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