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Non-Tech : Income Investing -- Ignore unavailable to you. Want to Upgrade?

To: drpiranha who wrote (10793)

7/2/2014 10:19:37 PM

From: Lord Xot

5 Recommendations

Recommended By
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Read Replies (1) | Respond to of 52051

Re: re GST-B

There are many considerations to YTC calculations and ownership of pfds. I didn't touch on them on my post. I have in the past though and quite extensively. But you can't burrow through to these processes unless you are aware of the basic mathmatical nature of YTC. Once up to speed, one can consider their effects on individual issues. Care has to be taken in these considerations.

Consider KRG-A.........................

The current yield here is hard to replace from a reasonable equity reit issuer, at the present time, so that's a factor in favor of holding. It's also not a sure bet that this pfd will be called. KRG would have to be able to issue another pfd in the 7.50% range at maximum to make it worthwhile to call in this issue. I don't know that they can do that. If rates increase as suspected, it becomes less likely that a call will occur. My bet right now is no call.

If no call is assumed, what can KRG-A be expected to price at as call date approaches? That depends on rates at the time but with an 8.25% coupon at par, it won't fall far. If taxes have to be paid on gains if sold, that makes it more incumbent to hold. And A is only $1.25 over par so the money isn't critical here either. Assume half a qtrly dividend accrued if called and put call price at 25.25. The loss here can be pegged at a dollar.

Weighing all factors together, KRG-A is a hold. It's not really replaceable with a like kind issue at an equal yield, the overage to par isn't excessive, and it's not an obvious call candidate. Yes it's YTC is 4.75% but i'm betting no call so the YTC isn't the operative yield The current yield is operative, and as stated, not readily replaceable with similar. Investors also may have individual reasons to either hold or sell. I own it and i'm holding.

An issue like GST-B has the same considerations. Overage to par, probability of call, ease of replacement, amount of financial loss, taxes, etc.

In this case though, i have to think call would be likely at a coupon of 10.25%. Hopefully, this company will have improved it's finances enough by that time to bring this in. So i would have to operate as if that were to be the case. So walk through the process with this assumption in mind and make a decision to hold or not. It's easier here. I don't own this but i'd sell it. It's replaceable with pfds of like risk profile at YTCs that are positive or neutral. Since i'm assuming call, YTC yield is operative and i can improve on that.

Consider each issue carefully and look at all sides.....call, taxes, replacement, gain or loss. Some are obvious sells or holds but many will be toss ups. I'd speculate the toss ups would be holds. Length to call will be a factor and also individual expectation of future rates.

The biggest factor is opinion of probability of call, length of time to call, and amount over par. That's the base. It's more art than science. I hold fairly negative YTCs such as KRG-A, MHR-C, TAYCP, NCT-B for the reasons mentioned above and others important to me .

Understanding YTC calculations is mandated for pfd investment. It's key to maximizing returns over time.

Do not sell your negative YTC pfds without careful consideration and complete understanding of all the facts and the logical process............................Xot

KRG-A

7.84%

$26.26

$2.06

12/2015

8.25%

GST-B

9.38%

$28.66

$2.69

11/2018

10.75%

To: drpiranha who wrote (10793)	7/3/2014 8:19:19 AM
From: YieldHog	2 Recommendations Recommended By jayhawk969 tjon72 Read Replies (2) \| Respond to of 52051

Re: re GST-B I agree 100% with your comments. I learned this the hard way with GAT, which was a 8.20% preferred issued by an "A" rated utility. I bought this close to par and sold way to early, after the price jumped to $30. As drpiranha mentioned GAT held this price until 12-18 months before the call date. Other current examples of this are SSW-C 9.50%, trading at $27.82 with a 1/30/16 call date YTC 2.19% MRH-A 8.88% trading at $27.27 with a 5/10/16 call YTC 3.78% As for GST-B, as I previously stated, in my opinion it is way to early to sell this. It has not even been issued for a year and is over 4 years to the call date. I believe you can hold this for 2 more years, collect a 10.75% coupon (on the $25 par) and the price decline will probably be moderate (assuming the credit quality of GST remains the same)