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Summary of the new offer:
CDX3Investor.com
State of the Preferred Stock Market
Extreme conditions in the preferred stock market continued in November, with US-traded preferred stocks overall trading at an average discount to par averaging 16% current yield of 8.16%. Since previous issues traded at such discounts, we only saw one New Bid Alert here at CDx3 later this month for $500 million in new, non-cumulative preferred shares to be issued by Lincoln National (LNC), rated Baa3 (Moody’s) / BBB- (S&P) / BBB- (Fitch) and offered at a whopping 9% dividend rate – a year ago a similarly rated preferred stock might have had to offer half that rate.
SEC Filing: LNCDL
Going back to our November 2021 article, this month First Republic Bank (FRC) had an offering of $650 million in new non-cumulative preferred shares with a 4.5% fixed dividend rate and a Baa3- Rating offered by Moody’s and BBB-. from Standard and Poor’s. If new issues here in November 2022 are offering twice the dividend rate that similar issues were offering in November 2021, it is no wonder that previously issued securities are now trading at such discounts; FRC-N is changing hands by a hair over $18 today, or about 72% of the price investors paid a year ago.
To further illustrate the current state of the preferred stock market, previous offerings of top quality preferred stock with CDx3 compliance score rankings of 10 out of 10 are currently trading at a discount of 8.2% to par and are offering a current yield of 6.26% – per month. Improvement over the month, however, compared to 12.6% discount to par and 6.56% return last month.
Our internal CDx3 “bargain table” number currently stands at 158 near the all-time high since we started tracking the metric in 2015. Here’s a YTD chart of our bargain table number:
CDX3Investor.com
The primary reason for these moves in preferred stocks continues to be the rising “risk-free” yield offered by US Treasuries, with longer-duration government-guaranteed bond yields rising significantly over the year; Towards the end of October and beginning of November, 30-year government bonds could be bought with a yield of 4.2-4.4% and 10-year government bonds with a yield of 4.1-4.25%. If long duration government-backed bonds can be bought with yields in the 4 region, is it any wonder why a corporate-backed preferred stock that was issued in the 4 region a year ago now has to trade at a discount? Below is an annual chart of the 10-year US Treasury yield:
CDX3Investor.com
Previous preference stock IPOs below par
In addition to covering new preferred stock and ETD offerings, here at the CDx3 alert service we also track past offerings with alerts when securities fall below par. Here are some of the most recent under-par dips/crosses we’ve observed:
CDX3Investor.com
Note: All entries highlighted in yellow indicate eligibility for the “CDx3 Bargain Table”.
Until next time…
Here at CDx3, our featured articles feature month-end IPO summaries of preferred stock (and ETD) as well as a look at select past IPOs of preferred stock now trading below par. Whether you’re the type of investor who sticks with preferred stocks with a CDx3 Compliance Score has a 10 out of 10 rating, or if your portfolio has room for stocks 9 and below, stay tuned for future articles summarizing new IPOs and interesting preferred stock activity we’re noticing. Thank you for reading!
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