Rose’s Income Garden Portfolio With 6.4% Yield: Preferred Stock Review

Rose’s Income Garden “RIG” owns 85 stocks in all 11 generally known sectors. It owns 11 preferred shares that are now mixed in with the common shares under the financial sector.

Below is a chart showing the current 11 sector designations in bold and the number of companies (#Co) owned in each. The last sector, financial, is where I am experiencing difficulties as it now holds 30 companies if I let it hold the preferred, etc. I show 15 financials without the preferred and the 11 preferred in the new sector designation I am wanting.

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I do also separate the sectors in other articles by defensive stocks and sectors which complicates this, and I am keeping this simplified for my purposes regarding the preferred shares being in their own sector, which I believe they deserve. Preferred shares can be a distinct high yield investment somewhere between the characteristics for common stock and bonds and definitely not like BDCs/business development companies. The 4 fixed bond types will also be kept out and listed separately as defensive in a different method, as I have mentioned.

Attributes of preferred shares:

– They are actually somewhat safer than common stock in that they have a senior claim to company assets after bonds.

– The price fluctuates, but less so than common stock

– The price behaves more like bonds, which are also affected by interest rates.

– The price is dependent on the parent company being able to pay off debt.

– Shares are easily bought and sold online without broker assistance versus some bonds.

– The shares have a higher buy and sell spread price and a limit price should be used for purchasing them.

– It has a set call date price, but not necessarily a requirement for it to be called on that date.

– The distribution is usually paid on a quarterly fixed basis and date unless announced otherwise, with usually a month’s notice if the distribution is held or changed.

-The company will usually suspend or cut the ordinary dividend on common stock shares before the preferred.

– New rates/ rules can be set for distributions after the call date, which makes them called “floating” rate issues.

– There are, in general, no voting rights.

The unusual and rather unique attributes as mentioned above allow me a great reason to separate them out of the financial sector where they would normally reside or even with the common shares of the parent company’s sector.

Preferred Shares

Rose’s 11

They come from 8 different parent companies: 3 mREITs, 4 industrial sector shipping companies and 1 ETF. The yields vary currently from 7% for the ETF to up to 12.33% for a floating rate shipping investment. The majority are fixed rates, with some having the ability to become floating rates in the future.

Abbreviations used:

Curr $ Price = Current $ price on April 18.2024.

ticker = stock ticker

Yield = dividend yield using yearly amount and current price.

Pay month = the number of the month it pays, January =1, etc….

Each one is discussed in more detail below the chart which shows the yearly payment and quarterly distribution.

-Mortgage REITS

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-ETFs:

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-Industrial Shipping:

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More Facts for each:

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ABR-F

Arbor Realty is a mortgage real estate investment trust that pays a dividend and currently has a 14% yield.

The preferred “F” series was purchased when it had a yield of closer to 9% in 2023. Call date and float rate are in 2026. It usually pays on the 30th of the payment month.

Below is a 1-year price chart from Seeking Alpha showing 52-week price range as well.

AGNCN

AGNC Investment Corporation is a mortgage real estate investment trust that pays a dividend and currently has a 15.9% yield. The preferred “N” was purchased quite recently this year, with it paying a yield of 10.6%.

It has a floating distribution that varies and usually pays on the 15th.

Below is a 1-year price chart from Seeking Alpha showing 52-week price range as well.

SA analysts show a hold rating in the chart below.

Analysts have a hold on it.

RITM-A

Rithm Capital Corporation is a mortgage real estate investment trust that has a 9.5% yield paying a $1.00 yearly distribution. The preferred”A” was purchased earlier this year knowing it would go to a floating rate after the August distribution. It pays on the 15th of the payment month.

Below is a 1-year price chart from Seeking Alpha showing 52-week price range as well.

No ratings chart available.

RITM-D

Rithm Capital was formerly known as New Residential and this issue as NRZ-D.

It was purchased in 2022 when it was yielding 8.75% or more. It will float in 2026 and pays on the 15th of the payment month.

Below is a 1-year price chart from Seeking Alpha showing 52-week price range as well.

No SA ratings chart available.

DFP

Flaherty & Crumrine Dynamic Preferred Income Fund

This is a closed end mutual fund that aims to invest in a diverse selection of preferred funds internationally. It was formed in 2013 in Pasadena, CA. It pays monthly and will usually announce 3 months of distributions at a time. Furthermore, it pays at the end of each month about the 28th.

Below is a 1-year price chart from Seeking Alpha showing 52-week price range as well.

SA analysts show a hold rating in the chart below.

Industrial – Shipping Preferred Shares

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DLNG-A

Dynagas LNG Partners LP owns and operates liquified natural gas transportation shipping carriers. The company was incorporated in 2013 and is headquartered in Marshall Islands. It currently does not pay a dividend on its common shares. The good news is that it refinanced in 2019 and most likely cannot redeem the preferred shares prior to 2024. These are most likely also fixed at a 9% rate at the call price of $25. They were purchased starting in 2022 and into 2023. It pays on the 12th of each payment month.

Below is a 1-year price chart from Seeking Alpha showing 52-week price range as well.

The SA analysts show a buy rating in the chart below.

DLNG-B

These shares had a fixed rate of 8.75% but most recently started to float with the distribution paid on the 22nd of the payment month. They were purchased in mid 2023 with the knowledge they would be floating soon and had a yield of ~ 11%.

Below is a 1-year price chart from Seeking Alpha showing 52-week price range as well.

The SA analysts show a buy rating in the chart below.

NS-C

NuStar Energy LP operates in the oil and gas storage and transportation industry internationally. It was incorporated in 1999 and is headquartered in San Antonio, TX. It pays a steady dividend and has a yield of 7.45%.

The preferred “C” just started to float, and the shares might be called in the near future. They were purchased with that in mind and near the $25 call price. It has a K1 tax form but rarely shows any UBTI to report. It pays on the 15th of the payment month.

No charts available from SA for the preferred, but the parent company has favorable buy ratings, which is a good sign for the preferred.

SEAL-A

Seapeak LLC was formerly known as Teekay LNG Partners L.P. and changed its name on February 25, 2022. It operates in the international marine transportation industry. The company was incorporated in 2004 and is based in Vancouver, Canada. The K1 tax form ceased after 2019 when it was known as TGP-A. It has a fixed rate of 9% and pays on the 15th of the payment month.

Below is a 1-year price chart from Seeking Alpha showing 52-week price range as well.

The SA analysts show a buy rating in the chart below.

SEAL-B

This is another series of Seapeak LLC and has an 8.5% fixed rate. It pays on the 15th of the payment month. It was purchased years ago as TGP-B and had a yield of >11%.

Below is a 1-year price chart from Seeking Alpha showing 52-week price range as well.

The SA analysts show a buy rating in the chart below.

TNP-E

Tsakos Energy Navigation Ltd. provides marine transportation worldwide for petroleum products. It was formerly known as MIF Limited and changed its name in 2001. It was incorporated in 1993 and is based in Athens, Greece. It pays a routine dividend and has a 2.37% yield. The “E” issue has a fixed rate and pays on the 28th of the payment month. It was recently purchased with a yield of 8.8%.

Below is a 1-year price chart from Seeking Alpha showing 52-week price range as well.

The SA analysts show a buy rating in the chart below.

Rose Recommendation

Preferred shares are good regular high yield income which will not grow unless the floating rate is higher than the fixed rate. The call date must always be kept in mind and buying over the call price, usually $25, comes with more risk. The parent company should be easily paying the regular dividend on common shares in order to keep the preferred shares less risky to own. All are candidates for purchase, keeping those thoughts in mind. The only issue that has a K1 tax form is NuStar-C, and it is one to buy near its call price of $25 as it could be called even this year.

Summary/Conclusion

I have decided to hold the preferred in a separate sector for my own purposes and for reporting from now on. I enjoy owning them and the constant regular reliable income. The “RIG” income yield is 6.4% owing to owning these and other high yield financials. I have done a quick review of future income and have calculated an 8% increase for 2025 if all goes as suggested using FASTgraph figures from its charts. “RIG” also is up 2.1% YTD for value, without dividends, and beating SPY by 7.11% since inception back in Sept 2021. I truly do not like comparing to SPY, but if I must, it also should be remembered it only has ~ a 2% yield when “RIG” is 6.4%.