Preferred Stocks Past Call Date – Consider List of Replacements
- Interest rates are falling, and it is providing an opportunity for companies to replace high coupon preferred stocks with new issues with lower coupon rates.
- There are currently many preferred stocks & ETD securities with past call dates that have high coupon rates.
- Table 1 provides a list of 49 issues that are past the call date that have prices above $26. If called, prices will drop.
- Table 2 provides a list of 8 Investment Grade Issues to consider buying to replace those in Table 1.
Now that interest rates are low and probably going lower, will companies take this opportunity to redeem them while they can? Or will they wait until the rates drop even further? Either way, there is no doubt that some companies could replace the old issues with lower coupon rates to reduce expenses.
Gladstone Commercial Corporation (GOOD) made an announcement a week ago 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 call price of $25.00. GOODO dropped $1.61 to $25.20 and GOODP dropped $2.55 to $25.10.
It is a good time to review your portfolio to see if call dates are in the past that have prices substantially above the call price. If they are, consider selling. Don’t forget to check the tax implications before you rush to the exit. Table 1 shows the list of the 49 issues with old call dates and prices above $26. These 49 issues have an average yield of 6.4%.
List of Preferred Stocks & ETD Securities to Consider
If you are interested in replacing the above issues, or just buying other income producing securities, here is a few issues to consider. Table 2 displays several preferred stocks & ETD securities that are priced below $25.50, have yields above 5%, have future call dates and have “Investment Grade” ratings from either Moody’s or S&P.
To read the table properly, the parent company is in the top row with grey background. Each of the preferred stock issues are located directly underneath the parent row. All metrics are on the parent as they are responsible for the preferred stock. However, the credit ratings are on the preferred stock. Please note that obtaining financial information on CEF preferred stocks is difficult; however, the ratings are available from Moody’s.
The key metric on this table is that all issues are rated as Investment Grade by Moody’s and/or S&P. The other metrics are very important and should be considered in your analysis, but since there are so many industries and types of issues, it is hard to compare apples to oranges.
When you review the table, please note that 3 of the issues are listed as Trad NC. That means Non-Cumulative preferred stocks. 2 of the issues are ETD (exchange traded debts) and 3 are Trad (Cumulative preferred stocks). The yields range from 5% to 6.6% and 4 of the issues are tax qualified. That will provide a little boost at tax time if held in a regular account.
I recommend that investors review their portfolio to see if they own any issues above the call price 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 tax ramifications. There is also 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, Table 2 lists several issues to consider. Remember that the pool of solid preferred stocks & ETD securities is small and probably going to continue being reduced if taxes continue falling and new issues are introduced with lower yields.
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