Preferred Stocks Past Call Date

Summary

1.      Interest rates are dropping

2.      There are many preferred stocks & ETD securities with called dates in the past and high coupon rates.

3.      Here is a list of 49 issues that are past the call date and have prices above $26.  These issues could be redeemed.

Gladstone Commercial Corporation (GOOD) made an announcement today stating that they were going to redeem 2 preferred stocks that were past the call date.  The result was that the prices of both preferred stocks immediately fell from their lofty prices to land close to par of $25.00.  GOODO dropped $1.61 to $25.20.  GOODP dropped $2.55 to $25.10. 

I had been in the process of selling high priced preferreds with old call dates and using the proceeds to buy different issues with future call dates and lower prices.  Unfortunately, I discovered that I still owned 200 shares of GOODO.  I decided to sell and invest elsewhere.  After making the sale, I reviewed the program and discovered that there are now 49 issues with old call dates and prices above $26.00.  That list is shown below.

Preferrd Stocks Past Call Date

(Table 1, Source, I Prefer Income)

When reviewing the list, please note that the parent company is in the first row with the preferred stock & ETD securities listed directly underneath.  The table display a variety of information including the stock symbols, the industry, the type of issue, the coupon rate, call date, price, yield, credit rating and a few other fields.  There are 3 preferred stocks that stand out for their prices.  BANF has a price of $28.01, TDI has a price of $28.63 and HGH has a price of $29.19.

On 9/16, I noted that out of the 640+ issues in the Dividend Tracker Preferred Tracker, there were only 123 that were below par.  Then on 9/20, that number had been reduced to just 107 issues that were priced below par.  Today, I took another reading and discovered that the list has been reduced further to only 102 issues below par.  I must assume that as interest rates fall, investors are buying securities to lock in satisfactory yields before rates fall even further. 

Now that interest rates are low and going lower, will companies take this opportunity to redeem while they can?  Or will they wait until the rates drop even further?  Either way, there is no doubt that many companies could replace the old issues with lower coupon rates and save themselves some money.

I recommend that investors review their portfolio to see if they own any issues that are at risk of being redeemed.  If so, the question is, should they be sold?  If the issues are held in a regular account, you must consider taxes.  And then there is the question of should you replace the sold issues or move to a cash position?   If you are going to replace with another preferred stock or ETD, there are now less issues available.   The pool of solid preferred stocks & ETD securities is reduced and if you already own the few remaining issues available, the pressure mounts as to the course of action to take.

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Thanks for reading.

Rich Hill
I Prefer Income

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