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Minibonds: PINES, QUIBS, PDs, and More

FavStocks - Sept. 7, 2010 - By Stocker Blog

Income investors, are always looking for new and different alternatives to the staid municipal bonds and utility stocks. One interesting alternative is the Minibond. This is a bond that is traded, just like a stock, on the New York Stock Exchange or American Stock Exchange for around $25 per share. They are almost like preferred stocks except that they pay interest instead of dividends and they usually have a specific maturity date. Sometimes they are referred to as PINES (Public Income Notes) or QUIBS (Quarterly Interest Bonds) or QUICS (Quarterly Income Capital Securities) or QUIDS (Quarterly Income Debt Securities). There are even a few that are issued as Perpetual Debt or PDs, which means that there is no maturity date.

The advantages of Minibonds to the issuers are that the interest is deductible to the corporation (unlike dividends on preferred and common stocks, which are not deductible).

The advantages to the investor are first, that the bonds are more secure than preferred stocks (in other words, if the corporation goes out of business, the bonds are generally paid off first before the preferred or common stock). Second, the Minibonds (with the exception of the perpetual debt bonds) have some limited protection against inflation versus preferred stocks in that if interest rates go up after purchasing them, their value will drop; however the par value (usually $25) will be paid back at maturity on the Minibonds. Whereas, preferreds have no maturity. The third benefit is the small denomination, especially when looking at a $2,000 IRA investment. A fourth benefit is that since they are traded like stocks, there is more liquidity than buying or selling a $5,000 bond. However, these are still very illiquid investments. Most have a very low daily volume.

An example is the AT&T Inc. 6.375% Senior Note (ATT), which currently yields 5.9% and pays quarterly. Another is the Viacom, Inc. 6.85% Senior Note (VNV), yielding 6.5%, which also distributes payments quarterly. is working on a list of all the Minibonds, which can be downloaded and sorted. It should be posted in the next few days.

Author does not own any of the above.

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