By Roger Choudhury
I ran a stock screen to focus on preferreds that are a few notches below investment grade. I honed in on financial preferred stocks because of continuous payments collection from their clients. With the Fed targeting 0%-0.25% for the federal funds rate and slowing global economic growth, you ought to consider the following:
Royal Bank of Scotland (RBS) (7.25% Noncumulative Series H ADR)
Recent Price | $20.94 per share |
Callable? | Yes, at $25.00 per share, since Dec 2010 Possible for 17.6% capital appreciation |
Preferred Stock IPO | Feb 1999 |
Dividends | $0.453125 per quarter All payments made since Q1 2002 Next dividend payment should be on Apr 2 Record date is in the second week of Mar |
Current yield | 8.5% |
S&P Rating | BB- |
52 week trading range | $14.31 - 23.99 |
2009 lows | ~$3 (from $26) |
Ticker symbol (Yahoo! / Google / Fidelity) | RBS-PH / RBS-H / RBS/PH |
Despite a 2.85 debt to equity ratio, all dividend payments have been made during the post-Lehman crisis. Also, this ratio has fallen from 3.93 in 2010. In addition, in the first nine months of 2011, EBIT came in at £1,210 million, which is a turnaround from a loss of £391 million in the same period in 2010. Given the improving financial condition, I believe that RBS should continue to pay preferred dividends for at least the next few years. RBS-PH is for investors looking to replace a lower yielding security, but not for retirees.
Hartford Financial (HIG) (Convertible Series F)
Recent Price | $21.97 per share |
Callable? | Yes, at $25.00 per share, after Apr 2, 2013 Possible for 12.3% capital appreciation |
Preferred Stock IPO | Mar 2010 |
Dividends | $0.453125 per quarter All payments made since inception Next dividend payment should be on Apr 2 Record date is in the second week of Mar |
Current yield | 8.1% |
S&P Rating | BB+ |
52 week trading range | $17.64 - 30.36 |
Ticker symbol (Yahoo! / Google / Fidelity) | HIG-PA / HIG-A / HIG/PA |
In the first nine months of 2011, EBIT fell by 91.3% to $138 million with an interest expense of $384 million. However, the debt to equity ratio fell to 0.33 from 0.63 in 2008. I am concerned somewhat about the viability of the preferred dividend payments, but the consistency of the premiums from customers is a good thing to fall back on. I would not recommend this for retirees anymore, but for those with a medium risk profile nearing retirement.
MBNA ( (Trust Series D)
Recent Price | $25.17 per share |
Callable? | Yes, at $25.00 per share, since Oct 2007 |
Preferred Stock IPO | Jun 2002 |
Dividends | $ 0.5078125 per quarter All payments made since inception Next dividend payment should be on Apr 2 Record date is on Mar 30 |
Current yield | 7.9% |
S&P Rating | BB+ |
52 week trading range | $20.99 - 26.04 |
2009 lows | ~$7 (from $26) |
Ticker symbol (Yahoo! / Google / Fidelity) | KRB-PD / KRB-D / KRB/PD |
In fiscal year 2011, the loss before taxes shrunk to $230 million from $1,323 million, providing more confidence that preferred dividends are safe for several more years. The debt to equity ratio has also lowered to 1.89 from 2+ levels. Because of its consistency in payments, I believe that this offers a great opportunity to obtain a high-yield for those seeking a modest amount of risk. Retirees should only pursue this if they are secure with other parts of their portfolio.
SallieMae (SLM) (6.97% Cumulative Series A)
Recent Price | $44.00 per share |
Callable? | Yes, at $50.00 per share, since Nov 2009 |
Preferred Stock IPO | Nov 1999 |
Dividends | $ 0.87125 per quarter All payments made since inception Next dividend payment should be on Apr 30 Record date is in the third week of Apr |
Current yield | 7.8% |
S&P Rating | BB- |
52 week trading range | $38.00 - 48.34 |
2009 lows | ~$11 (from $54) |
Ticker symbol (Yahoo! / Google / Fidelity) | SLMAP |
It is worrisome that EBIT fell by 59.7% to $133 million, but net interest income rose by 8.2%, portraying that SallieMae is on the up and up. Students will continue to borrow loans from SallieMae to finance college education, and I believe that the firm will receive adequate numbers of payments to cover preferred dividends. If your politics do not jive well with government sponsored entities, keep in mind that this is a reliable security with a strong track record. I recommend this only for semi-aggressive investors.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
