I scooped up 49 shares Corporate Office Properties preferred series L yesterday at $25.43/share + commissions. This is a bit of a speculative move that comes with a nice yield. These shares will pay me $90.36 per year on a 7.21% YOC. It was time for me to buy fixed income and after careful consideration I decided to buy another preferred stock. Corporate Office Properties is a REIT which specializes in (you guessed it) office properties. These are multi million dollar buildings leased to various companies with an emphasis on Department of Defense suppliers and contractors. Make no mistake, Corporate Office Properties is not a super stable corporation like Johnson & Johnson. They make heavy use of debt to expand and finance new endeavors.
Seeing that this investment is preferred stock, I'm not as concerned about whether the common stock sees dividend cuts, freezes, or increases. I only need enough cash to be generated to cover my shares' dividend which will be paid before the common. I like that series L is a new issue which allowed me to get in close to par. I paid less than 2% over. Series L is cumulative and not callable for 5 years. Interest rates are supposed to remain low for a few more years which should be good for preferred stocks. Rapidly rising interest rates might erode share price, but I don't see that happening for a while.
Some drawbacks to OFC-PL include liquidity, absolutely zero dividend growth (or any future chance), interest rate risk, and a less than stellar balance sheet. If you look at OFC you will notice it has negative EPS, this is because the company took impairment charges Q4 2011. Cash flows remained intact.
I believe the rewards outweigh the risks with this particular purchase. The income is outstanding.
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