Marty Fridson is a leading specialist in income investing strategies; here, the editor of Forbes/Fridson Income Securities Investor looks at a trio of "preferred" shares issued by financial institutions.
Bank of America Corp. (BAC) remains an active issuer in the preferred market as the company takes advantage of continued low, fixed rate preferred dividend rates, redeeming higher-cost preferred issues.
The banking company reported 1Q 2022 net income of $7.1 billion, down 12.3% from a year earlier as a result of the 1Q 2021 period’s loan release. Earnings per share or $0.80 topped analysts’ $0.75 estimates, with top-line revenues edging above expectations. BAC’s quarterly results were strong in spite of challenging markets and interest rate volatility.
We recommend the Bank of America Corp. 4.250% Fixed Rate Preferred (BAC-Q), which is callable on 11/17/26, or on any dividend payment date thereafter, at par plus any declared and unpaid dividends. This issue’s dividends are qualified and taxed at the 15%-20% rate.
BAC’s preferred is a suitable investment for low- to medium-risk taxable portfolios. Buy at $22.00 or lower for a current yield of 4.83% and a 7.38% yield to call.
Brighthouse Financial, Inc. (BHF) is a major provider of insurance and investment management services. The company offers annuities, life insurance, retirement planning, and financial advisory services in the U.S. market. BHF was created by MetLife in August 2017, as a spin-off.
BHF has strong insurance subsidiary claims-paying ratings, namely, Moody’s, S&P, Fitch and A.M. Best ratings of A+, A3, A, and A, respectively. BHF reported 1Q 2022 adjusted net income of $315.0 million or $4.07 per share, easily surpassing analysts’ $3.53 estimates.
However, adjusted net income declined 16.2% from a year earlier on weak net investment income and lower universal life and investment product policy fees. Adjusted operating revenues of $2.74 billion met expectations, but were down 5.5% year-over-year.
The Brighthouse Financial 4.625% Fixed Rate Series D, Non-Cumulative Perpetual (BHFAM) is callable at par, on or any time following the initial 12/25/26 call date. Dividends on this preferred issue are qualified and taxed at the 15%-20% Federal rate.
This investment is suitable for low- to medium- risk taxable portfolios, despite the Ba1 preferred rating by Moody’s. We are positively disposed from a credit perspective, given the ‘A’ category claims-paying ratings at BHF’s subsidiary insurance companies. Buy at $21.00 or lower for a 5.50% current yield and an 8.82% yield to call.
Morgan Stanley (MS) has one of the largest retail brokerage operations in the U.S. market. Earnings and profitability over the last five years have been solid, with financial results exceptionally strong last year and in 2022.
MS reported relatively strong 1Q 2022 earnings with net income of $3.7 billion or $2.02 per share, easily topping analysts’ $1.68 estimates. Top-line revenue of $14.8 billion exceeded expectations of $14.2 billion, despite a 5.7% decline from a year earlier in the face of challenging market conditions.
Morgan Stanley 4.250% Fixed Rate, Series O, Non-Cumulative Perpetual (MS-O) is callable at par, plus any declared and unpaid dividends, on 01/15/27 or any dividend payment date thereafter.
This preferred investment is suitable for low- to medium-risk taxable portfolios. Dividends are qualified and taxed at the 15%-20% rate. We point out that MS’s senior debt is rated A3 by Moody’s and BBB+ by S&P. Buy up to $22.25 for a 4.78% current yield, and 7.01% yield to call.
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