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Tim McPartland
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Tim McPartland is a private investor with over 44 years of investment experience. Additionally he is the editor of The Yield Hunter, a website devoted to the hunt for income producing securities of all types, but in particular specializing in preferred stocks, exchange traded debt and Master... More
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  • Farm Land Values Begin To Tumble

    While we believe that owning quality farm land is a great long term investment (say 5 to 20 years) we have been critical of the REIT Farmland Partners (ticker:FPI) for many reasons.

    First off their timing of the offering - could you pick a better time to lure investors into these shares than after a 400% rise in land values? Unfortunately investors initially bought into the shares which came public 04/2014 at $14--but it hasn't gone to $14 since day 1. Shares closed on Friday at $10.86.

    TO CONTINUE READING

    Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Tags: FPI, reit
    Dec 31 5:38 PM | Link | 4 Comments
  • Does It Make Sense To Hold Preferred Stock CEF's At This Time?

    Just sitting here daydreaming for a minute it struck us that holding preferred stocks CEF's (Closed End Funds) at this time is maybe not smart. Given that we have a decent potential for increasing interest rates next year maybe we should do the obvious.

    We see that the preferred stocks CEF's and ETF's remain a couple percent off of their yearly higher as of this moment. The current yield on the CEF's is between 6.9% on the low end and 8.4% on the upper end. But we understanding that perpetual preferreds are going to get murdered when/if rates move higher--and the CEF's will get hit harder than the actual shares as they are all levered (between 27% and 34%).

    So to summarize--if you are moving toward longer durations don't be stupid and hold a bunch of preferred stock CEF's. We fit the stupid camp--we will begin to unload our shares now. Many times my wife tells me 'for a smart man sometimes you miss the obvious'--and once again she is right (but don't tell her).

    Disclosure: The author is long JPI.

    Dec 31 3:53 PM | Link | Comment!
  • Reduce Preferred Stock Portfolio Volatility With These Issues

    While investing in preferred stocks after 2008 was a lucrative investment, both for capital gains and dividends, reality set in for income investors in May, 2013.

    The 10 Year Treasury was 1.63% on May 2nd before shooting to 2% on May 22nd, 2.2% in June and near 3% in September. Income investors, who had previously thought they were in heaven with 'safe' preferred shares, found out the knife cuts both ways.

    Quality preferred shares (investment grade) took a massive gut punch. Issues of large investment grade issuer Public Storage (TICKER:PSA) have fallen quite dramatically. For instance the 5.2% Public Storage Cumulative Redeemable preferred (ticker:PSA-X) has fallen from the $25.50 area in May to around $18.75 recently.

    Most certainly the falling share prices of preferreds is related to the vast majority of the available issues being 'perpetual' in nature--I think this is fairly obvious to most investors. 98% of all preferreds will react, in general, exactly as would be expected--interest rates up--share price down, interest rates down--share prices up.

    Given the expectation that interest rates will trend higher over the next couple of years it is likely that preferred shares will move lower in price--at what rate this occurs is anyone's guess.

    Tamping Down the Wild Swings

    One way to combat the potentially violent moves in share prices is to consider owning either some Term Preferreds or Mandatory Redemption Preferreds.Generally these issues trade in a tighter range because of impending 'maturity'. Granted this is a relatively small universe of issues, but depending upon your investing goals and income needs, one or more of these may fit you perfectly.

    We follow 10 issues that are either called Term Preferreds orMandatory Redemption Preferreds. 9 of 10 of these are shares issued either by closed end funds (CEF's) or Business Development Companies (BDC's) which gives us a decent level of safety as they are subject to Section 18 of the Investment Act of 1940 (which we covered in an article here over 2 years ago). Basically they must have net asset coverage on preferreds of 200% or more--this gives us a great safety net (regardless of our opinion on the actually issuing CEF or BDC). Note that issuer Gladstone Commercial (TICKER:GOOD) is a REIT and does not carry the same level of safety.

    The 10 issues we follow are below.

    Security

    Ticker

    Current Price

    Coupon

    Current Yield

    Redemption Date

    52 Week Low

    52 Week High

    Gladstone Capital Term Preferred

    GLADP

    $25.31

    7.125%

    7.04%

    12/31/2016

    $25.19

    $26.96

    Gladstone Commercial Term Preferred

    GOODN

    $25.77

    7.125%

    6.92%

    01/31/2016

    $24.90

    $26.95

    Gladstone Investment Term Preferred

    GAINP

    $26.00

    7.125%

    6.86%

    02/28/2017

    $25.80

    $27.69

    Kayne Anderson MLP Investment Mandatory

    KYN-E

    $25.07

    4.25%

    4.24%

    04/01/2019

    $24.60

    $27.01

    Kayne Anderson MLP Investment Mandatory

    KYN-G

    $25.12

    4.60%

    4.58%

    10/01/2021

    $24.00

    $25.70

    Kayne Anderson MLP Investment Mandatory

    KYN-F

    $23.25

    3.50%

    3.76%

    04/15/2020

    $22.01

    $25.95

    Oxford Lane Capital Term Preferred

    OXLCP

    $26.20

    8.50%

    8.11%

    12/31/2017

    $25.21

    $26.85

    Oxford Lane Capital Term Preferred

    OXLCO

    $22.65

    7.50%

    7.50%

    06/30/2023

    $21.71

    $25.45

    Tortoise Energy Infrastructure Mandatory

    TYG-B

    $8.42

    4.27%

    5.19%

    12/31/2027

    $8.16

    $10.08

    Tortoise Energy Infrastructure Mandatory

    TYY-C

    $10.05

    3.95%

    3.93%

    05/01/2018

    $9.51

    $12.12

    As you can see most of the issues trade right around par (either $25 or $10), although the further out the redemption date the further an issue may trade from par. As might be expected the price moves in toward par the closer they get to redemption. Additionally these yields are modest, but as in all things in life there are trade-offs and relative certainty isn't free.

    A good example of how these issues 'act' with changing rates is the Gladstone Capital (TICKER:GLAD) 7.125% Term Preferred (ticker:GLADP) which has a mandatory redemption in 2016. We bought this issue in December, 2011 (just after issue) for $25.15/share--we have been collecting our 7.125% dividend in monthly dividends for 2 years and it is trading now at $25.50. Around a 8% annual return - not bad for a preferred stock.

    Currently we like Tortoise Energy Infrastructure Corp 4.37% Mandatory Redemption preferred (ticker:TYG-B). This issue has a current yield of 5.15%--and a yield to worst of over 6%!! Tortoise Energy Infrastructure Corp (TICKER:TYG) is a very solid MLP closed end fund and this preferred issue is 'AA' rated by Fitch. We can really sleep well at night with this issue. Note that it has a Mandatory Redemption date that is further out (2027) thus is currently more sensitive to interest rates--but just the same is a likely 'double your money' investment by maturity.

    Another feature of these issues is that all of them pay their dividends on a monthly basis helping to smooth income flow and reduce movements on ex-dividend day.

    Note that most of these issues have a optional redemption feature that is earlier than the Mandatory Redemption date so it is important to try to purchase them when they are below par (or optionally at par plus accrued dividend) so one does not get a surprise redemption that would cause a capital loss.

    In addition to the above preferred issues we follow $25 exchange traded debt issues with maturities in the next 10 years. These may be of interest to one as well.

    We believe these issues should be of interest to the conservative to moderately conservative income investor looking to tamp down wild swings in their portfolio's and add some relatively certain, albeit modest, income to their accounts.

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

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

    Additional disclosure: We own TYG-B and GLADP.

    Dec 23 10:24 PM | Link | 3 Comments
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