PREFERRED STOCKS – PART II

R J Kirsch: “Re your comment concerning newsletters concentrating on preferred stocks, see Richard C. Young’s Intelligence Report published monthly by Phillips Publishing, Inc., 7811 Montrose Rd., Potomac, MD 20854-3394, 800-301-8968, email: ryoung@phillips.com. Preferreds are one of his three favorite investments (treasuries & Dow 30 stocks are the other two). Four times a year Young provides a special four-page list of recommended preferred stock buys (he calls it his “Monster Master List” of preferred stocks; it’s better than it sounds).”

Eric: “It’s been ages since I have looked at preferreds. I do remember an older colleague pointing me to Chrysler preferred [when Chrysler was going bankrupt and before Uncle Sam bailed it out]. Cost about $3 a share if I remember right and had about $21 due in back dividends, which the market had decided would probably never be paid. Too bad I was too poor to have bought some! Do preferreds still accumulate dividends in this fashion?”

☞  Yes, if they are ‘cumulative preferreds,’ meaning that unpaid dividends accumulate. People who bought these Chrysler preferreds hit the jackpot – especially if they were convertible cumulative preferreds (I don’t remember), meaning they could be converted into common stock.

Tobias Brown: “What intrigues me about preferreds is the fact that everyone seems to be shunning them, including the intermediaries. If you look at expected rates of returns for the Dow over the coming five years and also look at the preferred yields for quite decent companies [8% or more], it seems on the face of it to be extremely interesting. However, I can find zero information out there, including simple stuff such as historical spreads between treasuries and preferred yields, etc. I have always found that in information vacuums in financial markets often opportunities lurk.”

☞  Indeed.

Steve Samuels: “The very best way to buy preferred stocks or for that matter any type of bonds funds right now is in a closed-end fund. The ability to buy bonds at 80 to 85 cents on the dollar right now is as attractive as I have ever seen! With rates up in ’99 (as in ’94), bond funds discounts have become larger than ever. Why pay retail?”

☞  The only problem here is that the closed-end fund charges a management fee. If it were 1% and the fund’s bonds yield 8%, then you’re really only getting about 85% of the bonds’ or preferreds’ yield passed through to you. So that could be one justification for the discount. (Newcomers: a closed-end fund is one that sells a set amount of shares — $100 million worth, say – and then shuts its doors. From then on, buyers and sellers of the fund meet in the marketplace, and the price at which the shares trade hands is set buy supply and demand, just as with a stock. So even if the fund has $10 a share in underlying assets, its shares may trade for only $8 or $8.50. With a regular, open-end mutual fund, the shares aren’t traded between investors, investors buy directly from, or sell directly to, the fund, at Net Asset Value – the full $10. Closed-end funds are also known as ‘publicly traded funds.’)

Bill Frietsch: “There appears to be a real bargain these days in closed end junk bonds. I’ve recently purchased the Pactholder Hi Yield bond fund (symbol PHF, ASE) for about $12, yielding about 14%. For years this fund sold at a premium, now it’s at a 10%-plus discount. I realize that, by definition it’s risky, but is it anymore risky now than in the past when it sold at a premium? Other closed end junk bond funds are selling at similar ‘bargain’ prices.”

Jeff Splitgerber: “Vanguard offers a Preferred Stock Fund (VQIIX) that has been an excellent performer through the years. My corporation has owned this fund since 1993 and I have found it to be more stable than individual Preferred Stocks. Vanguard also keeps me up to date on DRD and related issues that were a target of reduction by the Clinton Administration a couple of years ago. As you pointed out, Preferred Stocks are best suited to corporate ownership due to their tax benefits. Morningstar rates it at 4*. Check out at http://quicktake.morningstar.com/Funds/Snapshot/VQIIX.html.”

AND AREA CODES – PART II

Robert Doucette: “Lockheed-Martin has the contract and the responsibility to select where and when new numbers are assigned. The best new number is for Eastern Florida including Cape Canaveral, their new area code is 3…2…1.” (As in . . . LIFT OFF! . . . notes Dr. Stephen Rubin.)

Maryl Curry: “I recently was given a phone number of a friend in Costa Rica. It was: +506-234-0432 (including the “+” sign.) But when I dialed it (adding a 1- before the number as I was taught in school) it didn’t go through. You have, in your world wide travels, had occasion, I assume, to make calls to another country. What’s the secret? What DIDN’T they teach me in school?!”

☞  1 is the country code for the US. 506 is the country code for Costa Rica. When you dial 1 first, the phone system assumes you are calling a number in the US. To call abroad from here, you would dial 011 to set up an international call, plus 506 and then the number (which I have cleverly disguised above so that if anyone tries calling, they won’t bother your friend, they’ll bother someone else).

 

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