We already own quite a bit of preferred shares issued by Annaly Capital Management (NLY), but I'm re...
Dividend Detective Finds High Yields in Preferreds
06/27/2017 2:50 am EST
The overall market still looks strong, but any number of international tensions brewing around the world could erupt, sending the market down. Be careful. Only add cash to the market that you won’t need back for at least six months, notes dividend expert Harry Domash, editor of Dividend Detective.
It has not been a good past month for some of our preferred stocks. Both Seaspan Preferred H (SSW-H) and Teekay Offshore Partners LP 7.25% Series A Redeemable Preferred Units (TOO-A) suffered substantial losses. However, we’re still advising adding to positions in both.
Why? Both are still profitable and generating sufficient cash to fund the dividends, which is the bottom line for us. Also, in both cases, the preferreds are cumulative meaning that both firms must repay any skipped dividends.
Teekay Offshore’s Arandal Spirit ship developed mechanical problems last November, causing its lessee, Petrobras, to withhold contracted rental payments.
Then, in April, Petrobras (PBR) canceled the charter contract. However, Teekay did not disclose its dispute with Petrobras until mid-May. When it did, the news sunk both Teekay’s common and preferred prices.
The resulting drop in cash flow will likely require that Teekay modify certain contracts with lenders, but it is not expected to affect its ability to pay its preferred’s dividends.
Weak market conditions for container ships pressured Seaspan’s common stock last month and its preferred dropped in sympathy. However, Seaspan is still profitable (March quarter EPS $0.22) and many analysts think the market has bottomed and will strengthen in coming months.
Meanwhile, we’re adding one new preferred to the Preferred Stocks portfolio — GasLog Partners LP 8.625% Series A Cumulative Redeemable Perpetual Fixed (GLOP-A). It is paying 8.5% qualified dividends.
GasLog owns ships used to transport liquefied natural gas (LNG) that it leases to operators. Issued 5/8/17, the current market yield is 8.5%, and these preferreds cannot be called until 6/15/27. Thus, you could collect that 8.5% yield for 10 years, if you like.
The dividends are qualified, meaning that they’re subject to the 15%/20% maximum tax rates. Also, these preferreds are cumulative meaning that GasLog remains on the hook for any missed dividends.
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