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If you like Goodyear Tire for the longer-term, then its mandatory convertible preferred (GT-PA) might be of interest. The common stock does not currently pay a dividend, thus investors have no cash-flow. The mandatory convertible preferred pays $0.734375 a quarter, ($2.9375 a year), or roughly 7.50% at current levels.

History of the mandatory convertible preferred:

On March 31, 2011 8.7 million shares of the mandatory convertible preferred stock was issued at $50.00 per share. Each convertible preferred will automatically convert on April 1, 2014 into between 2.7454 and 3.4317 shares. Preferred dividends are cumulative. The dividend rate is 5.875% on $50.00 or $2.9375 per share. All dividends will be paid in cash. The convertible preferred stock in not redeemable.

Preferred Conversion feature:

  • If the common stock is equal to or greater than $18.2125 then it converts into 2.7454 common shares.
  • If the common stock is less than $14.57 then converts into 3.4317 common shares.
  • If less than $18.2125 but greater than $14.57 then it converts into between 2.7454 and 3.4317 common shares.

Common

$9.96 June 06, 2012

Preferred (GT-PA)

$39.19 June 06, 2012

Current Yield June 6, 2012

  • None - Common
  • 7.50% - Preferred
  • $5.01 - Current Conversion Premium: (39.19 - (3.4317*9.96))
  • $5.88 - Income from Preferred 2012, 2013 & 2014.

Preferred Dividend Information:

Remaining Pay Dates:

2012 July 1st and Oct 1st

2013 Jan 1st, Apr 1st, Jul 1st , & Oct 1st

2014 Jan 1st & Apr 1st.

Record Date:

Roughly the 15th of the previous month

Value of Preferred at various Common Stock prices

Common Price

$7.00

$9.96

$14.50

$14.57

$17.50

$20.00

# of shares Pfd

3.4317

3.4317

3.4317

3.431709

2.857143

2.7454

Preferred Value

$24.02

$34.18

$49.76

$50.00

$50.00

$54.91

Income Pfd

$5.88

$5.88

$5.88

$5.88

$5.88

$5.88

Total value Pfd

$29.90

$40.06

$55.64

$55.88

$55.88

$60.79

$ Chg Common

(2.96)

-

4.54

4.61

7.54

10.04

Chg Common %(29.7%)0.0%45.6%46.3%75.7%100.8%

$ Return Pfd

(9.29)

0.86

16.44

16.69

16.69

21.59

% Return Pfd(23.7)2.2%42.0%42.6%42.6%55.1%
AdvantagePfdPfdCommonCommonCommonCommon

Conclusion:

At current levels the Goodyear Tire preferred issue appears to be a decent value for those seeking downside protection with some upside appreciation.

Before making any investment, review the prospectus at SEC.gov, and review the more recent financial results.

This is a review of the common stock versus the mandatory convertible preferred stock.

Source: Goodyear Tire: Mandatory Convertible Preferred Vs. Common Stock