I wonder if telling the truth or being accurate with your statements is one of the values cherished in more than name by the politicians who claim to be proponents of traditional conservative, family values.
1. Added 50 STDPRB at 18.54 and Sold 50 STIPRA at $20.9 (See Disclaimer): This kind of trade is emblematic of the tortoise approach to investing. As explained in a prior post, both of these securities are floating rate equity preferred stocks that pay the greater of 4% or a float over a 3 month Libor. Item # 8 Added to STDPRB at 18.6 Both pay qualified dividends and are non-cumulative. Neither has a maturity date. There is a miniscule difference in the Libor float provision of .01%, a non-issue. According to the data at QuantumOnline, the Santander floater has a higher credit rating than the one from Suntrust. In any event, I do not think that there is a reason, known to me at this time, that would justify the almost $2.5 premium of STIPRA over STDPRB given that they are virtually identical securities. If one was going to sell at a premium, I would expect the one from Santander to be selling at a higher price. This is not to say that either price is a good one for the investor. Instead, it simply means that I would prefer taking my profit in STIPRA at $20.90 and invest some of the proceeds into STDPRB at $18.54.
These transactions were in the main taxable account. This brings the total of STDPRB to 200 shares, with 50 held in an IRA. The first 100 of the Santander floater was purchased at $15.3. The shares of the Suntrust floater were bought at $17.2 in September 2009.
The prospectuses for STDPRB and STIPRA are linked below for anyone desiring to perform the same comparison:
STIPRA Final Prospectus Supplement
STDPRB: www.sec.gov
My main post discussing the advantages and disadvantages of this type of security can be found at Advantages and Disadvantages of Equity Preferred Floating Rate Securities.
This kind of trade is part of what I would call Functional Equivalence in Bond Trading. An equity preferred stock like STIPRA is part of equity, but its bond like characteristics dominate for me over its undesirable equity features. Those undesirable equity features include the perpetual character of the security and its low status in the chain of priority. The worst equity characteristic is that there is no real equity interest in the business even though the security is equity capital on Suntrust's balance sheet.
Santander allows investors to download reports from the rating agencies: Ratings I did read the Moody's report which assigned a A 2 to Santander's preference shares, AA2 to the senior debt and AA3 to the subordinated debt.
At least so far, this exchange has not started to work in my favor, though the reasoning behind it appears to be theoretically sound.
I have an internal limit on the amount of exposure that I will accept to non-cumulative equity preferred stocks issued by financial institutions.
2. Property Tax Deduction: For tax years 2008 and 2009, there is a property tax deduction for those who do not itemize. The deduction is limited to $500 for individuals and $1,000 for married couples filing jointly: Tax This is helpful to me since I do not itemize deductions. I use TurboTax and have to enter the amount paid in 2009 for the software to enter the correct amount of the deduction in a Schedule L. Forbes.com
Kiplinger published an article last November on the most overlooked tax deductions.
3. Chip Equipment Order Forecast (own AMAT common): Gartner is estimating that orders for chip equipment will grow by 75% to 30 billion in 2010. Another group estimates an increase of 88%. Reuters
4. Synthetic Floaters: The receipt of my 1099 confirmed my decision last year to hold all synthetic floaters in a retirement account. The accounting is just bizarre, and is apparently related to the swap agreement which creates the float. I mentioned in several posts last year that my eyes just rolled back into my head after reading the relevant section in the GYB prospectus when I made a purchase in April 2009: Bought GYB/DD/Will Hold Synthetic Floaters In Retirement Account After reading about the tax issue in the prospectus, I sold the synthetic floaters held in a taxable account soon after their purchase, and transitioned ownership of them to the retirement accounts. I would just make three observations about what the broker did: (1) I was tagged with around $60 in Original Issue Discounts that will be reportable as interest income, calculated by the broker using the number of days the security was held by me, and OID rate and the face amount (par value) of the security; (2) the cost basis was adjusted down; and (3) what I thought was interest paid was not classified by the broker as interest income. Since the amounts are very small given the short duration of my ownership of a few of these securities in the taxable account, and it appears to me that I am paying more taxes associated with my brief ownership period than I previously expected or view as reasonable due to the downward adjustment in my cost basis which increased my reportable gains when I sold all of them and the OID entries, I am not going to attempt to verify what was done by the broker because I am not capable of making that determination no matter how much time is spent. This confirms my decision, however, to own the synthetics solely in a retirement account going forward. Synthetic Floaters I currently own in retirement accounts GYB, PYT, GJL, GYC, and GJN.
I do own other floaters, both in the taxable and retirement accounts, that do not have this issue which is unique to the synthetic floaters where the float is created by a swap agreement. Other floaters owned in the retirement accounts include the CPI floater from Prudential PFK, the hybrid AEB from Aegon, ZBPRA from Zions and METPRA, the equity preferred floating rate stock from Met Life. The one from Zions is probably not consistent with the conservative management mandate of the retirement accounts and may be sold at some point.
I would add that I do own JBK in the taxable account. While it originally was a synthetic floater making quarterly payments based on the greater of 3.5% or .75% above the 3 month Libor rate (www.sec.gov), that float was created by virtue of a swap agreement with Lehman. The bankruptcy of Lehman was a termination event for that swap agreement, whereupon JBK become a fixed coupon TC making semi-annual payments at the coupon rate of the underlying bond. I purchased JBK after the swap agreement was terminated and the distributions are simply classified as interest.
4. Bought 50 shares of Premier Financial at $7.95 (PFBI)(see Disclaimer): The LB and the RB have been in a contretemps for weeks about RB's Regional Bank Stocks stratagem. LB wants to sell all of the stocks now, take the money and run for the hills, while the RB wants to hold for the long term as part of its vision thing. To settle things down, and to hopefully secure a few days of peace and quiet, Headknocker ordered that one more name be added to bring the total number of holdings in this basket strategy to 30, since the HK likes even numbers, and then commanded that all brain chatter about this matter cease for the remainder of the week.
I suspect that the individuals buying PFBI yesterday, sending the shares up 50 cents or 6.71% may have misinterpreted the earnings release from this small regional bank. The bank did report earnings of 62 cents for the 4th quarter of 2009, up from the 30 cents earned in the year ago quarter. However, that number was influenced by a non-recurring 3.6 bargain purchase gain connected with Premier's recent acquisition of another small banking institution, discussed below. Excluding that gain, net income fell 22% for the quarter. NYT The bank is headquartered in Huntington, West Virginia. It also has 9 branches in Kentucky, 3 in Ohio and 13 in West Virginia. Other banking subsidiaries are Citizens Deposit Bank & Trust, Farmers Deposit Bank, Ohio River Bank, First Central Bank, Inc., Boone County Bank, Inc., and Traders Bank, Inc. This is a link to the Reuters description.
Premier did not enter into an agreement with the government for TARP funds until October 2009, receiving over 22 million in cash: exhibit10-1.htm This kind of agreement will contain restrictions on the payment of common dividends. The Board did recently declare an 11 cent quarterly dividend for shareholders of record on 3/15/2010. SEC Filing If the bank maintains that rate, the dividend yield would be about 5.53% at a total cost of $7.95.
On 10/1/2009, Premier completed its acquisition of Abigal Adams National Bancorp, which had two banking subsidiaries. One of those is Abigal National Bank with offices in Washington, D.C. and Maryland. The other is called Consolidated Bank and Trust with offices in Richmond and Hampton, Virginia. The value of that transaction was estimated to be 10.3 million based on a share exchange. (note 9: Form 10-q for Q/E 9/09) This will give Premier entry into new markets which is one of the criteria used to select candidates for the regional bank strategy.
The stock was trading in a channel between $14 to $16 before the start of the Near Depression: Premier Financial Bancorp, Inc. Share Price Chart | PFBI It is currently trading above its 200 day moving average.
As far as I can tell, no analysts follow the stock. The market cap is just 63 million at the $7.95 price. PFBI: Price to book is listed at around .52: PFBI: Key Statistics
I will add another 50 shares if the price falls back below $7.5. This is the last addition to the Regional Bank strategy whose implementation started in March 2009. The rules of this strategy will allow me to replace one of the existing banks with a new one, but I can not expand the list beyond 30 names in the basket strategy.
5. Glimcher and First Industrial Preferred Stock (own): I own GRTPRF. Glimcher Realty declared its regular quarterly preferred stock dividends. My shares were bought during the meltdown at $2.9 to yield 75% per annum at my cost. GRTPRF: A WALK ON THE WILD SIDE/ KTN add I am still surprised that I bought that stock when I did in November 2008 but the dividends received since purchase will exceed my original investment after the next payment. I also bought that same day the TC KTN at $14, with a current yield of 14.73% at my cost until it matures in 2027 or early call, and still own that one with no intention of selling it. The buy of KTN made sense. RB had to be at the controls for the GRTPRF purchase under the circumstances then prevalent. The TC KTN, containing an investment grade bond, is now selling at over its $25 par value. In retrospect, I needed to engage in a feeding frenzy on the investment grade bonds back then.
First Industrial Realty (FR) also declared its preferred stock dividends. I traded the First Industrial preferred stocks until I was playing with the house's money. I decided to keep only the last shares bought at $8.4 in February 2009 to yield at that cost over 21% per annum. I was lucky on these two preferred stocks. Neither Glimcher nor First Industrial have skipped a preferred stock payment. FR has eliminated its common dividend, whereas GRT did reduce its common dividend.
Once a firm eliminates a common share dividend, it is my view that the preferred shareholder is in an enhanced danger of having their non-cumulative dividend eliminated or their cumulative dividend deferred by the company. The preferred stocks issued by FR and GRT, as with other REITs, are cumulative, though no interest is earned on a deferred payment which is a common feature of junior bonds. REIT preferred stocks are not bonds and are classified as equity with seniority only to common stock and junior to all bonds.
And this warning to FR's preferred shareholder's has started to appear in firm's press releases announcing earnings:
"As previously disclosed, the Company continues to operate with little cushion in certain of its financial covenants under its line of credit agreement and unsecured debt indenture. The Company’s ability to continue to meet its financial covenants is dependent on various factors, including, in part, its ability to continue to sell sufficient assets on favorable terms. If the Company is not required to pay preferred stock dividends to maintain its REIT status, it may elect to suspend some or all preferred stock dividends for one or more fiscal quarters, which would aid compliance with the fixed charge covenant under its line of credit agreement."exv99w1
Given the tax consequences of holding a deferred cumulative dividend, I elected to buy the last FR preferred shares purchased, and all that is currently owned, in a retirement account.
I have no intention of buying additional shares in either preferred issue due to my view on their risk levels, particularly at the current prices. I also own Lottery Tickets in the common shares of GRT and FR. LOTTERY TICKET PURCHASES: LINKS IN ONE POST
6. Dividends and Interest: The following securities are ex dividend or interest on Wednesday 3/10/2010. Dividends - Markets Data Center - WSJ.com OSM, the CPI floater, goes ex interest for its monthly payment. The TP from Associated Banc, ABWPRA, goes ex interest for its quarterly payment. I hope readers understand now that a bank TP is actually issued by a delaware trust controlled by the bank who then sells trust preferred stock to the public in order to buy a junior bond from the bank. The TP represents a beneficial interest in that bond. In the case of ABWPRA, this would be a junior bond issued by Associated Banc (ASBC). Bought 100 Yahoo at Open/Bought 50 ETF PIQ at $19.81/Added 50 ABWPRA at $19.42 Added 50 of ABWPRA /Bought 50 of the TP ABWPRA The synthetic floater GYC goes ex interest for its quarterly payment. The TC XKK goes ex interest for its semi-annual interest payment. I just pared my position in that one by selling 300 of my 550 shares as it approached its $10 par value. The senior note from U.S. Cellular goes ex interest for its quarterly payment (UZV). Two banks in the regional bank strategy, UBSI and WSBC, go ex dividend.
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