In 2011, home prices declined a further 4.7%, according to CoreLogic. Until this trend reverses, it is simply difficult for consumers to start to recover from the bursting of the $8 trillion housing bubble. Thirty-year mortgage rates are down to a record 3.87%, but credit is still tight. Companies are also showing signs of trouble. Midway through the earnings season for S&P 500 companies, profit margins are down for the second consecutive quarter to 8.23%. Europe is probably in a recession, and China is shifting away from an economy so reliant on its high-powered real estate markets. We are literally one adverse financial or political event away from falling into a global recession. To play it safe, protect your retirement funds and seek out conservative returns.
Below, I focus upon preferred stocks from utilities because of stable cash flows from customers. I take care to mention those at or below par value or call price, which is the dollar amount that you get after the security reaches maturity. Generally speaking, you should avoid preferred stocks that trade significantly above par value, because you end up losing the gap between what you paid for and the par value or call price. With the Fed targeting 0%-0.25% for the federal funds rate and slowing global economic growth, you ought to consider the following:
Alabama Power (SO) (5.20% Class A Cumulative)
Recent Price | $25.80 per share |
Callable? | Anytime at $25.00 per share |
Preferred Stock IPO | Aug 1998 |
Dividends | $0.325 per quarter All payments made since Q1 2002 Next dividend payment should be on April 2 Record date is in first week of March 16 |
Current yield | 5.0% |
S&P Rating | BBB+ |
52 week trading range | $23.22 - 26.59 |
2008 lows | ~$17 (from $24) |
Ticker symbol (Yahoo! / Google / Fidelity) | ALP-PN / ALP-N / ALP/PN |
These shares do trade above par value of $25, but you can recoup the marginal losses within a year of collecting dividends. I suggest that you should consider picking up these shares after a pullback. Being investment grade, income investors should take a serious look.
Alabama Power, a subsidiary of Atlanta-based Southern Company, provides electricity to more than 1.4 M customers across the state. Southern Company has 4.4 M customers and more than 42 K megawatts of generating capacity.
Wisconsin Power & Light (LNT) (4.50% Series Cumulative)
Recent Price | $103.00 per share |
Callable? | Anytime at $100.00 per share |
Preferred Stock IPO | --- |
Dividends | $1.125 per quarter All payments made since Q1 2002 Next dividend payment should be on March 15 Record date is in the last week of February |
Current yield | 4.3% |
S&P Rating | BBB |
52 week trading range | $85.00 - 109.00 |
2008 lows | Low $70's (from ~$90) |
Ticker symbol (Yahoo! / Google / Fidelity) | WIS-P / WIS- / WIS/P |
Relative to other utilities' preferred stock, I find it comforting to see a tumble of only around 20% in 2008, portraying a fair degree of protection and defensiveness. The yield here is attractive for conservative income investors, but I would only purchase them on a pullback.
Wisconsin Power & Light is a subsidiary of Alliant Energy, which provides electricity to 1 M customers and natural gas to 400 K customers in Iowa, Minnesota and Wisconsin.
San Diego Gas & Electric (SRE) (4.50% Series)
Recent Price | $22.47 per share |
Callable? | Anytime at $21.20 per share |
Preferred Stock IPO | April 1949 |
Dividends | $0.225 per quarter All payments made since Q1 2002 Next dividend payment should be on April 16 Record date is after the first week of March |
Current yield | 3.9% |
S&P Rating | BBB+ |
52 week trading range | $15.07 - 26.22 |
2008 lows | ~$14 (from ~$18) |
Ticker symbol (Yahoo! / Google / Fidelity) | SDO-PB / SDO-B / SDO/PB |
Noting the decline from $18, SDO-PB offers a better-than-most performance in the throes of the post-Lehman crisis. Trading significantly above its par value of $20 per share, there is significant demand for this series. Although it has a good track record, keep this on your radar.
San Diego Gas & Electric provides energy service to 3.5 M people in San Diego and southern Orange counties. Sempra Energy is its holding company.
NextEra Energy (NEE) (6.60% Series A Enhanced Debentures)
Recent Price | $25.73 per share |
Callable? | Anytime at $25.00 per share |
Maturity Date | October 1, 2066 |
Preferred Stock IPO | September 2006 |
Dividends | $0.4125 per quarter All payments made since inception Next dividend payment should be on April 2 Record date is March 30 |
Current yield | 6.3% |
S&P Rating | BBB+ |
52 week trading range | $24.25 - 27.48 |
2008 lows | ~$19 (from ~$26) |
Ticker symbol (Yahoo! / Google / Fidelity) | FGC |
This security is an exchange-traded debt security or also known as a preferred equity traded bond. The category includes the debentures, notes and bonds that are traded on the stock exchanges instead of the bond markets where most bonds are traded. For this specific issue, the notes are unsecured and unsubordinated obligations of the company. Distributions paid are interest, and are not eligible for the 15% tax rate on dividends.
The shares do trade somewhat above par value of $25, but for those with a medium risk profile, you should consider obtaining these bonds.
NextEra Energy is a leading clean energy company with 2011 revenues of more than $15.3 B, more than 41,000 MW of generating capacity. Headquartered in Juno Beach, FL, NextEra Energy's principal subsidiaries are Florida Power & Light Company, which serves approximately 4.6 M customer accounts in Florida and is one of the largest rate-regulated electric utilities in the country, and NextEra Energy Resources, LLC, which together with its affiliated entities is the largest generator in North America of renewable energy from the wind and sun. Through its subsidiaries, NextEra Energy collectively operates the third largest US nuclear power generation fleet.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
