The original post:
De-risk your portfolio - buy the KMI preferred share - get one heck of a yield for a short time.
On November 6th, Kinder Morgan issued series A mandatory convertible preferred stock. 32,000,000 depositary shares were issued. Each depositary share represents a 1/20th interest in a share of the series A mandatory convertible preferred stock and has a coupon value of $50 and coupon yield of 9.75%. This coupon yield is equivalent to a dividend of $4.875 per share per year. At the current price of $35.87, the yield is (4.875/35.87) 13.59%. Payment dates are the 11th of Jan, April, July, and Oct.
The new information:
I had some expectation that the shares would be called at par of $50.00 when I made the buy call. That presumption was wrong. This is a mandatory conversion to a range of 1.544 shares of KMI to 1.8142 (depending on share price) on 10-23-18. I take the now current price of $39.00 for the preferred shares - and I should compare that to 1.8142 times the current KMI price of $13.74 - which is $24.93.
If the KMI share price does not rise - what I am buying at $39 turns into $24.93 after getting a 13% yield for two and a half years. That transaction does not 'de-risk' - it hyper risks.
I am withdrawing my buy suggestion.
Why the range in conversions? The price of KMI was $27.56 on the data the preferred was issued. 50 divided by 27.56 = 1.8142. The conversion will be done at a ratio that gets one to a $50 conversion as long as the ratio is between 1.8142 and 1.544.
The good news - The price of the preferred shares is rising. Anyone who took my advice (before it was corrected) can quickly sell this mistake at a profit.