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Richard Robinson, Ph.D.
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Drawing upon more than a quarter century of experience teaching economics and finance at several prestigious colleges and universities, Richard now shares his vast wealth of knowledge with our readers. Richard is an expert in the field of risk management and reinsurance, and he’s guided more... More
  • Get Your Share Of $1 Trillion 3 comments
    Mar 4, 2014 9:23 AM | about stocks: BAC

    In 2009, total dividend payments made to investors by large cap companies stood at $717 billion.

    By the end of 2013, that number had risen to $1.027 trillion according to Henderson Global Investors.

    That represents a 43.2% increase in investor paid cash!

    And while some investors still hold to the ridiculous notion that dividends don't matter, prudent investors know better.

    We know, for example, these same dividend payers will keep the dividend train rolling in 2014.

    According to the global financial information company, Markit, the number of companies expected to reward investors with dividends will hit a 17-year high this year, and the payouts will increase by more than 13.1% to $1.16 trillion.

    That's not a bad deal for investors hungry for income, but who continue to starve on the paltry yields from treasuries.

    Further, because the Fed has promised to keep a lid on interest rates for the foreseeable future, the benefits of dividend paying stocks have never looked brighter.

    Dividend Best Bets

    While each sector of the market is expected to contribute to the dividend bonanza, bank stocks have a greatest potential for above average dividend payments in 2014.

    I know what you're thinking…

    A quick look at Bank of America's (BAC) pathetic 0.20% dividend yield makes you stop and wonder why you should trust and economist with such a lousy recommendation!

    The answer to that question lies not in the dividends originating from common stock, but rather, on the bank's preferred shares.

    Take for example, Bank of America's Preferred L shares (BML-PL).

    These preferred, non-cumulative, floating-rate shares yield a whopping 5.13%.

    The yield is based on the 3-month LIBOR rate + .50%, but also guarantees a 4% minimum yield, thus eliminating a good portion of interest rate risk.

    The shares are currently trading at $20.11, a deep discount of nearly 20% to their liquidation value of $25.

    While the shares are eligible for call staring in June of this year, Bank of America is unlikely to call the shares while they trade at such a discount.

    Remember, preferred shares are less prone to stock market fluctuations as common shares, but that doesn't mean they can't fall further.

    This systemically important bank eliminates much of the downside risk, however, by guaranteeing the $25 liquidation value.

    Prudent investors will consider these shares before the discount melts away.

    Speaking of discounted preferred shares, Morgan Stanley's Preferred A Shares (MS-PA) are currently trading at a discount of 21.64% off their $25 liquidation value.

    The shares yield a 5.22% yield and come with built in interest rate risk protection with a floating 3-month LIBOR rate + .70%. In addition, the shares come with a 4% floor.

    The non-cumulative shares are past their original July 2011 redemption date, but don't expect Morgan Stanley to redeem the shares anytime soon.

    For those with a slightly greater risk appetite, the shares of reinsurer RenaissanceRe (RNR-PE) offer tremendous value.

    The non-cumulative preferred shares currently yield 6.52% and trade at a discount of 17.4% off the liquidation value of $25. The shares are not redeemable until June of 2018, so you can expect to receive above average yields for some time.

    Stocks: BAC
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Comments (3)
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  • JohnJMoyer
    , contributor
    Comments (28) | Send Message
    Odd these stocks come up in Yahoo but when I put them into my Merrill Lynch account, it says they don't exist....Ummmm...
    5 Mar 2014, 08:30 AM Reply Like
  • Richard Robinson, Ph.D.
    , contributor
    Comments (15) | Send Message
    Author’s reply » Unfortunately, there is no single system of ticker symbols in use for preferred stocks. The correct ticker symbol for a preferred stock depends on whose information you are accessing. For information about what symbol Merrill Lynch uses, you will have to contact a Merrill representative.
    5 Mar 2014, 11:19 AM Reply Like
  • JohnJMoyer
    , contributor
    Comments (28) | Send Message
    Thank you Richard!
    6 Mar 2014, 08:58 PM Reply Like
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