Tuesday, July 3, 2012

Bought Back GSPRD at $18.9/Sold 50 BDGE at $23.5/Sold 50 RRD at $11.92-Roth IRA/

PNC announced that it intends to redeem all of its $450M in trust preferred securities issued by PNC Capital Trust E (PNH) and all of the $517M in trust preferred securities originally issued by National City Capital Trust IV (NCC.PC). The redemption date will be on 7/30/12 at par value plus accrued interest.

Fifth Third Bancorp announced its intention to redeem all $575M of the outstanding trust preferred securities issued by Fifth Third Capital Trust V (FTBPRA).

The unemployment rate in the 17 nation Eurozone hit 11.1% in May. Eurostat Spain's unemployment rate was reported at 24.6%, a number consistent with depressionary conditions. Eurostate reported last Friday that the estimated annual inflation rate in the Euro area was 2.4% in June 2012. epp.eurostat.ec.europa.eu. PDF

The ISM manufacturing index for June declined to 49.7%, indicating contraction. This was the first contraction in almost three years. The new orders component plunged to 47.8 from 60.1.

Brandywine Realty, a recent add, was ex dividend for its quarterly dividend yesterday.

First Trust/Aberdeen Global Opportunity Income Fund (FAM), a bond CEF that I own, was ex dividend for its monthly distribution yesterday.

Global X SuperDividend ETF (SDIV) was ex dividend for a $.17783 per share dividend. This ETF will pay a variable monthly dividend. (Sponsor's website: Global X Funds)

SPDR Barclays Capital High Yield Bond ETF (JNK) was ex dividend yesterday for its monthly dividend. (Sponsor's website: JNK - SPDR Barclays Capital High Yield Bond ETF)

Market Vectors Emerging Markets Local Currency Bond ETF (EMLC) was ex dividend yesterday for its monthly dividend. (Sponsor's website: Market Vectors® Emerging Markets Local Currency Bond ETF)

AllianceBernstein Income Fund (ACG) is ex dividend today for its monthly dividend.

I own all of the foregoing income generating securities.

Barclay's lowered its price target for Quicksilver Resources (KWK) to $3 and its rating to underweight from equal weight. For the last few trading days, this stock has ignored the negative news and has been rising on good volume. This stock closed at $5.43 yesterday and at $3.09 on 6/13/12,  KWK Historical Prices.

1. Bought Back 50 GSPRD at $18.9 Last Friday (see Disclaimer): GSPRD is a floating rate equity preferred stock issued by Goldman Sachs. As such, it will be junior in priority to all bonds and senior only to common stock.

All of the Goldman Sachs equity preferred stocks were weak last Friday. GSPRD traded in a wide range between $18.4 to $19.35 before closing at $18.42, down 74 cents for the day. Volume was 265,515 shares, close to twice the average, which suggests there was a motivated seller. A similar decline was noted in GSPRA, which fell 3.83% last Friday, to close at $17.85, on above average volume.  

My last transaction for GSPRD was to sell 50 shares at $20.47 (March 2012). Those shares were bought at $18.6 (September 2011)

My overall opinion of this asset class is negative: Advantages and Disadvantages of Equity Preferred Floating Rate Securities

This security will pay qualified dividends at the higher of 4% or .67% above the 3 month LIBOR rate on a $25 par value. Prospectus The 4% coupon is likely to be the applicable rate for several years due to the Fed's Jihad Against the Saving Class. Dividends are non-cumulative and are paid quarterly.

I would add this caveat about qualified dividends. Their favorable tax treatment, which caps the tax at 15%, is scheduled to expire at the end of this year. It is anyone's guess whether or not the rate will be extended and, if extended, to whom it would still apply. 

If GS eliminated its common and equity preferred dividends to "preserve capital",  GS would not be able to survive in my opinion. Big money customers, who had not already deserted the company, would be falling over one another trying to get their money out of GS. So I would not anticipate a dividend elimination on its non-cumulative preferred stock short of bankruptcy. 

Another opinion pertinent to this security is that the owners of the GS common, equity and trust preferred stocks would all be holding worthless securities in the event GS ever does a Lehman. The owners of the senior debt would likely receive something, but would still be in a world of hurt if that debt was bought anywhere near current prices.   

When investors are skittish about financial institutions, as now, their non-cumulative equity preferred stocks are subject to bouts of volatility. Item # 1 Fear and Enhanced Volatility in Certain Classes of Income Securities (August 2011 Post); Embracing Volatility as A Risk Management Tool In the Sub-Asset Class of Equity Preferred Stock (May 2009 Post) In the August 2011 post referenced above, I mentioned the price action in several equity preferred stocks the previous day. For example, the U.S. Bank floating rate equity preferred stock, USBPRH, was bought at $18.12 when the price range that volatile day was $17.12 to $21.01. That security is now trading consistently over $22. U.S. Bancorp Dep. Pfd. (Rep. 1/1000 Interest in a share of Non-Cum Perp Pfd Series B), USB.PH So what can you say except that this kind of volatility can present opportunities and a need for Maalox and chill pills.

Based on a total cost of $18.9. GSPRD would have a dividend yield of 5.29% at the 4% minimum coupon.

The floating rate provision would become the applicable rate when it provides a greater coupon than 4%. This would necessitate a rise in the 3 month LIBOR to more than 3.33% during the relevant computation period.

At a 5% 3 month LIBOR rate, for example, the coupon would become 5.67%, rather than 4%, and the yield at a total cost of $18.9 would then become 7.5%. That type of provision would cause this security to have some protection in a rising rate environment, compared to a fixed coupon GS preferred stock. GS has one of those, GSPRB, which has a fixed 6.2% coupon on a $25 par value.

Link to GS website listing its equity and trust preferred securities: Goldman Sachs | Creditor Information - Preferred Stock

GSPRD rose 70 cents in trading yesterday to close at $19.12.

Quote GSPRD: Goldman Sachs Group Inc. Dep. Shs Pfd. Series D (GS.PD)

2. Sold 50 RRD at $11.92 Last Thursday-ROTH IRA (see Disclaimer): Other than BDCs and REITs, I will own a limited number of common stocks in the ROTH IRA, and my holding period will generally be a few days or months. Even with that cautious approach, I will buy only dividend stocks with rich yields. When I bought the RRD shares, the dividend yield at my cost was over 10%. Bought 50 RRD at $10-ROTH IRA (5/23/12).

RRD 50 Shares Unrealized Gain $81.5/ As of 6/27/12 with Price at $11.79 per share
2012 Roth IRA Realized Gain 50 RRD +$81.98
I held those shares for slightly over one month. Since the shares rose on the date of my sell, the realized gain was after a $7 brokerage commission.

By selling the stock, I can add one RRD bond. I currently own 2 RRD senior bonds. My current limit in exposure to all RRD securities is $3000.

Bought 1 R.R. Donnelley 6.125% Senior Bond Maturing 1/15/2017 at 89 

Bought Back R.R. Donnelley 8.875% Senior Bond Maturing in 2021 at $96.95

Bought 1 R.R. Donnelley 8.875% Senior Bond Maturing 5/14/2021 at 92.69-Sold 1 RRD Senior 8.875% Bond Maturing 2021 at 100

R.R. Donnelley & Sons (RRD) fell 10 cents in trading yesterday to close at $11.67.

3. Sold 50 BDGE at $23.5 Last Friday (Regional Bank Basket Strategy)(see Disclaimer): By selling these shares, I book a small profit and more importantly from my perspective lower my average cost on the remaining shares. I am reinvesting the dividend. My average total cost on the remaining 107+ shares was reduced to $20.27:

107+ BDGE Shares Unrealized Gain $363.33 as of 7/2/12
The shares, which were sold last Friday, were my highest cost shares, bought at $23.11 (January 2011). The shares closed at $23.59 last Friday, up 2.65%.

BDGE closed at $23.65 yesterday.

BDGE Quote: Bridge Bancorp