Last week we penned an article about the Gladstone family of offerings: Gladstone Investment Corp. (GAIN), Gladstone Capital Corp. (GLAD), and Gladstone Commercial Corp.,(GOOD). The article focused on the common distributions of these three firms. However, there's a large group of preferred shares also offered by them.
GAIN offers two vehicles: Gladstone Investment Corp., 6.375% Series E Cumulative Term Preferred Stock due 8/31/2025 (GAINL) and Gladstone Investment Corp. 6.375% Series D Cumulative Term Preferred Stock (GAINM). Unlike many other preferred shares on the market, these two have maturity dates, which we'll detail later in this article.
Rounding out the group, GOOD offers three preferred series: Gladstone Commercial Corp., 7.50% Series B Cumulative Redeemable Preferred Stock (GOODO), Gladstone Commercial Corp., 7.00% Series D Cumulative Redeemable Preferred Stock (GOODM), and Gladstone Commercial Corp., 7.75% Series A Cumulative Redeemable Preferred Stock (GOODP).
Five of these vehicles are cumulative, meaning that management must pay you for any skipped dividends before paying a common dividend - GAINL, GAINM, GOODO, GOODM, AND GOODP. All seven take precedence over common shares in a liquidation scenario.
The three GOOD preferreds have the highest current yields of the group, with GOODO series B shares yielding 7.32%, followed by GOODP, yielding 7.26%, and GOODM, yielding 6.42%.
These three series were issued the earliest, (GOODO and GOODP in 2006 and GOODM in 2016), and have the highest coupon rates of the group, ranging from 7% for GOODM, to 7.5% for GOODO to 7.75% for GOODP.
Those higher yields look attractive, but bear in mind that the GOODO and the GOODP shares are both past their call dates of 10/31/11 and 1/30/11, respectively.
With GOODO at $25.62 and GOODP at $26.70, they're both above their $25 call values - new investors would need to hold GOODP for ~11 months worth of dividends to get to a $25.00 breakeven. GOODO has a shorter four-month breakeven period.
GAINM also is past its call date of 9/3/18, but it has a much longer maturity date of 9/30/23. GLADN's call date is on 9/30/19, but it has a maturity date of 9/3/24.
That leaves GAINL, GOODM and GLADD with call dates the furthest out into the future, at 8/31/20, 5/25/21, and 11/1/20. GAINL and GLADD also have maturity dates even further out in time, as detailed in the Maturity Dates section of this article.
The six monthly payers go ex-dividend next on 6/18/19, with a 6/28/19 pay date, whereas GLADD pays on a quarterly basis and should go ex-dividend ~7/12/19.
All three companies have done preferred redemptions in the past.
Gladstone Commercial initially issued a partial redemption notice for the GOODO and GOODP shares in May 2016, but then canceled those redemptions in favor of redeeming its 7.125% Series C Cumulative Term Preferred Stock.
As GOODO and GOODP have the highest coupon rates of the group, at 7.50% and 7.75%, they may have the highest risk of being called. However, these are three different companies' shares, so it's not all apples to apples when it comes to potential redemptions.
In August 2018, GAIN announced that it planned to redeem all of its outstanding shares of its 6.75% Series B Cumulative Term Preferred Stock due 2021 and its 6.50% Series C Cumulative Term Preferred Stock due 2023, replacing them with its 6.375% Series E GAINL preferred shares.
In September 2017, GLAD announced that it would use the proceeds from its GLADN 6% preferred series to redeem all outstanding shares of its 6.75% Series 2021 Term Preferred Stock.
Like many preferred shares, average volume is relatively light, but it can spike higher sometimes. The GLADD notes show an average volume of under 400 shares/day, but have traded as many as 50K on occasion.
Over the past few years, preferred issuers have moved away from putting maturity dates on their new preferreds, mostly issuing new series with call dates only.
However, both GAIN and GLAD departed from this practice when they issued these four vehicles, all of which have maturity dates, which range from 9/30/23 for GAINM, out to 8/31/25 for GAINL.
GAINL has the highest yield to maturity, at 5.66%, followed by GAINM, at 5.60%, GLADN, at 5.58%, and GLADD, at 4.96%.
GLADN has the lowest current yield of the group, but it also has the shortest breakeven period, of four months, to reach its $25.00 call value. This happens to coincide with its 9/30/19 call date.
Since GAIN and GLAD are BDCs, we used net investment income, NII, as their preferred coverage metric, whereas GOOD is a REIT, so we used Funds From Operations - FFO.
GLAD appears to have better NII coverage of its preferred dividends, at 8.1X, vs. GAIN's 1.86X ratio, while GOOD's FFO/preferred coverage factor is 4.19X:
Disclaimer: This article was written for informational purposes only, and is not intended as personal investment advice. Please practice due diligence before investing in any investment vehicle mentioned in this article.
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