Like preferred shares, the convertible preferreds offer a fixed rate of return but also have the potential for capital appreciation when the shares are exchanged, explains Benjamin Shepherd, editor of Personal Finance.

Cincinnati Bell (CBB) is a regional telecom, providing wireline, Internet, and cellular-phone services in the greater Cincinnati, Ohio, area, which includes parts of Indiana and Kentucky.

Like most regional providers, the telecom struggled to grow because it faced intense competition from larger national operators.

But although the company’s common stock had difficulty moving higher, its Cincinnati Bell 6.75% Cumulative Convertible (CBB-PB) gained about 2.6% over the trailing year and currently yields 6.8%.

The shares became callable back in 2000, which means the telecom has the option of liquidating them and paying shareholders $50 a share.

But that seems unlikely, as it would drain the company’s limited cash significantly. That said, there is enough cash to continue covering the quarterly dividend, so the risk of default is small.

If you are so inclined, each of these convertible shares can be exchanged for 1.442 shares of common stock at any time, but for the swap to be profitable, the common shares would need to trade at more than $34 per share.

Unfortunately, the common stock is nowhere near that price right now and currently trades only at around $4.

Cincinnati Bell’s common shares have been moving higher, though, mostly because Charter Communications (CHTR) announced it would take over Time Warner Cable (TWC).

While that deal grinds through the shareholder and regulatory approval process, odds are Time Warner won’t invest heavily in expanding and upgrading its network in the Cincinnati area.

In the meantime, Cincinnati Bell continues to grow and improve its fiber-to-the-home broadband services so that it has more of a competitive advantage.

Regardless of how all of this plays out, holders of Cincinnati Bell 6.75% Cumulative Convertible will continue receiving their $0.84 dividend and probably enjoy more upside on the shares.

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