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7/5 Possible Buys - Back On Track

|Includes: AGC, ARR, BPOP, CII, CLNS, ETY, MPA, Resource Capital Corporation (RSO)

Okay, the type of investments I currently like to buy because I can understand them have gotten hammered pretty well over the last month. I'm okay with this as there should be some bargains to pick up or think about this coming Friday.

One thing I've been mulling over is interest rate risk. I do not know when rates will go up. This year? Next year? A decade of implying that they will rise? I don't know.

I happen to like preferred shares of companies but understand when rates go up the prices will drop like bricks. Which in turn would hurt the portfolio value but I'd still be getting a safe dividend (based on gauging the actual company). And down the road would have the opportunity to pick up more shares with an even higher yield.

So what I'm thinking about are preferreds of companies that can do okay in a rising rate environment. And cefs that would have a underlying portfolio and strategy that can do okay in a rising rate environment.

I have an mreit preferred - arr.pb - since they act like leveraged bond funds, Armour may very well do even worse in a rising rate environment than they have over the last few years. No plans on selling, though. Not as long as they can pay a dividend on the common stock.

Before the car crisis (not over yet - Woman's car is currently in the shop) I bought MPA. Leveraged muni bond fund for PA. I bought what I thought was overselling of anything paying a dividend. I also screened for muni funds that had no exposure to Michigan and very limited to Illinois. No plans on selling either, although over the long haul may not perform well. But that's okay - I just want my monthly payout.

I have a weird reit preferred - rso.pb - I initially thought the company was a mreit but it turns out to be an reit that acts like a bdc. I think that one should be fine.

The strategy I'm using is based around an 8% yield for the portfolio or greater. If interest rates rise, I will adjust the number correspondingly upwards. Any single thing I invest in is risky because I am focused on high yield so the idea will be to spread the risk around by buying many, many different things over time. And planning to never sell and expect the only return to come from distributions/interest/dividends.

One thing I've learned over the last month is that when there's hysteria about rates increasing, everything with a yield sells off. Even things that would do fine in a higher rate environment. RSO makes loans to companies - I'm sure that being able to earn more interest on the loans they make won't upset them.

So will high yield stuff continue to go down or stabilize? I don't know. What I can do is look for bargains that I don't currently own and for things that might do well in a rising rate environment and to keep in mind that this is going to be a multi-decade project and that short term panics are a buyer's friend (but not someone who's already got to where they want to be).

My main risk will be if we return to double-digit inflation for a protracted period of time. My rationale is that I will have better things to worry about than retirement if that happens and that's what the I-bonds are for.


BPOPO - limited volume - some days it doesn't even trade. Preferred of a Puerto Rican bank. Used to own - should have not sold. Currently lists at 21.50 with a monthly 7.4% yield. Callable and I doubt it will ever get called (note that the company has not paid back their TARP funds yet - they have been selling off their bad debt over the last year or so that I've been paying attention to them and I think that this is a positive for their future). I'd like it to be a little lower in price but am willing to buy at this level. BPOPP is similar with a higher yield, but why would anyone buy a callable preferred at above par? Especially one that would be called well before the one below par? Some market hysteria (please) bringing it to below par this week would be my friend.

AGC - oh look, cefconnect died again. That's okay. This one has about 60% of it's portfolio in convertibles and claims to write options. Convertibles be good if rates rise. Selling calls be good. I bought this one last Nov and sold this Spring. It's currently approaching a 10% discount and has a bit better than an 8% market yield. It's had several distribution cuts over the last few years and if you look you can see that the NAV has started to creep up since the last one.

Others cefs on the radar include much of what I've written about over the last couple of months. Another one might be UTF even though the ex-date has passed and the yield isn't high enough for me to buy back in.

Something new that's popped up on my radar screen is NRF's preferreds. NRF.PB in particular. I'd always thought of it as another mreit and have read comments by others that that is not what it is. I started researching and this article provided the info I was looking for:

Yes, the company actually owns a chunk of real estate. My main issue with buying the preferred is that the pe of the company is negative. I know that with an reit this shouldn't matter as much, but that's still one of my rules and I'll have to research further before I would buy into it. The good news is that they pay a dividend which is my more important requirement before buying a preferred stock. There is time as the next div shouldn't be until August. But this is one that I'm going to add to my possible buy list for Friday. Actually I just noticed that there's also a D share that's not callable til 2018 and is barely under par and has a 8.5% yield. So one of these might be the top pick with some further research.

edit for 7/3 - Fulll 8.25% notes - a bdc with a +pe and a dividend - still under par - prospectus for someone who might want to read it:

Probably my first pick if stays under par. The afore mentioned NRF preferreds my second picks. AGC would be my third. BPOPO a fourth pick and maybe a first if the price drops a bit on Friday.

What I find amusing is that BPOPP rose in price today. It's callable. I would buy it under par, but never above par. It also pays a higher yield than BPOPO or any of the company's edc that's trading. Guess what's the first thing that bank will call when they are able to start paying off TARP?

edit for 7/5 - NRF.D it was