5 Preferred Stocks From REITs For Risk Seekers

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 |  Includes: AIV, FRC, HCP, HPT, PSB
by: Ry Frank

In this article, I focus on preferred stocks from real estate investment trusts (REITs), because of cash flows from their clients. That said, these are speculative plays because of the depressed state of the real estate market. In addition, because these issues are from REITs, the dividends do not qualify with the 15% tax rate, and are taxed as ordinary income. I also 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 five:

Apartment Investment and Management AIV (Class T Cumulative)

Recent Price $25.40 per share
Callable? Yes, at $25.00 per share, since Aug 2008
Preferred Stock IPO July 2003
Dividends $0.50 per quarter

All payments made since inception

Next dividend payment should be on April 16

Record date is on April 2

Current yield 7.7%
After tax yield (35% rate) 5.0%
S&P Rating B+
52 week trading range $23.86 - 26.24
2008 lows ~$10 (from $26)
Ticker symbol (Yahoo! / Google / Fidelity) AIV-PT / AIV-T / AIV/PT
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Offering a decent yield and a good dividend payout track record, this taps into the increasing shift into rentals by people. I recommend this to younger investors that are aggressive and focused on building their portfolios. Keep in mind that this does trade above the call price, so consider buying this on a pullback.

Apartment Investment and Management Company (Aimco) is a REIT that is specialized on the ownership and management of quality apartment communities located in the 20 largest markets in the United States. Aimco is one of the country's largest owners and operators of both conventional and affordable apartments, with 565 communities serving approximately 500,000 residents mostly in the lower 48 states. Going forward, I see rent and property values increasing as a younger workforce attempts to stay mobile.

First Republic Preferred Capital FRC (Series D Noncumulative)

Recent Price $25.47 per share
Callable? Yes, at $25.00 per share, since Jun 2008
Preferred Stock IPO June 2003
Dividends $0.453125 per quarter

All payments made since inception

Next dividend payment should be on March 30

Record date is in the second week of March

Current yield 7.0%
After tax yield (35% rate) 4.5%
S&P Rating BBB-
52 week trading range $21.51 - 26.85
2009 lows ~$9 (from $26)
Ticker symbol (Yahoo! / Google / Fidelity) FRCCO
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This is technically investment grade, but I would not recommend it to retirees because of its tumble down to $9 in 2009. However, the consistent dividend payments should be a cash cow for other aggressive income investors.

First Republic Preferred Capital is a REIT that invests in conforming and non-conforming single-family residential mortgages originated by affiliate First Republic Bank and other lenders. Its portfolio of multi-family mortgages consists mainly of loans secured by urban properties in San Francisco and Los Angeles. California accounts for about 80% of its total portfolio. The company is also open to investing in commercial mortgages. Merrill Lynch, which acquired First Republic Preferred Capital and First Republic Bank in 2007, was purchased by Bank of America in 2009.

First Republic Bank focuses on wealth management offices primarily on the East and West Coast. This is an important sector that has significant demographic tailwinds as the U.S. population ages.

HCP HCP (Series E Cumulative)

Recent Price $25.67 per share
Callable? Yes, at $25.00 per share, since Sept 2008
Preferred Stock IPO Aug 2003
Dividends $0.453125 per quarter

All payments made since inception

Next dividend payment is on March 30

Record date is on March 15

Current yield 6.9%
After tax yield (35% rate) 4.5%
S&P Rating BB+
52 week trading range $22.61 - 26.26
2008 lows ~$13 (from $25)
Ticker symbol (Yahoo! / Google / Fidelity) HCP-PE / HCP-E / HCP/PE
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Moody's gave this an investment grade rating of Baa3. Additionally, you can get involved in the thriving healthcare industry through a backdoor way by investing in this REIT. I believe that a risk seeker in his mid-40s should think about buying these shares, and making it a part of the fixed-income portion of his portfolio. Be advised that it is trading somewhat near the 52-week high, so look for a pullback.

HCP Inc., is a real estate investment trust that invests primarily in real estate serving the healthcare industry in the US. HCP's portfolio of properties is distributed among distinct sectors of the healthcare industry, including senior housing, post-acute/skilled nursing, life science, medical office and hospitals.

Hospitality Properties Trust HPT (Series C Cumulative)

Recent Price $24.83 per share
Callable? Yes, at $25.00 per share, after Feb 14, 2012
Preferred Stock IPO Feb 2007
Dividends $0.4375 per quarter

All payments made since inception

Next dividend payment is on May 15

Record date is in the final week of April

Current yield 7.0%
After tax yield (35% rate) 4.5%
S&P Rating BB
52 week trading range $19.00 - 25.63
2009 lows ~$9 (from $25)
Ticker symbol (Yahoo! / Google / Fidelity) HPT-PC / HPT-C / HPT/PC
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Moody's believes that this is also investment grade, rating it at Baa3. This is inching near its 52-week high, so keep an eye on it until there is a significant pullback. For those tired of the low yields of consumer staples, I suggest this. However, this is for those with a medium risk profile.

Hospitality Properties Trust is a real estate investment trust, which as of September 30, 2011, owned 288 hotels and 185 travel centers located in 44 states, Puerto Rico and Ontario, Canada.

PS Business Parks PSB (Series H Cumulative)

Recent Price $25.21 per share
Callable? Yes, at $25.00 per share, since Feb 2009
Preferred Stock IPO Jan 2004
Dividends $0.4375 per quarter

All payments made since inception

Next dividend payment is on March 30

Record date is in the second week of March

Current yield 6.8%
After tax yield (35% rate) 4.4%
S&P Rating BBB-
52 week trading range $23.67 - 25.86
2009 lows ~$13 (from $25)
Ticker symbol (Yahoo! / Google / Fidelity) PSB-PH / PSB-H / PSB/PH
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I like this because it is investment grade, and deals with commercial properties, which is definitely near a bottom. This market can only improve from here on out. In the meantime, you can collect dividends while you wait for a rebound over the next several years. Retirees should consider this, but should not let this constitute a large portion of their income portfolio. Instead, they place this in a higher risk portion.

PS Business Parks isa member of the S&P SmallCap 600, self-managed equity REIT with 27.2 million rentable square feet and approximately 4,400 customers in eight states in the south and western U.S.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.