly dividend payment next month. NRF will have an easy time maintaining these dividend payments as the underlying company is fairly profitable. Keep in mind that preferreds are senior to common. So in order for the dividend payments to stop, the common stock can no longer issue dividends. The common stock currently has a yield of 7.8%. Given that the company is expected to earn a $1.42 per share this year, the preferreds are going to be safe for a while.
This is a great stock for retirement portfolios. An 8.5% yield is difficult to find without having to buying riskier assets. The premium of only 2 cents is not likely to last too long. Investors will jump in and more than likely run up the price to grab yield.
So far, volume has average over 160,000 shares. The flat price over the week may mean that underwriters have been selling shares that they exercised. It could also be flat due to a broader decline in the stock market for the week. Either way, income investors should try and take advantage of this as soon as possible.
This is a good opportunity that might not last too long. Even if the preferred price doesn't appreciate too much, you will still be locking at a 8%+ yield for the next few years.
Additional disclosure: I am long NRF-D