Unlike previous market downturns, say 2008 for example, the economy remains strong and all preferreds in our portfolios were issued by firms with the financial strength to continue paying specified dividends indefinitely, notes Harry Domash, income specialist and editor of Dividend Detective.
Thus, although preferred stock share prices will drop with the market, you will still be collecting your dividends, and, if history is any guide, preferred share prices will eventually move back up to their call prices, or even higher.
As a refresher, a preferred's market yield is the return based on dividend and trading price. For instance, the market yield for a preferred trading at $10 per share and paying $1.00 annually would be 10%.
The yield-to-call is the average annual return assuming that your preferreds were called at their call price ($25) on their call date, a worst-case scenario because preferreds typically aren’t called that soon.
We’re adding Seaspan 8.00% Cumulative Series I Preferred (SSW-I) to the portfolio. Until now, we’ve considered Seaspan (SSW), with a fleet of 112 oceangoing container ships, to be too risky for this portfolio.
But business is picking up. Revenues have soared more than 40% year-to-date, Seaspan has paid down debt, and is now free cash flow positive. These preferreds, though not credit-rated, are cumulative, meaning that Seaspan remains on the hook for any missed dividends.
Recently trading at $25.10 per share, the market yield is 8.0% and the yield to their 10/30/23 $25.00 call price is 7.9%. Dividends are eligible for the 15%/20% tax rates.
