Tweaking the preferred stock portfolio - I think I am done.
Oct 28, 2022 14:26:42 GMT
johnsmith likes this
Post by bobfl on Oct 28, 2022 14:26:42 GMT
This post is for preferred stock enthusiasts:-) I have only 3 preferreds that are rated bb+ , including Morgan Stanley "O" series. The rest are investment grade (IG). The Morgan Stanley "O" series had a 500,000 sale last week. Wow, hard to believe. Was that dumping? I wondered.
So I thought I would sell it because it was bb+ with questionable activity. I googled "Morgan Stanley credit rating". (I search the credit rating for all companies I am studying, plus I now sign up for all financial press releases on each company's site for those that I own.)
Much to my surprise the credit rating for that MS preferred went up in June this year from bb+ to BBB-.
Now I assume a company that runs many ETFs or funds probably transferred it from a junk fund to an investment grade fund since that preferred is now investment grade. You can't just sell 500,000 shares of a thinly traded stock or it would blow up the market for that stock. So probably was a bulk transfer. Yield yesterday was 6.42% for MS-O. Update: Nov 1, now 6.53%, so still dropping.
Another topic -- Avoiding having the preferred called, leaving you with cash when there is nothing to buy.
Companies can issue preferred paper for 5 years and call it if they can refinance cheaper. But if they write it low, like getting a home mortgage for 2.25%, they have no reason to refinance. Example, USB q was issued at $25 at the ridiculous yield of 3.75%. It actually sold out. Now, because of the price drop due to Fed rate hikes, it is $15.47, and is yielding 6.06%. You get the benefit of buying at the current rate for that credit rating with little prospect of getting hit with a $25 redemption when there is nothing to buy. I am hoping any written below 5% will not get called.
How high the yield goes (price drops) this time and when it reverses is still a mystery.
Just saw this very good article written on Oct 17, 2022 by Katherine Lynch at Morningstar, "Why Preferred Stock Funds Are Looking Attractive for Income Investors"
A link doesn't take you there so have to google the above, if interested.
So I thought I would sell it because it was bb+ with questionable activity. I googled "Morgan Stanley credit rating". (I search the credit rating for all companies I am studying, plus I now sign up for all financial press releases on each company's site for those that I own.)
Much to my surprise the credit rating for that MS preferred went up in June this year from bb+ to BBB-.
Now I assume a company that runs many ETFs or funds probably transferred it from a junk fund to an investment grade fund since that preferred is now investment grade. You can't just sell 500,000 shares of a thinly traded stock or it would blow up the market for that stock. So probably was a bulk transfer. Yield yesterday was 6.42% for MS-O. Update: Nov 1, now 6.53%, so still dropping.
Another topic -- Avoiding having the preferred called, leaving you with cash when there is nothing to buy.
Companies can issue preferred paper for 5 years and call it if they can refinance cheaper. But if they write it low, like getting a home mortgage for 2.25%, they have no reason to refinance. Example, USB q was issued at $25 at the ridiculous yield of 3.75%. It actually sold out. Now, because of the price drop due to Fed rate hikes, it is $15.47, and is yielding 6.06%. You get the benefit of buying at the current rate for that credit rating with little prospect of getting hit with a $25 redemption when there is nothing to buy. I am hoping any written below 5% will not get called.
How high the yield goes (price drops) this time and when it reverses is still a mystery.
Just saw this very good article written on Oct 17, 2022 by Katherine Lynch at Morningstar, "Why Preferred Stock Funds Are Looking Attractive for Income Investors"
A link doesn't take you there so have to google the above, if interested.
