Preferred's vs Convertible Preferred's
Tom,
I'll check out the convertible preferreds. Sounds interesting.
One feature of the preferreds that may appeal to some is that issues of the last couple of years, before the the Fed starting raising rates, is that their coupon rates are below current market rates. This prices them below their 5yr call price. Buying now, if interest rates stay pretty close to where they are now, means a nice pop if the issue gets called. I see several issues that are trading at $20-$22 with a $25 call price in 2-4 years. OTOH, these preferreds are CHEAP to the issuer, with interest rates several points below current market, and may NOT be called simply because they don't cost the issuer as much as new debt would. Issues that are trading ABOVE $25, are more likely to be called, since the high price implies a higher than market coupon rate. Household International, HI, issued a new series of preferred's in June, their 'X' series, with a 10% dividend rate. This issue is trading at 25.5625. This issue is more likely to be called than the Motorola preferred 'A' shares with a coupon of 6.68% and a market price of about $21.
Robert - Mr AIM Aggressive even though this topic is NOT about an aggressive technique. |
