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Tim McPartland
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Tim McPartland is a private investor with over 40 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 Canadian... More
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  • 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.



    Current Price


    Current Yield

    Redemption Date

    52 Week Low

    52 Week High

    Gladstone Capital Term Preferred








    Gladstone Commercial Term Preferred








    Gladstone Investment Term Preferred








    Kayne Anderson MLP Investment Mandatory








    Kayne Anderson MLP Investment Mandatory








    Kayne Anderson MLP Investment Mandatory








    Oxford Lane Capital Term Preferred








    Oxford Lane Capital Term Preferred








    Tortoise Energy Infrastructure Mandatory








    Tortoise Energy Infrastructure Mandatory








    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
  • Eat Your Wheaties! A Look at General Mills
    Big G cereals, Totinos pizzas, Green Giant vegetables----not the exciting stuff of a high growth company--but instead solid base businesses for a very solid food company.

    General Mills (ticker:GISrecently released stellar earnings for the 3rd quarter ending February 27, 2011   Now the top line left something to be desired, but were in line with just what you get with General Mills -- slow growth, dependably good earnings and a 3% yield.

    Sales for the quarter were up around 3% from last years quarter while they held SG & A totally flat---bringing buckets full of added income to the bottom line.  Earnings were up a super 18%  while per share earnings were up 23% benefiting from an ongoing share buyback program.

    General Mills has had a rather stagnant domestic food business for years with declines in sales of old line brands such as Pillsbury and Big G at least partially offset by sales in newer lines such as Cascadian Farm, Nature Valley, Fiber One and Yoplait.  

    International sales are the driver of sales growth with General Mills---even though at this time they represent less than 20% of sales and 10% of income--they are the future and the company is well aware of this fact as they negotiate for global rights to the Yoplait Brand (they have only U.S rights at this moment).
    With modest growth, exceptional cost control and an ongoing share buyback program in place we expect General Mills to continue to show excellent per share earnings.  Additionally we fully expect to see a 2 or 3 cent increase in the quarterly dividend in the months ahead.
    For conservative investors looking for that 10% total return we think that GIS may provide at least that in the coming year.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
    Apr 21 4:29 PM | Link | Comment!
  • Nothing Wrong with These Solid, Safe Yields!
    Many of us are simply looking for a decent return on our investment with minimal risk to our capital.

    We have found that exchange traded debt issues (traded generally on the NYSE) work very well for us.  They are easily bought and sold, commissions are our normal trading commissions, they pay quarterly interest payments and best of all---our capital is fairly stable.

    These issues are normally $25 issues (and are callable after at $25 after 5 years) and likely are subordinated notes--meaning they are senior to equity issues, but junior to secured debt.

    Issues in particular that we like now are Xcel Energy 7.6% subordinated notes (Ticker:XCJ) with a current yield of 7.3%, Comcast Corporation 7% notes (Ticker:CCT) with a current yield of 7.02% and American Electric Power 8 3/4% Jr Subordinated notes (Ticker:AEP-PA) with a current yield of 7.93%.

    If you are looking for capital gains--these are not your vehicle, but if income is your goal these are pretty solid returns.

    Disclosure---author is long  shares in all of the issues mentioned

    Tags: Bonds, Income
    Nov 29 2:19 PM | Link | Comment!
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