Top Picks 2017: U.S. Bancorp Preferred A

01/18/2017 6:00 am EST


Jack Adamo

Editor, Jack Adamo's Insiders Plus

Our Top Pick for income investors for 2017 is a preferred stock issued by a  bank that we consider one of the best-run in the country, asserts Jack Adamo, editor of Insider's Plus.

U.S. Bancorp (USB) is one of the banks in which Warren Buffett has had a large stake for a long time. It has a preferred stock I've watched for a long time.

I recommend buying the U.S. Bancorp Fixed/Floating Depositary Shares Non-Cumulative Perpetual Preferred Stock A (USB-A).

Despite the security of its preferred status, we get inflation protection because the dividend is the higher of 3.5% or the Three-Month LIBOR rate, plus 1.02%.

LIBOR is currently 0.9971%, so the shares pay the 3.5% minimum coupon, but with the shares trading at $870, the stock yields 4.0%.

The shares are redeemable at $1000 face value at any time. Redemption at face value would give us about a 15% bonus from the current price.

Given the state of the stock market with its historically high valuations, I'm quite happy to have an ironclad return in the 4% range with inflation protection or a 15% redemption bonus.

Buy U.S. Bancorp Preferred A up to $880. Be patient and Buy the stock only with a limit order, never a market order. The shares are thinly traded.

Also, be aware there is no set symbol for preferred issues; as a result, you may have to ask your broker what specific symbol their company uses.

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