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Preferred Stock

#1
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?
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#2
Just keep an eye on the US 10yr, as long as that continues to stay low, like under 3%, you should be okay.
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#3
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.
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#4
(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.
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#5
yandz, I appreciate the feedback and concern but please break it down a bit so I can understand what you are saying. I remember the movie margin call where Jeremy Irons (the top guy at the failing investment bank) said "pretend you are talking to a child" I am new to the preferred stock universe so your help is appreciated.  I am sure I will (have) make (made) mistakes along the way.
 
I don't have a Roth - A Roth does not make sense for my circumstance.   Parsing what you are saying, I think? you are concerned with the tax treatment of dividends and the issue of tax-advantaged preferred in the context of a Roth.   I believe several of the Gabelli Preferreds are tax-advantaged.   Thus you would be getting less of a return because of the dividend tax treatment (discounted to the tax treatment see municipals)
 
The preferred I have so far are mostly BDC's and one Reit and I added a few Gabelli's. I just bought the KKR you mentioned even though its above 25, it's in such a small amount it's irrelevant.
 
What is KKR as far as ratings?
The Gabelli is A2 - I like the collateral of the Gabelli.    Yes, I could buy a long corporate but at what price.
 
You are essentially collateralized by an equity basket of these
JNJ 3%-4.2% AAA
Abbot 3.5%-4.6% BBB
CVS 3.5-5.2 BBB
I am sure folks bought 30 year GE or ENE.
 
Long End Barbelling (perhaps not the right term but I am adding duration)
 
The sum of all my preferred holdings would be the equivalent of one bond position.
I am adding duration with the preferred against collateral.
 
My Total Rate Picture or Thesis
(position wise, prospect capital is 1/2 of what I would consider being a typical bond position for me - small but
they NAIL what I would like for my own portfolio - but I don't have the tools to do it - most of the retail vehicles "funds" suck)
 
 
--They are lending variability, they own money on a fixed basis.
--They are managing duration (by borrowing long and lending short)
   
   

Any help or insight is appreciated.  I make it a practice to listen to smart people, so thanks.
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#6
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.
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#7
I just got started......check out GUTPRA $25.31 v. GUTPRC at $24.52
[/url]
[url= http://www.quantumonline.com/search.cfm?tickersymbol=GUT-C&sopt=symbol]http://www.quantumonline.com/search.cfm?tickersymbol=GUT-C&sopt=symbol

http://www.quantumonline.com/search.cfm?...opt=symbol

In my world, I'm picking C all day long. I know they are not grossly different and of course it's a $1.41 v. $1.34, but the yields are not too much different. I guess what I'm saying, I value paying under par very highly, so you will always need to consider this when I am writing about preferred stocks.
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#8
(12-04-2018, 04:13 AM)Catbert Wrote: I just got started......check out GUTPRA $25.31 v. GUTPRC at $24.52
[/url]
[url= http://www.quantumonline.com/search.cfm?tickersymbol=GUT-C&sopt=symbol]http://www.quantumonline.com/search.cfm?tickersymbol=GUT-C&sopt=symbol

http://www.quantumonline.com/search.cfm?...opt=symbol

In my world, I'm picking C all day long. I know they are not grossly different and of course it's a $1.41 v. $1.34, but the yields are not too much different. I guess what I'm saying, I value paying under par very highly, so you will always need to consider this when I am writing about preferred stocks.

Please pardon my ignorance. Does preferred stocks trade like common stocks? I mean we can sell/purchase any time? Going by the links for GUTPRC  ( Gabelli Utility Trust, 5.375% Series C Cumulative Preferred Shares) I believe this stock will fetch 5.375% yield. What are some of the risks/downside to own these type of preferred in the rising interest environment?
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#9
Yes, you can buy and sell preferred stocks, but I in my discussions no way recommend them for investing beginners and take an even further step and not recommend preferred stock funds.
 
Not actually that is not correct, unless you paid exactly $25 par. per share. The yield is based on the price you pay, and the $ the preferred pays, in the most simplest of terms.
 
Risks are primarily interest rate, for the good companies, but company risk exists as well. Preferred shares are above common stock (but no voting rights typically), but below secured debt - if a company goes kaput. (rare I know)
 
Preferred shares have all the weaknesses of stocks and debt in increasing rate situations, and when rates are decreasing can just get called, so  upside can be limited. There is nothing magical about preferreds. BUT all this said, if you are a mature investor with a deep portfolio, there can be a place for them to post and stabilize your boosted income bucket. I own such higher quality better supported preferreds and I own some speculative issues, purchased well below par.
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#10
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.
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