No. of Recommendations: 6
Look at QuantumOnline for the best listing of preferred stocks that I know about. It lists over 1000 with a lot of information about each one. Click on the link below, and then click Preferred Stocks Table, it is better than the Preferred Stocks List immediately above it.

http://www.quantumonline.com/stklist.htm

The table shows dividend rate, call dates and amounts and provides links to the prospectus

I have a few conventional preferreds such as AAA rated Royce Value Trust (RVTprA), but I have a lot of REIT preferreds since they have a higher yield. The rating agencies generally are not as kind to REIT preferreds as to some other preferreds.

However, some of us think that some REIT preferreds are as strong as many highly rated preferreds.

For comparison, look at a non-REIT - the RVT preferred which is issued as leverage by a closed end investment fund. It has all the investments of that fund to provide safety, there is no debt, just a few accrued liabilities. At 12/31/01 RVT had 851 million in assets and 2 million in liabilities. I think it clearly should be AAA rated.

But there are some REIT preferreds, such as the PS Business Parks (PSB) preferreds that are strong, though not as strong as RVT, and not rated very well, if at all. The last time I saw a rating on PSB, it was BBB-, but that was some months ago and may have changed. At 12/31/01, PSB had 1.169 billion in assets and 210 million in debt and accrued liabilities. REITs must pay out 90% of their taxable income as dividends, and the preferred shareholders stand first in line to get their part of the distribution. I think this tax law requirement makes REIT preferreds relatively more valuable than some other preferreds.

I think one of the reasons REITs are not as highly rated is that the conventional balance sheet shows the stockholder's equity based on depreciated historical cost of the real estate, which is the primary asset of all REITs. Historic cost is not a realistic measure for a company that primarily owns real estate, especially if a lot of the real estate has been owned a while. A well located, well maintained, profitable rental property usually increases in value over several years, yet on the balance sheet, its value decreases each year by the amount of depreciation write off. After several years, the net value on the balance sheet has no relationship to what the building is actually worth.

Two other points.

Most preferred stocks are perpetual, so they may never be redeemed by the issuer. If there is a major interest rate shift, you could be stuck with a low yielding stock, the value of which has dropped, For example, suppose you buy a $25 preferred paying a $2 (8%) dividend. Then interest rates on CDs jump up to 12%. The market price of the preferred will drop substantially, maybe in half, but you will continue to collect the same $2 dividend. (Unless the issuer has problems that cause it to pass on paying the dividend, but that is credit risk that you see on bonds also)

Preferreds issued by regular tax paying corporations are frequently bought by other corporations because of a provision of the income tax law that allows the purchasing corporation to exclude from taxable income a large part of dividends received (to reduce the amount of double taxation). Since there is more demand for these types of preferreds, the yield is generally somewhat lower than the yield on preferreds issued by REITs which received an income tax deduction for the preferred dividend.
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