Dividend Detective Finds High Yields in Preferreds

06/27/2017 2:50 am EST

Focus: BONDS

Harry Domash

Publisher, DividendDetective and Winning Investing

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.

Subscribe to Harry Domash's Dividend Detective here…

Related Articles on BONDS

Keyword Image
Who Needs Bonds? Probably You
08/18/2017 2:52 am EST

Bonds have been a pretty reliable source of gains for years now, but there’s more uncertainty ...

Keyword Image
Loonie ETF with Floating Rates
07/25/2017 2:51 am EST

We are adding a new position to our funds, a Canadian ETF investing in loonie-denominated floating r...