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I am using the Quantumonline web site to find some preferred stocks to invest in. I've gone to the section listing investment grade prfds that are eligible for the 15% tax rate.

This is my first time doing this. Anyone have any tips on what not to do, and what to do. Obviously trying to find high yield and high credit rating makes sense.

But what other parameters should one use to make a selection. There are a few hundred stocks listed there, and I need to have some sort of screening process. And, of course when the yield is high, they are ususally trading at a premium, reducing the yield. But, that's life. Anyone have any favorites they would recommend.

Thanks is advance.
Henry
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Henry,

If you do not mind answering...

And, of course when the yield is high, they are ususally trading at a premium, reducing the yield. But, that's life.

What seems to be the par yield (the rate at which people expect to pay no premium or to receive a discount on the price)? Just curious what a high yield is these days that is the market yield.

John

PS. I do not buy preferreds so I do not see the market data to answer my own question.
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<<What seems to be the par yield>> ...6 1/2 to 9% roughly, depending on the issuers credit rating
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Thanks for the fast reply on the par yields.

John
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Henry, lets make sure you understand. When missash mentions the premium s/he means the selling price over par value or more particularly over the call price.

With preferred issues you especially want to know what the call terms are. If you pay more than call price, you risk having the stock called from under you at a loss, sometimes before you have collected a single dividend.

So first and foremost, watch those call prices. Many are callable at $25; some at $10. Issued priced just over $25 often are paying high yield because of buyers reluctance to pay a ridiculously high premium. Hence, call price inflates the apparent yield for a while.

On a good day with the ABS preferred issues you can still get 8% on a BBB rated issue. But more often they have been bid up so the yield tends to be closer to 7 (except on dips).

When the Fed raises rates, prices often dip, and then recover slowly. That can be a great buy opportunity.
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Track down call provisions.

e.g. if you bought at a big premium, didn't look at the call provisions, and the company called it the next week, you'd lose out pretty quick.

The point with that is the premium represents X quarters of dividends. If the preferred gets called out from under you, you'll lose principle in the amount of the premium. If you've had X or more quarters of dividends then at least you've paid for the loss.

I tend to not buy at a premium for this reason. (and hence haven't bought many preferreds lately)

- David
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I don't buy-em in the secondary (but I "will sell-em" there)....rather wait for the new issues to buy in, and get in "line"......

I tend to not buy at a premium for this reason. (and hence haven't bought many preferreds lately)

- David


KBM (holding 3 different REIT issues presently)

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Search the REIT board for lots of discussions.
Some REITs seem to have good backing, but low rating,
so they can be a good value.
Be prepared for a fall in price when interest rates rise.
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I don't buy-em in the secondary (but I "will sell-em" there)....rather wait for the new issues to buy in, and get in "line"......

KBM (holding 3 different REIT issues presently)




KBM

How does one find a list of new issues, and how does one buy them at par?

My discount broker, Ameritrade does not offer them, but they said a full service broker can get them. Since I don't have a full service account, I wonder if they can be bought directly from the company, or some other way?

I presume the REIT issues you hold are presently selling at a premium, but I am curious what they are, if you don't mind?

TIA,
Henry
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Henry:

We're allocators, so our holdings revolve around asset classes, not names. We have a yield driven fund on the fixed side...so our goal is work in "OI's" for the most part on the fixed income stuff. We use Fido for much of the fixed stuff, and can get most anything on a "discount broker basis", and TD Waterhouse for equities and cash management products on a discount basis of course.

Been building out a REITS portfolio over the past couple of years and hold about 6 of-em presently, along with several I-Shares funds, all yielding a minimum of 2.5% or more (except for a piece of GLD & CEF closed trusts that do not yield but hold commodities). Seems to work out, but we're "very" cash heavy right now as we move through the FED rate change cycle. Taking opportunity as it might present itself.

No prob on the REIT pfd's.....we hold VNO-C 8.5%, DRE-K 6.50%, DRE-J 6.625, and yes, they will occasionally sell "one" at a premium or discount based on real long rates fluctuations in the secondary, but we have to deal with the bid/ask spreads (not in the OI's (original issues) and the friction cost of a trade in the secondary. This will affect yields somewhat, as will the "call dates", but if your tracking closely the long rates you can win on the cap gains side.

Naturally, in the real world, tax issues on our partnership are always a concern, especially on non governmental interest yielding products, but it's not a major concern if your yield is averaging 6-8% overall, as ours has in past years. Course it helps when you're holding some 30 year treasuries yielding an average of 10+%......it all works out in the end I guess.

Been at this awhile, but the last four years have been tough as nails, and not for the "cash poor" investor. Hard to find decent yields now, without accepting some added "risk" on principle...especially on the REITS & pfds stuff, in this time of increasing long rates. And that's putting it mildly.

Come-on over to the REITs Board. You'll find quite a few knowledgeable and even "funny" folks, who generally understand both the REITs and the Fixed income side very well.

KBM (aka "The Other BB - tm")







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