I first learned of preferred stocks in Accounting 101 in college. If memory serves me correctly, I got a "Gentlemen's C" in the course. Close to some 30 plus years later, the term "preferred stocks" reentered my vocabulary.
For numerous reasons, the primarily one being my age, about a year or so ago I began to allocate my portfolio more toward a yield bias. I investigated the "usual suspects" - government and corporate bond funds, CDs, high yielding common stocks and .... dare I say ... even REITs?
When reading the business section of the New York Times one Sunday, I noticed a section on Preferred Stocks and decided to do some research. I looked at the BIG names (remember ... they were big at the time!) like Merrill Lynch (MER), Royal Bank of Scotland (RBS) and ABN Amro (ABNYY.PK). As a sidebar, I of course did not know that ABN Amro would be acquired in part by RBS ... but hey, nobody's perfect. Ergo, I have a little more exposure to ABN/RBS then I am currently comfortable with.
The yields were HIGHLY attractive, the names were (past tense) pristine and the "call" or maturity dates were only a few years out. In the interest of full disclosure, I purchased, and hold to this date, MER-PL,ABN-PE and RBS-PL. Be advised that both Merrill and RBS have numerous issues of preferreds for potential analysis and possible purchase.
Fast foreward two years later. Hello, Robert! You have to date received all your dividends at the attractive yields you anticipated. Hello, Robert ... the value of your holdings have depreciated quite a bit.
To the point. I am most satisfied with the yields I am receiving. I would be much MORE satisfied if I purchased these securities last week as I firmly believe the market has priced in doom and gloom, death and destruction, the Four Horsemen of the Apocolypse and perhaps even the Second Coming.
Yields at current prices: MER-PD 9.91% (call date past), ABN-PE 8.97% (call date past) and RBS-PL 9.30% (call date 09/30/09).
So ... for older "baby boomers" such as myself who remember the Monday Night Football segment sponsored by IBM entitled "You Make The Call," this is your chance.
Sometimes markets are irrational. Sometimes banks and brokerages do cease to exist. It is my belief that this time markets are irrational and that the institutions mentioned will be around for some time .. at least until I become a grandfather. But that call is in the hands of my children!
Good luck to all and God bless both America and our planet.
Disclosure: Author holds positions in MER-PL,ABN-PE and RBS-PL
