These Days, Preferred Stocks Are Anything But Dull

I had to smile when I came across this 2002 article from Forbes titled "Dull is Good: Preferred Stocks". As the charts for two preferred stock ETFs above depict, preferred stocks have been anything but dull in recent weeks.

The reason for this, as Index Universe points out, is that the majority of preferred shares are issued by companies in the financial sector. As the banks and other financial issues have cratered and then bounced sharply higher, their preferred shares have followed suit. The charts for PowerShares Financial Preferred Portfolio ETF (PFF) (top chart) and iShares S&P U.S. Preferred Stock Index Fund ETF (PGF) (bottom chart) show a considerable volume spike in recent sessions, as investors have questioned the viability of banks and worried about associated risks of default.

Among the top holdings for PFF are preferred shares in Ford Motor (F), Citigroup (C), Countrywide (CFC), and J.P. Morgan Chase (JPM). Among top holdings for PGF are preferred shares in Barclays (BCS), Citigroup (C), Credit Suisse (CS), Merrill Lynch (MER), and Wachovia (WB). If investors thought those preferred dividends were secure, we'd see a lot less volatility in those shares than in the common stock. When preferred shares fall 25% in a matter of days, we're either seeing the buying opportunity of a lifetime or an efficient market pricing in worse things to come for these companies.

Comments

[tanga:]

this is an interesting situation...the preferreds of the damaged stocks have been rightly punished,and alot of the closed end funds own them and are selling parts of all their holdings. This has created a great buying opportunity in other preferred issues.I am buying those of CBS (symbols RBV,CPV)PRE(pre-d,pre-... and RNR-c and D, These are all solid companies and now their pref yields are way out of line with even equivalent bonds.

2008 Jul 18 11:52 AM

[simjos04:]

Thank you Mr obvious!

2008 Jul 18 12:45 PM

[jimmy46:]

last year the bond expert at Forbes said BUY THORNBURG pf
@ $27 cheap cheap cheap

now at $4, so much for Forbes

2008 Jul 18 03:33 PM

[Boubou:]

Info so easy a caveman could write it. What about a view on wether beaten down preferreds in stuff like aig, bcs, usb, ncc, dte, ing are worth bying now or a snare and delusion.

2008 Jul 19 11:43 AM

[User 227831:]

Shallow--sent me to a pay for info site to get any more info. If you are a "dealer" say so.

2008 Jul 19 02:28 PM

[vince v:]

What are your thoughts on the preferred trusts which are callable at (typically) @ $25 and are also getting beaten up? Many are also cumulative in the dividend payment if it is deferred.

2008 Jul 20 11:21 PM