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Appel's Preferred Picks

12/07/2016 10:00 am EST


Marvin Appel

President, Signalert Asset Management LLC

It is a good time to accumulate shares of certain recommended preferred stocks with higher yields, asserts technical expert Marvin Appel, president of Signalert Asset Management, LLC.

These are stocks whose yields are high enough to warrant holding even if they may suffer further downside in the event that interest rates move higher.

Of course, the amount you buy should be limited by the amount of price risk you are willing to take. Recommended preferred stock issues to buy at current prices include:

American Capital Agency Preferred P (AGNCP): This preferred stock closed just below par on Nov. 22 and has an 8% coupon. It is callable in 2017.

American Capital Agency Preferred B (AGNCB): This preferred stock closed at $25.10 on Nov. 22. Its coupon is 7.75%. It is callable in 2019. I recommend it at or below $25.50.

Annaly Preferred E (NLY-E): This preferred closed at $24.50 and has a 7.625% coupon. It is callable next year.

Public Storage preferred B (PSA-B): The preferred stocks from this REIT are attractive because they have among the highest available credit ratings (A3 Moodys / BBB+ from Standard & Poor's).

Most preferreds, even those from strong companies, have junk ratings because they are subordinate to all outstanding bonds. (Note that the mortgage REIT preferreds do not have a credit rating.)

PSA-B is callable in 2021, has a 5.4% coupon and at the current price of $23.65 has a 5.7% current yield. (The yield to call is higher.)

The downside is that, as with all REIT preferred stocks, dividends are taxed at ordinary income rates rather than at the lower, qualified dividend rate.

By Marvin Appel, President of Signalert Asset Management, LLC.

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