Stats,

here's some links for you.

Bruce's primer on income investing 

prefered research library 

You'll need to get to the updated page.  The classic Nuveen page seems to be gone, its devoted to the current ARP issue

And I link to a resource of data beyond quantumonline.com 

WSJ
 

Roberta 

meyerr:

And I link to a resource of data beyond quantumonline.com 

WSJ
 

Thanks, I am not entirely sure I understand some of the data in this chart. 

I have owned a couple of preferreds for a number of years, Citigroup Capital VII dated 7/31/01 and Bank One Capital VI dated 9/28/01.  One pays 7.125% and the other 7.2%.  There was always very little change in their market value until the last year or so.  I am now down 6.25% on Citi and 4% on Bank One.  I am not planning on selling them, but don't lose sight of the fact that their value can also decline.

I also held a Morgan Stanley PFD that paid 7.25% which was redeemed on 5/21/07. 

Stats.....BAC would have to eliminate their common share dividend completely first no matter what. The order (by law I believe) is bond holders get paid first, then preferred owners (A then B,C etc.),then common shareholders. Now that said, BAC has the right at any time to "defer" your payment on your preferred....It's in the prospectous and not uncommon. If they do however (which I doubt) they may as well be slitting their own wrists...

As far as your investment declining you might want to think of it this way. If you buy below it's redemption price, say it is $25 and hold it until at least it's call date you have made money. I bought BAC-B at $23. It is callable in 2011. If it is called then I am paid $25 for just hanging onto it and collecting the quarterly payments. In other words it is a perpetual bond until 2011. So I don't care what the value of it is now.....I know I am to be paid $25 per share unless BAC goes bankrupt. 

I too am leary of preferreds as a substantial portion of my income portfolio....No growth of dividend but a high stable yield to begin with. I try to limit my preferred's to no more than 5 to 7 percent of my income portfolio.

I like Quantomonline as a source to research these issues.

Mariner.....

We own several BAC preferreds and it's important to realize that they are not all alike. A thorough understanding of each Prospectus is required before making a purchase.

The new issue, BAC-H, is non-cumulative. That aspect might be an important risk factor for an investor.

From the Prospectus linked in the original post:

"Dividends on the Preferred Stock will not be cumulative. Accordingly, if for any reason our board of directors or a duly authorized committee of our board does not declare a dividend on the Preferred Stock for a dividend period prior to the related dividend payment date, that dividend will not accrue, and we will have no obligation to pay a dividend for that dividend period on the quarterly dividend payment date or at any time in the future, whether or not our board of directors or a duly authorized committee of our board declares a dividend on the Preferred Stock or any other series of our preferred stock or common stock for any future dividend period. A “dividend period” is the period from, and including, a dividend payment date (as defined below) to, but excluding, the next dividend payment date, except that the initial dividend period will begin on and include the original issue date of the depositary shares and the Preferred Stock."

Best,

Steve 

Both common stocks and preferred stocks are considered equity positions. These financial companies are raising cash with preferred stock issues because it does not hurt their capital ratios (minimum requirement is set by law, I believe it's 10% but someone please correct me if I'm wrong).

As several people have already mentioned, the preferred dividend cannot be touched if the company is still paying any common dividend at all. I think this may be why some banks have slashed their dividend severely, but are still paying a penny per quarter on the common shares.... to give the preferred holders a little more confidence in their dividends.

Also, the redemption (or call) provision is at the option of the issuer. Many preferreds are perpetual, so one should expect that the issuing company will not buy a preferred stock back unless it's in the company's best interests (i.e., they can buy the stock back and reissue new stock at a lower rate).

Finally, with regard to BAC specifically, I think the series L convertible preferreds are somewhat interesting. The yield is a little lower than on the common, but it's certainly a more secure income stream. And since this is a convertible, there is the chance for some price appreciation if/when the common stock recovers.

Regards,

Duane

Very Good Point Shrein!

I apologize for not mentioning that little phrase "non-cumulative". I have never, and never will buy into a preferred with that catchy little phrase in it's prospectus.  My BAC-B is a trust and if payments are suspended they will be accured and paid in full at the call date or maturation date.

The bottom line is I will be paid my full dividends (even if deferred) no matter what as well as the capital appreciation at the redemption price. (barring BAC folding) Without that gaurentee you really are taking a gamble. I would think that's why such a high yield from this new issue....It carries risk but you are to be compensated by the higher yield. (maybe....as long as they pay..which as stated...They just may not!)

Mariner.....

(Did I mention treating these investments as a sorbe' or topping to your income may be wise?)

Lili..:

meyerr:

And I link to a resource of data beyond quantumonline.com 

WSJ
 

Thanks, I am not entirely sure I understand some of the data in this chart. 

Lili,

It's essentially an online newpaper listing of the current prices, volume and yield on the preferred's all together in one place.  Quantumonline give me the data on the preferreds and the WSJ tells me what it's selling at today without having to look each of them up individually.  

Roberta 

Concur with Duane.  If (that's a big if) you like BAC now, consider the "L" convertible preferred.  Now about 7.25% yield, much more secure dividend than the common under current circumstances, and a long term $50 call on the common. 

Dick 

The BAC preferred stock in my original post now has its own ticker symbol--  BACPRH at Fidelity.  I am not suggesting that anyone buy this particular issue...

I was hoping for a discussion the advantages and disadvantages of preferreds.  What makes a good preferred and what makes a bad preferred.

Best of luck
Stats

statsguy:

I was hoping for a discussion the advantages and disadvantages of preferreds.  What makes a good preferred and what makes a bad preferred.

Hi stats. Here are a few comments...

The main considerations I see with preferred stocks are:

• Credit quality
• Cumulative vs non-cumulative
• Convertible or "straight" (i.e., not convertible into common shares)
• Coupon rate

To the best of my knowledge, most preferreds are straight and non-cumulative. A "straight" preferred sees no direct benefit from increased corporate sales and earnings, so from this perspective it looks like a bond with no date of maturity. Preferred shareholders also have no voting rights.

The non-cumulative nature of preferreds bothers me. The issuing company can unilaterally and indefinitely suspend dividend payments on its non-cumulative preferreds. The company does not have to be in bankruptcy court to do this, nor does it have to alter its operations in any way. In practice, of course, a company is unlikely to do this except when in financial distress, as it would make it difficult to raise cash with preferred offerings in the future.

There is certainly risk to principal with a preferred. The price of a preferred share can drop due to poor company financials (take a look at CFC-B), or due to a change in the level of interest rates. There are still preferreds trading that were issued in the 1940s and 1950s... they are trading well below their issue price because the original coupons were in the neighborhood of 4%.

Hope that wasn't too boring...

Duane