I Prefer Income Blog: 2/22/19

This newsletter is provided to those people who have an interest in income investing and in preferred stocks and ETD securities. Remember that the spreadsheet is updated every day after the market closes. It is available for download to all members. Memberships are FREE and are available at: www.ipreferincome.com . If you are just learning about Preferred stocks and ETD Securities, the website contains a wealth of information that will help you understand these securities and the financial metrics found on the spreadsheet.

About the “I Prefer Income” Spreadsheet

The “I Prefer Income” Spreadsheet is a research tool that provides focused information on all preferred stocks and ETD (Exchange Traded Debt) securities with a par value of $25 (convertibles not included). The Spreadsheet contains basic information and financial metrics on both the preferred stocks & ETD securities, as well as the company that issued (or is currently responsible) for the security. This information will help provide the investor with the means to rate each security for safety, price, yield and timeliness so that risk/reward can be identified before making a buy/sell decision.

The Preferred Stock & ETD Securities Spreadsheet contains over 600 securities along with the parent company that is responsible for the security. This is not a simple list of securities. It provides a large amount of financial metrics, including both GAAP and Non-GAAP earnings. Some of the metrics include: 5 years & quarters of earnings, common stock & preferred stock dividend payout ratios, cash flow ratios, interest coverage ratios, debt ratios, price to book ratios and more.

With so much information, a filter has been added to allow the user to select up to 15 criteria to narrow the list. Example: I am using the filter to add these 4 criteria:

• Price  < (Less than)  25.30
• Yield  > (Greater than)  6%
• Industry  REIT-LODGING
• Stock Payout  < (Less than)  .90

Once submitted, there were 36 issues that met these 4 criteria. Take a look at the filter below to see those 4 criteria. This set of criteria found issues with a price of less than $25, a yield greater than 6%, yield-to-call greater than 7% and were profitable 5 of the last 5 quarters. Once the list of securities is shown, you can go over each issue to see if it meets your investment requirements.

“I Prefer Income” Website

Preferred stocks and ETD securities are different from common stocks. Most investors buy for the income they generate and because they are safer than the common stock dividend paid by the parent. In general, ETD securities are safer than preferreds and preferreds are safer than common stock. To learn more, go to our website at; www.ipreferincome.com and click on Basics to learn more about both securities. There is a lot to learn. Then click on Info to learn more about the IPI! spreadsheet. This page includes 4 Youtube videos for step by step info on the program. The Spreadsheet provides a variety of Financial Metrics to help determine the strength and safety of the parent and each issue. To learn more about what each metrics means, click Info and then Metrics.

Update Preferred Stocks & ETD Securities

As of 2/22/2019, the “I Prefer Income” Spreadsheet contains the following:

• Traditional Preferred cumulative stocks: 281
• Traditional Preferred non-cumulative stocks: 145
• Trust Preferred: 18
• ETD securities: 169
• Issues with price under $25: 277
• Issues with yield greater than 7%: 212

Most income investors look for dividends that are sustainable, reliable, and safe. Here are some metrics that help identify these characteristics.

• 5 Profitable Years: There are 318 issues where the parent has been profitable 5 out of the last 5 years.
• 5 Profitable Quarters: There are 293 issues where the parent has been profitable 5 out of the last 5 quarters.
• Dividend Diamonds: There are 198 issues where the parent has raised their dividends 5 or more consecutive years in a row.
• Common Stock Payout Ratio: There are 342 preferred issues where the parent common stock dividend payout ratio is less than .75 (75%)
• Preferred Stock Payout Ratio: There are 390 preferred issues where the parent preferred stock dividend payout ratio is less than .25 (25%)
• Operating Cash Flow Payout Ratio: There are 294 preferred issues where the parent operating cash flow payout ratio is less than .10 (10%)

Dividend Updates

The “I Prefer Income” Spreadsheet tracks all companies that have increased their common stock dividends every year for 5 or more years. We have named these companies as “Dividend Diamonds” and we list the number of years these companies have increased their common stock dividends. A Dividend Diamond is a positive metric that identifies a company as being strong enough to raise their dividend on a regular basis. There are currently 193 issues where the parent is designated as a Dividend Diamond.

We also track changes in common stock dividends. There are several companies listed on the I Prefer Income Spreadsheet that made announcements of changes in their dividends over the last week. Increases are great as it shows the company is doing well and has confidence in the future. Decreases may be cause for concern as it shows that the company is not doing as well as they would like and are adjusting the dividend to a more realistic level. That doesn’t mean that the drop is a threat to their preferred or ETD securities, but investors should take this opportunity to check out the financial status of the company. There are times when this could provide an opportunity to buy – especially if prices drop on the news to an oversold position.

COMMON STOCK DIVIDEND INCREASES

• NEE: Raised dividend from 1.11 to 1.25
• APO: Raised dividend from .46 to .56
• AGM: Raised dividend from .58 to .70
• ARGO: Raised dividend from .27 to .31
• QTS: Raised dividend from .41 to .44
• TDS: Raised dividend from .16 to .165
• DLR: Raised dividend from 1.01 to 1.08

COMMON STOCK DIVIDEND DROP

• HCAP: Lowered dividend from .095 to .08

NOTEWORTHY ARTICLES

Seeking Alpha has a lot of great authors that write very informative articles on all investment subjects. I especially appreciate and read the articles on income investing. Personally, I focus on higher yielding investments that have limited appreciation potential. There are exceptions, but normally, the higher the yield, the less likely there is for appreciation unless you buy when the stock is depressed, such as during the market drop in November & December. Suddenly, the opportunity for high yield and appreciation was available.

One of the authors I follow and appreciate is Brad Thomas. He is an expert on REITS and writes many articles on these stocks. This week he wrote an article entitled “5 REITS To Avoid When The Next Recession Hits”. The article provides an overview of what types of REITS that could be hurt during the next recession. If you have not already read it, you might take a minute to check it out. SA only makes these articles available for 10 days, so better hurry.

CURRENT THOUGHTS ON PREFERRED STOCKS & ETD SECURITIES

It has only been 6 weeks since the start of 2019, but the market and preferred stocks & ETD securities have done a U turn – especially since Fed Chairman Powell gave his speech on upcoming interest rates on 1/4/2019. Here is the chart on PFF, which is an ETF that tracks preferred stocks and baby bonds (ETD). The turn-around is dramatic, but from the chart, there is still some room for these securities to rise further if we are to fully return to previous prices.

One of the other important factors that investors should pay attention to is the 10 year treasury rates. When rates are increasing, there is pressure on interest sensitive securities to drop in price. But the reverse happens when rates fall. From reviewing the chart below, the change has been dramatic over the last few weeks.

Many analysts have warned their readers to stay away or limit ownership in preferreds and ETD securities because of increasing interest rate fears; however, they were assuming that once interest rates started to rise, they would increase to ultra high levels. But many of these analysts did not think to mention that rates fluctuate and if rates do increase, they will eventually fall back to lower levels once those high rates have hurt the economy enough to cause economic concerns. It might be similar to oil prices. High oil prices cause low demand and low demand causes production to fall, which is followed by lower prices.

Every economic period is somewhat different than the past, but I am in the camp of investors who look at falling prices as a potential opportunity to buy good securities at bargain (or at least better) prices with higher yields.

Relationship Between Preferred and Common Stock

The IPI! spreadsheet displays the parent company for every preferred stock and ETD security. There are many reasons; but without the parent, there is no way to determine the overall financial health of the company that issued the security. Having so much information on the parent provides a wealth of information. But there are some things an investor could do besides just having access to financial data. Here are a couple of ideas:

1. Parent stock chart: Take a look at the parent stock chart. If the parent chart looks strong, it probably means overall financial well-being and a bright future. However, if the stock chart is weak and getting weaker, then it is time to take a hard look at whether or not an investment in the preferreds or ETD securities is warranted. The chart is just one of many things that investors should look at, but it may be one that is overlooked.

2. Check out the difference in yields. If the parent pays a dividend, there is a very good chance that the yield it offers will be completely different than the yield that their preferred stock(s) or ETD securities offers. In theory, the lower the risk, the lower the yield will be on dividends paid. And conversely, the higher the risk, the higher the yield will be. The investor should review the yields of the common and compare to the yields of the preferreds and ETD. A low common stock yield could mean low risk and a better chance for appreciation and increasing dividends. A high yield could mean high risk and low chance for appreciation and cuts in dividends. Once you know what the common stock dividend yield is, compare it to the preferred & ETD yields. In general, a low yielding common stock dividend will probably mean the preferred and ETD will provide a yield in the lower range for that industry group. However, if the common stock dividend yield is high, then there is a good chance the preferreds and ETD will also be high. Examples are the MREITS. Most MREIT common stock yields are high and the preferreds are also high.

How to obtain the Preferred Stock & ETD Securities Spreadsheet

There is no charge for the “I Prefer Income” Spreadsheet. If you have received this article by email, I have attached the current spreadsheet. You can also go to www.ipreferincome.com and subscribe for a Free Membership. Once a member, go to the Spreadsheet page where you can download the file. I update the file every day after the market closes. In addition to the Spreadsheet, the website contains a great deal of information on preferred stocks and ETD securities. Please forward this email to friends or family members who are interested in income investing. They may find it helpful.

I hope you enjoy the newsletter, website and spreadsheet.

Thanks.
Rich Hill
I Prefer Income

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