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On October 8, 2013 an article I wrote was published recommending 7 preferred issues. At that time, all of them were paying at least 6% and 5 of them were paying 7% or better. The list of stocks is below:

Preferred Stock Symbol

Coupon Rate at Offer Price

Cusip

Company Symbol

Company Name

PSA-W

5.2%

74460W875

PSA

Public Storage Inc.

NNN-E

5.7%

637417809

NNN

National Retail Properties

BXP-B

5.25%

101121408

BXP

Boston Properties

CWH-D

6.5%

203233408

CWH

CommonWealth REIT

DDR-K

6.25%

23317H805

DDR

DDR Corp.

DLR-G

5.88

253868889

DLR

Digital Realty Trust

FCH-A

7.8%

31430F200

FCH

Felcor Lodging Trust

The following chart was also included which displayed the selling price of the preferred shares on 10/7/13 and the actual rate of return as of that date:

Preferred Stock Symbol

Current Selling Price

Rate at Current Price

Moody Rating

S&P Rating

PSA-W

$19.85

6.5%

A3

BB+

NNN-E

$19.75

7.1%

Baa3

BB+

BXP-B

$20.30

6.4%

Baa3

BBB

CWH-D

$20.90

7.7%

Ba1

BB

DDR-K

$21.00

7.4%

Ba1

B+

DLR-G

$19.60

7.4%

Baa3

BB+

FCH-A

$24.00

8.1%

Caa2

CCC-

The chart below is a follow-up chart based upon the current selling price (2/25/14) as well as the current Moody and S&P ratings. (Information taken from QuantomOnline.com)

Preferred Stock Symbol

Current Selling Price

Rate at Current Price

Moody Rating

S&P Rating

PSA-W

$20.63

6.3%

A3

BBB+

NNN-E

$20.56

6.9%

Baa2

BB+

BXP-B

$20.76

6.3%

Baa3

BBB

CWH-D

$23.40

6.9%

Ba1

BB

DDR-K

$22.15

7.0%

Ba1

B+

DLR-G

$19.92

7.4%

Baa3

BB+

FCH-A

$24.65

7.9%

Caa2

CCC-

A comparison of the 2 charts indicates several things:

  1. The selling price of all these preferred shares has risen. If one would have purchased these shares at the time of publication, one would currently have a capital gain on the shares.
  2. The rate of return from dividends has declined with the advancing price of the stocks. All of the shares are still offering above 6%, but only 3 offer above 7%.
  3. The credit ratings on these preferred shares have changed little. There were minor changes on PSA-W and NNN-E.
  4. The selling prices and returns still look good and these preferred shares still provide an excellent return.

Let's take a look at a model portfolio of these issues. Assuming one purchased 200 shares each of these issues in October, what would the return be as of 2/26/14?

Preferred Stk Symbol

200 Share Cost

Current Value

Profit or Gain

Dividends

Total

PSA-W

$3970.00

$4126.00

$156.00

$65.00

$221.00

NNN-E

$3950.00

$4112.00

$162.00

$71.25

$233.25

BXP-B

$4060.00

$4152.00

$92.00

$131.25

$223.25

CWH-D

$4180.00

$4680.00

$500.00

$162.50

$662.50

DDR-K

$4200.00

$4430.00

$230.00

$156.25

$386.25

DLR-G

$3920.00

$3984.00

$64.00

$73.44

$137.44

FCH-A

$4800.00

$4930.00

$130.00

$195.00

$325.00

Here are a series of observations from this table:

  1. Total Capital Gain over the 5-month period = $1334.00
  2. Total Dividends received over the 5-month period = $854.69
  3. Total of Capital Gains and Dividends over the 5-month period = $2188.69
  4. Total Investment = $29080.00
  5. The total return over the 5-month period = 7.5%.... On an annualized basis it would be over 15%.

Considering the selling prices of these preferred shares and the return they offer, it appears reasonable to expect that the prices of these issues will continue to rise. The same rate of return shown on the table above could be realized again with these same shares purchased at the current price. These preferred shares will certainly return the same amount of money from dividends if not more since some of them are due to pay next month and show only 1 quarterly dividend in the table above. As long as interest rates remain at the current low levels, these preferred shares have room to appreciate further over the next 6 months.

Conclusion:

These preferred shares continue to offer a good rate of return at current selling prices. If one is convinced, as I am, that interest rates are going to remain nearly at the same low levels over the next 12 months, these issues offer a great opportunity to spur returns in one's portfolio. These shares are especially useful in a tax-protected account such as an IRA or 401k. None of these preferred shares get the special tax treatment of common stock dividends. Their dividends are taxed at the same rate as your personal taxes if they are in a regular account. Finally one should only have about 20%-30% of one's investments in these shares, since preferred shares have limited upside when compared to common stocks.

Source: Returns From The 6 - 7% Preferred Issues Recommended In October