Recent Trends in Preferreds and Baby Bonds Continue

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The stock market recently has been bobbing up and down by a 1/2% or so each day going nowhere to speak of–which pretty much mirrors the economy in the U.S.  Seems like we are pretty much settling into an economic ‘funk’–or maybe it is just the dog days of summer. With our portfolios pretty much locked into issues that we plan to hold for the foreeeable future all we can do is watch (and search for bargains as we have dry powder), which isn’t all bad as long as we are earning a reasonable return and our capital is being preserved.

Investment grade preferred stocks are holding very solid at current levels-as they have been for been for a month or 2. Of course many of the junk issues have tanked-in particular energy related issues as well as many of the shipping related issues. We would be surprised if any of these issues recovered quickly. Even if energy prices were to recover somewhat with another redetermination of lending bases being nearby (October) more companies are going to be backed into a corner and certainly this would include most of the upstream MLP’s.  We have hated the shippers for years–they are almost always overcommitted to ‘new builds’ (new ships on order) and with the level of debt these companies carry any upward movement in interest rates without a corresponding increase in ship day rates and we will be seeing more trouble in the shipping arena.

Almost all Baby Bonds have been very stable with the exception of a couple junky shipping issues. For the most part a dart throw would have given you a good return for the last many months. The investment grade issues have been super holdings.

This morning we sent out a new issue alert on insurance issue National General Holdings (NGH) debentures which have been issued with a coupon of 7.625%. Not a bad issue, but the duration is toooooooo long for us having a maturity of 2055.  Even though the interest payments are not qualified distributions we think this issue is superior to the 2 preferreds that NGH has at outstanding at this time. The 2 preferreds they have outstanding are perpetual with coupons of 7.50% and while the dividends are ‘qualified’ they will display a bunch of volatility if/when interest rates begin to move higher. But everyone has their needs and if you don’t mind the duration this is a reasonable issue with a decent coupon.

We are still waiting for the REITs to take another hit or two so we can add an issue–in fact as we are writing tonight we took a look at Stag Industrial (ticker:STAG) and it continues to trade at attractive levels with a 7.15% current yield.  We will consider a purchase in a couple days after we take a final review of their financials.

Every income investors needs to remain patient when choosing a purchase–hope isn’t a good strategy and neither is boredom. Income investing is sometimes about a lot of boredom and it is in our nature to be more active, but we are trying to be happy simply collecting income and preserving capital.

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