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Author: pauleckler Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75828  
Subject: Re: Preferred Stocks Date: 1/28/2011 6:04 PM
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See this thread on the Bond and Fixed Income board for several lists of preferred stocks.

http://boards.fool.com/preferred-stocks-28999136.aspx?sort=w...

Once you have the ticker for the issue (which you can usually get from a ticker lookup search on QuantumOnLine.com), you can find current pricing charts on most services including Yahoo Finance.

The most important aspects to watch are 1) call provisions, 2) bond rating, and 3) competitive yield.

Most preferreds are callable after a specified date at a specified price. You can find call provisions summarized on QuantumOnLine, or follow the link to the original prospectus for the issue. Some have fairly complex call provisions, but most are callable at $25 or $10. You especially do not want to buy one at a premium over its call price and then have it called out from under you at a loss (sometimes without a single dividend payment). Moreover, call provisions can distort prices payed for a given issue. It is not uncommon to find that the one paying an unusually high yield is callable soon. Or call price holds price below market giving an especially high yield.

Bond ratings from AAA down to BBB are usually considered investment grade. Those rated lower are junk bonds. They are higher risk and hence lower rated bonds pay higher yield. So obviously a good buy is one that pays a higher yield than justified by its bond rating. QuantumOnLine is reasonably up to date on bond ratings. But there is a recent scandal about bond rating agencies and mortgage backed securities. They are fairly reliable on preferred stocks, but its a good idea to select issues with publically traded companies. Then you can read the annual report of the company, and read about its common stock to determine if its business prospects are good and especially is it reporting a profit or losses.

Yield is straight forward. Get the best yield you can consistent with reasonable risk, and plan to own at least five issues for diversification.

When buying preferred stocks, most are thinly traded. It is best to buy them with limit orders. Market orders can distort price curves.

A new element is third party trust preferred issues. These are preferred stocks issued by an investment banker backed by a single long bond issued by a client company of the bank. In essence you are buying a bond but at discount broker commissions and with published price history, a rarity with most bonds. These are often listed under the sponsoring bank or their brand name, but you can find them with a ticker lookup search for the company on QuantumOnLine.

One of the most recent features appearing in the prospectus of preferred stocks is a provision that allows the issuer to defer payment of interest for sometimes 20 quarters without penalty. I am not aware of any that have suspended payment under this provision, but it does worry some investors. Read the prospectus before you buy to see if this feature is in there.

I hope this introduces the topic. Any questions, feel free to ask.
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