Regular readers of my column know I absolutely love preferred stock. Until a few years ago, it wasn’t a well-understood investment and seemed exotic to many.
Preferred stock can be a vastly safer investment that provide much higher yields in relation to risk than bonds. Bonds aren’t yielding much and have very little risk.
However, with the 5%-9% dividends that preferred stock pay, and the generally limited risk they offer, it’s a great place to stash money for income investors. I hold some preferred issues myself, as well as an ETF in the area.
There have been a few new issuances of preferred stock recently, and they seems like they might offer a way to diversify your preferred stock investments. Remember, you want a company that is solvent and in good shape financially, which substantially increases the safety of the issue.
Here are three new preferred stocks to consider:
Preferred Stock No. 1: Public Storage (PSA)
Public Storage (NYSE:PSA) has been on fire for quite some time. I think business really took off not only because of the strong brand name and footprint, but because a lot of people lost their homes and had to move into apartments, thereby requiring stuff be put in storage.
In November, the company issued Class A Cumulative Preferred Stock, paying an annual dividend of $1.469, or 5.875% based on the $25 issue price. The call date isn’t until December 2019.
“Cumulative” means that if the dividend ever gets suspended, it will accrue and be paid with accruals if reinstated.
A suspended dividend isn’t likely. The company is in unbelievably good shape — it has $98 million in cash, but has aggressively been paying down debt to a mere $71 million.
This is amazing for a company taking up so much real estate space and having so many buildings.
Preferred Stock No. 2: Urstadt Biddle Properties Inc (UBA)
Urstadt Biddle Properties Inc (NYSE:UBA) called one class of 7.5% preferred stock in November, and even paid 10 cents above par for it. They redeemed those shares by issuing 6.75% Series G Cumulative Redeemable Preferred Stock.
So the company went and saved itself about 10% in preferred dividend payments with this new issue. It’s a good sign if a company can swap out a preferred class with one at a lower rate.
The reason business is good is because it is a REIT operating in a robust segment right now — high quality retail shopping centers that are located in suburban, high-demographic communities surrounding New York City.
Of course, NYC development has been going gangbusters since the financial crisis, so the REIT is clearly on top of things. By the way, Charles Urstadt himself purchased 20,000 shares early last year, so that’s a great vote of confidence.
Preferred Stock No. 3: Gabelli Healthcare & WellnessRx Trust (GRX)
An interesting way to play healthcare for the aging is with Gabelli Healthcare & WellnessRx Trust (NYSE:GRX), which is a closed-end fund that invests in securities regarding the aging population’s rapid increase in healthcare expenses, and consumers, who are using preventative care.
The fund itself issued a Series B 5.875% Cumulative Preferred stock to help fund more purchases of stock for its portfolio.
In this case, it isn’t so much that the “company” solvency is what you need to watch. You need to watch its net asset value and make sure it stays close to the price of the fund itself — though right now, it’s trading at more than an 11% discount to NAV.
And with all the attention on healthcare lately, I suspect there’s little to worry about.
As of this writing, Lawrence Meyers does not hold a position in any of the securities mentioned.
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