Preferred Stock Market Q2 2015: Investment Grade Preferred Stocks Available Below $25

Jul. 01, 2015 7:00 AM ETAGO, ALLY, HSBC, GDP28 Comments

Summary

  • Preferred stock prices are finally starting to fall, bringing higher returns at lower prices to today’s preferred stock buyers.
  • There are currently 76 investment grade preferred stocks selling for a market price below $25.
  • The percentage of the market occupied by investment grade securities that are priced below $25 has increased to 25 percent, up from 12 percent three months ago.

It's time for preferred stock buyers to start paying attention. In anticipation of a September 2015 Fed interest rate hike, the average market price of preferred stock shares fell to $25.03 at the end of June, a drop of $0.62 per share over the last three months. With lower prices come more sub-$25 candidates paying higher returns - the hallmark of a classic buyer's market.

With the second quarter of 2015 behind us, the number of investment grade preferred stocks selling for a market price below $25 is now at 76, up from 39 candidates at the end of Q1.

The Preferred Stock Market, Q2/2015

The similarities between the preferred stock market of 2013 and that of 2015 are hard to miss. In both cases, preferred stock prices started the year in the high-$26 range with pundits forecasting a change in Fed policy to begin increasing the federal funds rate. Also in both cases, those forecasts were largely ignored by preferred stock investors until the summer rolled around and Fed officials started hinting that their September meeting would bring the long-awaited change. With those statements in 2013, preferred stock prices started to fall, dropping below $26 in June of that year, just like last month, as shares cleared their quarterly ex-dividend dates.

This Preferred Stock Market Snapshot chart depicts the preferred stock marketplace at the end of Q2/2015 using two characteristics that are usually high on the list of considerations for risk-averse preferred stock investors - current market price (above and below these securities' $25 par value) and investment risk (as reflected by investment grade versus speculative grade Moody's ratings).

Each diamond represents a preferred stock. The sweet spot of the preferred stock marketplace is depicted in the green lower-left quadrant - investment grade preferreds selling for a market price below their $25 par

This article was written by

Whether you are the kind of investor who sticks with preferred stocks with a CDx3 Compliance Score rated 10 out of 10, or whether your portfolio has room for 9-score-and-lower securities, stay tuned for future articles recapping new IPOs and interesting preferred stock activity that we notice here at the CDx3 Notification Service.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: The CDx3 Notification Service is my preferred stock email alert and research newsletter service and includes the database of all preferred stocks and Exchange-Traded Debt securities used for this article.

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