On May 29th, GE (GE) issued its new series C preferreds onto the market. The preferreds have a rate of 5.25% and are not callable until 2023. One of the reasons why this preferred is somewhat more appealing than others is simply because of the institution that is backing it. GE is one of the world's largest conglomerates.
For FY 2012, the company made free cash flow of over $16 billion. Therefore making the $50 million+ annual dividend payments on the series C is not a concern at all. This is different than the recent preferred offerings since it's a non-financial institution. Okay, GE Capital is a big part of it, but I meant that the company's revenue base is comprised of multiple different sectors.
It's also important to note that the preferreds yield over 5.4% given that it trades below par value. If we take a look at the recent preferred offerings, we will see why this is a much better option. PNC (PNC) and Fifth Third Bancorp (FITB) both have issued preferreds with yields below that of GE. Fifth Third's preferred had a coupon of 5.1% and PNC had a coupon of 4.85%. My last article actually goes over why PNC's preferreds are horrible investments.
So with GE maintaining a higher rate than these two banks, this shows that the preferreds may be appealing. GE still maintains an incredible credit rating and given its market cap, the yields are actually considered reasonable in a low rate environment such as this. In addition to this, GE's series C maintains the floating rate provision similar to PNC and Fifth Third's preferreds. After 2023, the preferred will become floating with a rate of LIBOR + 296 basis points. PNC and Fifth Third have spreads of 304 bps and 303 bps, respectively.
So, clearly, GE is priced more attractively compared to these two financial institutions. I believe GE's new preferred is a much better opportunity than what's actually out on the market right now. The yield on cost of 5.4% is fairly reasonable for a quality company like GE. My only gripe with the new preferreds, including this series C, is that they only pay twice a year instead of quarterly. It seems like this is becoming a common theme here. My next article will be discussing these semi-annually paying securities.
In conclusion, I believe this is a good preferred where investors can store excess cash and sleep well at night. The preferred is available OTC and has a symbol of GEAPO. This symbol might vary depending on your brokers, so please be sure to check with them.