This is the summary of Episode 7 of our Roaming Returns Podcast.
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Podcast Summary
Preferred shares are a great way for new or timid investors to branch out from typical fixed income assets like bonds and CDs into stocks.
They offer a less volatile price option to that of common shares of the same stock which keeps you’re principle more in tact.
Preferred shares also give you priority of payouts over common stock holders. That means you still get paid if dividends get cut.
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They’re called preferred shares for a reason. These go hand in hand with bonds because of interest rates so we’re waiting for them to hit their bottom before we pick up more.
Similar to Bonds in a lot of ways. They even have a Par Value just like bonds.
Great Asset For An Income Driven Portfolio
Because you’re investing for income and you want it to be consist every month you need to invest in types of assets like bonds, CDs, preferred shares because they don’t cut the yield rates for these so you know exactly what you’re going to get.
You’ll get that payout.
at all.
Difference Between Normal And Preferred Shares
The only big difference is that you give up voting rights when you own preferred shares. If you want that then you need to invest in the regular shares.
The prices change like stocks. bonds change but not as volitle as regular stocks. Preferres are also less volitile than regular stocks but not as much as bonds.
Bonds maturity date, they cash out and give you the money in your brokerage account.
preferred may or may not cash you out. They might keep paying you the dividend until they feel like calling it back. They sometimes call things back early just like bonds can which is why you need to make sure you buy them below their Par Value.
DRIP Isn’t Always An Option
Happens iwth bonds and some other types of investments. It can be a negative but it’s not the big of a deal for these. You just take you cash and allocated where you want it whenever these payout.
Example ARR
If we compare ARR to it’s preferred share in Schwab ARR/PRC, ARR bounces all over the place.
The preferreds have less volitility. yes you lose out on the upside, but it saves your butt on the downside.
Preferreds always drop the day of their dividend.
yields will change based on price but the dividends they payout won’t. Preferreds will continue to pay a dividend even if the common stock cuts theirs.
Preferreds pay less in dividends than common stock, but they’re much mroe secure. These are a great option if a company is known for cutting it’s dividendn but its a good company.
ARR 18% vs 8.4%
Preferreds are a better place to start for cautious investors.
If you search any ticker that I give you, very easy in Schwab, you just scroll to the bottom. If you have a different brokerage account, you can email us to ask if something has one if its too hard for you.
Don’t have ratings so no worries about those. But you need to be aware of cumulitive or not. you want a cumulitive. IF they suspend the dividend on the common share for any reason, they have to pay you but if they don’t they have to make up for all missed payouts on the next one they pay.
Convertible YES means if you own the preferred share. if it matures or they call it back, it gets automatically converted into the commons stock. This can work to your benefit or not depending if you like the company. But this is also a problem for share dilution on a set date which will make the price of the stock drop potentially significantly.
Options
QRTEP
This is the HVC shopping on TV preferred share. 65% discounted at the time of airing. and pays 23% yield.
PARAP
Paramount like the movie place.
CEQP/PR
Asked Tim Falon and said didn’t have enough volume. Was paying 8% discount 9% yield at the time of airing.
GOODN
just tried to look up and can’t find it so don’t know if thye called it back or not. Was a 27% discount and 9% yield.
ARR/PRC
25% discount ; 8% yield
IIPR/PRA
Marijuana RETI
ABR/PRD
We currently own the common stock in our portfolio. 26% discount and 8% yield.
We talked about putting 90% of funds allocated for Preferred Shares into the above and then potentially picking one of the following with more risk.
AULT/PRD
53% discount and 28% yield.
CDR/PRC 48% discount and 14% yield
Tim’s Preferred Strategy To Reduce Risk
The reason i do the higher discounts like 25% is because most of the time these preferred shares will go back up to their par values, especially if called back. This is the same strategy we use when we pick up bonds.
To lower risk even more, don’t turn the DRIP on, just take the cash until you take out as much as you invested.
He also sells off profits when his portfolio allocation percent gets above 6%. These smaller and more often portfolio adjustments keep things quick and emotionally free.
Great stress management tactic for those who are trying to reduce emotional reactivity while investing.
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