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No. of Recommendations: 5
Personally, I would not buy a preferred issue that was not cumulative. Especially when there are so many available that are.
I don't expect them to ever cut their dividends, but I still wouldn't buy it.


I don't see this as a big issue at all.

True, given the choice, cumulative is better than non. Why not?
But I don't see it as a very big distinction.
It's a pretty narrow range of outcomes that are so bad that the preferred
dividends are cut for a meaningful length of time yet the firm doesn't go bust.
Usually things are either sufficiently good that the cumulative
provision doesn't matter or so bad that you're no better off.
Making it through 2008-2009 without a cut is a pretty good torture test
for these particular ones as well as a demonstration of that principle.
Lehman Brothers bonds are not worth much these days cumulative or not,
and and the survivors generally kept up their coupons.
For example, I imagine that's why BofA cut their common dividend to 1 cent rather than zero,
making sure there was no doubt that the coupons on the preferred had to be paid.

For me the bigger problem is that the vast majority of preferred issues have a call
date staring you in the face and can not be considered as long term positions.
That's particularly true in a low-yield world with so many trading far above par.
That's what I like about this particular one.
It's perpetual until the common price hits the very high hurdle which
is probably way down the road. 20+ years at a guess, though 15 is possible.
I trust there are few around here would complain with WFC common trading consistently over $204.
Thus, I'll take this one with no call date on the horizon but
non-cumulative ahead of one with call issues but cumulative.
I'd rather have a BMW without a guarantee against meteorite damage than a Lada with one.

Jim
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