Yesterday I purchased 49 shares Realty Income preferred series F (O-PF) at a cost of $25.46/ share + commissions. The purchase will pay me $6.76/month starting in April which is $81.12 annualized on a 6.46% yield. This purchase was for asset allocation purposes as my stock portfolio has outpaced my fixed income assets.
The par value for the shares is $25 so I did pay a small premium, but less than 2%. Normally I'd try to buy below par value, unfortunately it is difficult to do so in today's market. Series F was recently issued after Realty Income called series D to save on interest payments. The good part is that series F isn't callable until 2017, that's 5 years at a bare minimum. The shares are also cumulative, but I do not expect a default. I would be comfortable holding the common stock O; naturally an O-PF default doesn't concern me. It's always better to have cumulative shares just in case.
The good news about this particular purchase is that Realty Income preferred shares compare very favorably to the common shares. O currently sports a 4.69% yield growing at a measly 2.84% 5 yr CAGR. It grew by only 0.87% in the past 12 months; not impressive. O-PF on the other hand offers no dividend growth but has a healthy 6.51% yield. With that being said, at some point in the future interest rates are going to rise and preferred stocks are going to be slaughtered. At least in price. They are interest rate sensitive. As always I'm more focused on income than market value, I don't plan to sell this unless it gets called.
Now that my allocations are in order I'll continue to buy more dividend growth stocks.
Too easy.
Interesting buy! I have not delved into the world of preferred stocks yet, but it is something I will likely explore at some point. It sounds like you made a good purchase, especially when compared with the common stock.
ReplyDeleteThis is the first time I've bought preferred stock. It seems preferreds are mostly issued by REIT's, financial companies, and utilities. I decided to invest in a company I am already familiar with and liked that it was a new issue so I know it won't be called for a while. If you are interested in preferreds check out: www.dividendyieldhunter.com and www.quantumonline.com There is a lot of information. The potential for capital gains is not the same as common stock, risks are different but lower.
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