Help with preferred shares

B

Blue_Bull

Hi all,

I've been researching preferred shares, and I had some questions for the board. I'm also looking for additional reading, and you guys always come up with great links.

First of all, I am generally familiar with the idea of convertible shares from a class that I took, but I'm still kind of confused about it. Basically, the preferred shares can be converted to common shares (or bought out entirely?) if the stock price rises above a certain level. This benefits the corporation, as they as basically getting rid of debt, and it benefits the shareholder, who now owns shares are a high price. Is that correct?

Second, what are the best websites to find preferred stocks and their features? I've looked at their quotes on Yahoo, Google, WSJ, etc., but they don't really give much information at all.

Finally, I was curious as to any other experience that you may want to share about preferred shares.

As always, thanks a ton!
Blue Bull
 
You may want to look at quantumonline.com and preferredstockinvesting.com, the latter being a link to his book. The former is quite a good educational site as well as data and link provider.:)
 
Quote from jgraves:

You may want to look at quantumonline.com and preferredstockinvesting.com, the latter being a link to his book. The former is quite a good educational site as well as data and link provider.:)
More...

Thanks. I came across that site during my research. You're right, it has very good information about preferred shares. One thing that it lacks, though, is an application of that information.

One of my acquaintances picked up preferred bank shares about a year ago, yielding 10% and also rising over 400% in the past year. I'd like to understand the risks/rewards of preferred shares well enough to do that (or something similar) too!
 
I would suspect your friend bought in March or April, when preferred were trading at all time discounts. They typically trade between $20-$25/share, as they usually come out at $25. They don't move much, except with the crash last year...
 
Quote from jgraves:

I would suspect your friend bought in March or April, when preferred were trading at all time discounts. They typically trade between $20-$25/share, as they usually come out at $25. They don't move much, except with the crash last year...
More...

Yeah, that sounds about right. What I'm struggling with right now is assessing the risk that comes with these shares. There are obviously plenty of them that return 7-10%, which would be attractive for some of my passive, longer term cash.
 
I use preferred for 5-8% of a portfolio for clients; another 10-15% in MLPs, 40-50% in institutonal quality senior debt with 5-6% yields and 20-30% in dividend paying stocks with low d/es and high fcf. Of course, I am not a speculator, just enjoy boring. I just want a consistent 7-8% annual rate of return without worry... and perhaps 2-5% in TIPs and gld:cool:
 
As boring as this sounds, i strongly recommend reading the entire prospectus of any preferred shares you consider purchasing. There are always provisions, clauses and lots of contract law built into these things.

I usually choose a company i like first, google the name of their company + preferred shares, grab the title of the preferred stock, search the sec's website for the initial filling.

There have been several preferred stock i considered "strong/attractive" which had such confusing and vague prospectus's that i abandoned them all together. This is wallstreet, trust nothing you don't have in writing or can decipher yourself.

I would love to explain the basic reward reward features of the instruments but i would be better off pointing you to a textbook.
 
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