For dividends I hold some REIT preferred stock which has been in my portfolio for quite some time and the stock price is higher than the par value. How does the community feel about continuing to hold at this time?
Just keep an eye on the US 10yr, as long as that continues to stay low, like under 3%, you should be okay.
Helped me gain some insight into Preferred shares that I did not have prior to his input. I called up Gabelli to ask them about the following preferred stocks;
Gabelli - Closed-End Preferred Shares
These issues are (part of) the mechanism by which Gabelli Closed-End Funds obtain their leverage. Essentially you are providing "margin" to these funds the same way fidelity would lend money to you. The collateral is the stock in each of these funds. The Gabelli rep described this space as a little-known niche or cubby hole in the preferred universe. Nice yields, known collateral, and a high credit quality (in most cases) are some of the features.
The real downside is that rising rates will cause Preferreds to get marked down. I don't see this as a problem because my bond portfolio is mostly short duration - I will add to duration as rates rise.
Many preferred stocks have low credit ratings because of higher risk (not in this case) to facilitate access to the credit market. Even if a preferred is risky - I am finding the risk-reward balance about right.
Another way to play preferred is to monitor them to see if they are mispriced; some can be bought below par.
One more note; the rep suggested that GUT was selling at an obscene premium, that is not the case for the preferred stock which I just purchased. Because of a huge premium GUT (and a bunch of Pimco funds) are very risky given the reward.
(NOT!) That is not tax advantaged preferreds are ideal for creating a long end for bond barbelling in a ROTH IRA. If you hold them in a REg IRA then they can be rolled over into the Roth by paying the tax on that as a distribution. But then the higher yields will come to you tax free. The other end can be a taxable Investment grade bond ladder which generally in a Roth will out yield a tax free bond of the same duration/maturity in a cash account.
REIT preferreds do not provide much advantage in a taxable account. For those accounts you should likely look more closely at Insurance and TBTF Bank preferreds. Those generally pay tax advantaged dividends which may scale a bit lower on total yield but may be safer as against the next economic down turn vs the REITS that usually get hit. But of course the APT REITS and Storage REITs often profit in economic downturns as people lose their house and need a space to keep their stuff and will likely go back to be renters. Tax advantaged preferreds have additional durability for price/value as for their total return after taxes against interest rate and inflation risk. Most banks are still calling their preferreds near the maturity dates. They are not floating out a lot of newer ones either. I recently grabbed some KKR-A @ $26.39 with the Proceeds of another preferred called early at a $26 premium because of a merger.
REIT and BDC preferreds often sell for about $26., about a dollar higher than par. For limited times some good REIT and BDC preferreds sell below par, and you can buy them with a reasonable expectation to sell at about $26. However, some REITs are good (and rise in NAV with time) and others are not (and they fall in NAV with time). An example of a BDC that loses book value with time is AI. Energy Transfer has some preferreds now selling below par, and it too should sell for about $26.
DaMa To add to what Catbert already mentioned about preferred stocks, please be aware that some preferred stocks tend to be very illiquid and sometimes they change hand at absurd price levels. If I like a particular one, consider placing a GTC low-price limit order. If you're lucky, it may get filled even in business-as-usual conditions. I had this happen a couple of times and managed to capture at low-20s.