Preferred Stock Buyers Change Tactics For Double-Digit Returns

Summary

• Gains plus dividends delivered an average 13.79 percent effective annual return to savvy preferred stock investors during 2014.
• 83 percent of the new preferred stocks issued during 2014 were distributed to the market using the wholesale Over-The-Counter stock exchange.
• The average 2014 OTC open price for newly introduced preferred stocks was $24.89 per share.
• In addition to the average 6.81 percent dividends, those same shares are selling for an average of $25.60 today.

An increase in interest rates has been two weeks away for the last two years. Tapering out of their Quantitative Easing program did not produce the rate increase that the Fed had hoped for and so far the Fed's use of their overnight reverse repurchase agreements has not pushed up the federal funds rate either (see "Preferred Stock Buyers - Be Sure You're Watching The Right Indicator", September 22, 2014).

Dramatically falling oil prices throughout the fourth quarter of last year have reduced inflation pressure, delaying, once again, any hope of a rate increase. On December 18, 2014 Fed Chair Janet Yellen stated that the Fed "…could continue to be patient," a comment that produced a 400+ point uptick of the DJIA.

For preferred stock investors, downward pressure on rates means upward pressure on prices. The average price of the highest quality preferred stocks (cumulative dividends, investment grade ratings, etc.) closed 2014 at $25.98, about a dollar above these securities' $25 par value, producing an average current yield of 6.61 percent on December 31.

(Source: preferred stock data, PreferredStockInvesting.com)

2014 results - how you would have done using the OTC

As I have written to you many times over the years (see "Preferred Stock Buyers: Time To Change Tactics For Sub-$25 Purchases", July 14, 2014), during periods of upward pressure on prices, such as what we have seen for some time and are likely to continue seeing for several more months, savvy preferred stock investors, armed with a web browser and an online trading account, can frequently purchase shares at wholesale (sub-$25) prices when new preferred stock issues are being distributed to the market.

83 percent of the non-convertible preferred stocks issued during 2014 (54 of 65) were introduced to the market by their underwriters using a temporary trading symbol on the

Analyst’s Disclosure:The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it. The author has no business relationship with any company whose stock is mentioned in this article.