Our Favorite Conservative Preferred Stock - Tortoise Energy Infrastructure

Tim McPartland profile picture
Tim McPartland

All year long junky preferred stocks have outperformed quality preferred issues, but that doesn't mean that super quality preferreds paying a decent dividend should be ignored by income investors.

We like to have some of our portfolio in issues that we can buy and forget. The price will go down and the price will go up, but in the end we can count on a redemption at par (in this case $10/share).

For us the one issue that we have taken a liking to is the Tortoise Energy Infrastructure Corporation 4.37% Mandatory Redeemable preferred stock (Ticker: TYG-B). Tortoise Energy Infrastructure Corp. is a 2 billion dollar closed end fund. Closed end funds issue debt and/or preferred stock for use as leverage in their fund. While 4.37% isn't striking, there are overriding factors that are what we like to see in a conservative issue.

  • This issue has a mandatory redemption date on December 31, 2027 (at $10 - this is $10 issue).
  • The issue now trades with a current yield of 5.23% - and better yet a 6.12% yield to worst.
  • The issue pays dividends on a monthly basis - and a "bird in hand" is always better than in their pocket.
  • The issue is rated AA by Fitch.

Simply the premise with this issue is that if you bought it today and held it to redemption (assuming no early redemption -- it is redeemable starting 12/31/2015) with dividends, you would double your money.

So what if it is redeemed early? Today the shares are at $8.32/share, so a redemption means a near 20% return, and we think there is near zero chance of a redemption in the foreseeable future.

For those that do not understand or have not researched debt or preferred stocks of closed end funds, there are special

This article was written by

Tim McPartland profile picture
Tim McPartland is a private investor with over 50 years of investment experience. Additionally he is the editor, and former owner, of The Yield Hunter, a website devoted to the hunt for income producing securities of all types, but in particular specializing in preferred stocks and exchange traded debt.Currently Tim is publishing a new website "Innovative Income Investor"

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