Marvin Appel, president of Signalert Asset Management, LLC. , reviews a series of preferred issues offering high yield potential to more sophisticated investors familiar with this specialized market niche.
We have held Hatteras Financial Preferred, class A in the newsletter high income portfolio since 2014. Recently, Hatteras was taken over by Annaly Capital Management (NLY).
As a result, the company has retired shares of Hatteras Preferred A and replaced them with a new preferred issue, Annaly Preferred class E (NLY-E).
It does not appear that this replacement changes any of the characteristics of the original preferred stock.
The dividend yield remains 7.625% and the quarterly record dates are still the last day of each calendar quarter. The earliest call date also remains the same, August 27th, 2017.
There is one improvement, however. Preferred dividends in the new combined entity will consume a slightly smaller fraction of potential future interest income than was the case when Hatteras was free-standing.
This provides a larger margin of safety to protect the preferred dividend in the event that interest income falls.
The deal is good for Annaly in that they are buying HTS for just 85% of book value, and with mortgage REITs the book value is a fair measure of the liquidation value of the company since all the holdings are liquid securities.
I continue to recommend mortgage REIT preferred stocks at or below par value of $25/share, including the just-discussed Annaly Preferred class E as well as Annaly Preferred class A (NLY-A) and Annaly Preferred class C (NLY-C).
By Marvin Appel, president of Signalert Asset Management, LLC.
