Bite Into 3 Preferred Stocks Yielding 7% or More

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Readers of my column know how much I love preferred stocks. These stock-bond hybrids offer yields that wipe out anything that bonds can offer, even junk bonds. They are safer than junk bonds in most cases, with ratings that often exceed those of junk. They trade like bonds, in fairly tight ranges.

money-dividends

Preferred stocks also offer security in being just behind bondholders should a company need to liquidate. The common stock dividend of a company must be cut first before cutting that of a preferred issue, and most preferred stock is cumulative, meaning the company must pay out all the dividends that have accrued since any suspension if it ever starts paying out again.

Investors should be careful about some very high-yielding preferred stocks, such as those in the energy sector. Those yields are crazy because the preferred stock price has fallen significantly, as the market doubts whether the underlying companies will remains solvent.

However, the solvency of these three preferred stocks seems pretty secure in the near future.

Preferred Stocks to Buy: Barclays PLC Preferred 8.125% Non-cumulative Series D

Preferred Stocks to Buy: Barclays PLC Preferred 8.125% Non-cumulative Series DCurrent Yield: 7.6%

Barclays PLC (ADR)’s (NYSE:BCS) Preferred 8.125% Non-cumulative Series D draws on the famous U.K.-based bank. BCS has one of the most diverse set of revenue streams of any bank. Like many European banks, though, Barclays faces some macro challenges.

Barclays is shoring up its capital ratios by selling off various assets. It is cutting expenses and trying to increase reliance on non-interest income, so as to avoid credit risks. Still, margins are being compressed and European growth is still sluggish.

Alas, non-interest income sources are limited by regulatory issues, and interest income isn’t that great anyway because of historically low rates. Nevertheless, the market likes what it sees in the preferred D series, as it trades at $26.74, or 7% above par.

Keep one thing in mind, though — the call date for this issue has passed, so the bank could at any time buy back the issue at $25 per share.

Preferred Stocks to Buy: Arbor Realty Trust 8.25% Series A Cumulative Redeemable

Preferred Stocks to Buy: Arbor Realty Trust 8.25% Series A Cumulative RedeemableYield: 8.17%

Arbor Realty Trust Inc’s (NYSE:ABR) 8.25% Series A Cumulative Redeemable preferred stock trades at $25.24, just 1% over par. It is not actually invested in real estate directly, but makes investments in bridge and mezzanine financing, as well as preferred equity for various real estate assets.

Arbor is fairly well-diversified in that it invests in multifamily, mixed use, office, industrial, hospitality and retail property loans. The investments aren’t huge — they tend to be under $10 million.

Arbor generated $37 million of adjusted funds from operations in 2014. Book value is $8.84, yet the stock trades at $7.18. It is vastly overcollateralized and has a solid balance sheet.

Investors don’t like the common, but the preferred looks like a solid play. You could certainly play with the common, given the discount to book value and the 7.3% yield. But for safety, I would go with the preferred issues and its generous yield.

Preferred Stocks to Buy: Ladenburg Thalman Financial Services Series A 8% Cumulative Preferred

ladenburg-thalman-financial-services-lts-stock-185Yield: 8.33%

A rather strange play is Ladenburg Thalman Financial Services’ (NYSE:LTS) Series A 8% Cumulative Preferred stock. Ladenburg Thalman is an investment bank as well as a brokerage, with a rather small $700 million market cap, and that trades at just $3.86 per share.

The company was founded in 1879 and has held a seat at the NYSE since its founding. As a public company, though, it hasn’t ever really gone anywhere. Still, it has $95 million of cash on hand, and its preferred payments only amount to $20 million per year.

While LTS doesn’t make much money (thanks to insanely high SG&A costs), the preferred seems safe for the time being. There is some skepticism, which is why it trades 4% below par at $24 per share. Nevertheless, that’s a fine way to pick up an 8% yield with the possibility for some modest capital appreciation going forward.

Lawrence Meyers is the CEO of PDL Capital, a specialty lender focusing on consumer finance. He is the manager of the forthcoming Liberty Portfolio, has 20 years’ worth of experience in the stock market and has written more than 1,200 articles on investing. As of this writing, he did not hold a position in any of the aforementioned securities. He can be reached at TheLibertyPortfolio@gmail.com.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/03/preferred-stocks-7-percent-lts-bcs-abr/.

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