Pick of the Week 8-26-2019
Preferred Stocks and ETD Securities – Pick of the Week
I Prefer Income! has a Preferred stock & ETD database program with over 640 preferred stocks & ETD (exchange traded debt securities). The list is updated daily and contains more than just a simple list of names. There are 37 fields of information, including demographics and important financial metrics to help the member dig a little deeper when doing research on individual issues. The metrics include earnings, payout ratios, debt ratios, dividend metrics and Moody’s and S&P credit ratings on the individual preferred stocks and ETD securities.
For the current Pick of the Week, I have selected 3 ETD (exchange traded debt securities) that are priced below $25.40, with yields above 5%, and are rated as Investment Grade by either Moody’s or S&P.
Exchange traded debt securities (sometimes called baby bonds) are unique products that allow investors to invest in the debt market via equity exchanges making them significantly more accessible to the individual investor. Like preferred stocks, these securities are traded on stock exchanges using tickers. Following the standard structure of debt instruments, ETD are senior to a company’s preferred shares and common stock. They are structured somewhat like to preferred stocks and they pay out consistent coupon payments. There are currently 177 ETD on the Dividend King’s Preferred Stock Tracker.
As is my practice, I analyze the securities I am interested in by reviewing the 5 important financial areas – Earnings, Payout Ratios, Debt Ratios, Dividend Metrics and Credit Ratings. This gives me a great first review of the issues and lays the foundation for further analysis. My goal is to uncover solid choices that meet my requirements for safety and reliable / sustainable income. The 3 picks for this week are located in the table below.
(Source, I Prefer Income)
To read the table properly, the Parent company is located in the top row with grey background. The ETD issue is located directly underneath. All metrics are on the parent as they are responsible for the preferred stock. However, the credit ratings are on the ETD issue. Here is information on each parent and issue.
Centurylink, Inc (CTL) is a telecom that provides various communications services to residential, business, wholesale, and governmental customers in the United States and internationally. The company is considered by many to be in a turnaround mode. It acquired Level 3 Communications in in late 2017 and considered itself a leading global network services company capable of providing customers a wide range of high-quality technology solutions over a secure and reliable fiber-rich network. CTL has 6 ETD issues with CTBB having a price of $24.74 and a yield of 6.6% and Y-T-C of 7.6%. Recent financial results have been mixed, but do appear to have good cash flow. CTBB has the lowest price and highest yield of the 3 issues, probably due to the weaker metrics than the other 2; however, Payout, Debt and Credit ratings are good. Further research is warranted.
DTE Energy Company (DTE) is a Detroit-based diversified energy company involved in the development and management of energy-related businesses and services nationwide. Its operating units include an electric utility serving 2.2 million customers in Southeastern Michigan and a natural gas utility serving 1.3 million customers in Michigan. DTE has issued 4 ETD. DTQ has a coupon rate of 5.25% and is currently priced at $25.29 and a yield of 5.2%. All metrics appear to be in good shape, including the investment grade ratings of Baa2 / BBB- and the fact that they are designated as a Dividend Diamond. They have increased their dividend for 10 consecutive years.
NextEra Energy, Inc (NEE) is a utility that generates, transmits, distributes, and sells electric power to retail and wholesale customers in North America. The company generates electricity through wind, solar, nuclear, and natural gas-fired facilities. It also develops, constructs, and operates long-term contracted assets with a focus on renewable generation facilities, natural gas pipelines, and battery storage projects. NEE currently has 4 ETD. NEE-I has a coupon rate of 5.125% and is currently priced at $25.31 and a yield of 5.1%. All of their metrics look good, including the investment grade rating of Baa2 / BBB. In addition, they are also designated as a Dividend Diamond with a great record of increasing their dividend for 25 consecutive years.
In summary, all 3 ETD (baby bonds) provide the investor with a choice between 2 with very strong metrics and lower yields (DTQ and NEE-I) or CTBB that provides a higher yield of 6.6%. Yes, it does have higher risk as the parent company is going through a turnaround but they do appear to be making headway with strong cash flow and still show an investment grade rating. Also remember that all 3 securities are considered as debt so are considered safer than both common stock and preferred stock.
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I Prefer Income
Disclosure: I own CTBB