Preferred Shares in lieu of short-term investments

Discussion of the Cash portion of the Permanent Portfolio

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EdwardjK
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Joined: Mon Oct 11, 2010 8:16 pm

Preferred Shares in lieu of short-term investments

Post by EdwardjK »

Whilst I understand the concept of having readily available cash as part of the PP, I am crying over the current lack of a return on this cash.  So this week I invested the cash portion of my PP in preferred stock.

Preferred stock is typically, although not exlcusively, issued with a par value of $25.  I researched current preferred stock offerings at quantumonline.com and zeroed in on Vornado Realty Trust preferred shares.  Vornado is a REIT with a current yield of about 3%, whilst their preferred shares are paying 6% - 7%, depending upon the series.

I bought series H, with a 6.75% coupon, at $25.30.  This will give me a yield of about 6.67%.  That is much better than near zero.

Be aware that preferred shares are thinly traded, especially at these yields.  It took me 3 days to buy my targeted volume using limit orders.  But as long as the shares are not called before the first interest payment, I will be a bit better than break-even after the first interest payment.  After that it's gravy.

My research and buying wasa great learning experience.  Just be sure to invest in the preferred shares of solid companies.
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craigr
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Re: Preferred Shares in lieu of short-term investments

Post by craigr »

Just be aware that preferred stock can be extremely volatile depending on the market. I know people that got badly burned relying on preferred stock in 2008. Also they can have other provisions buried in the terms that could be detrimental to shareholders. It all varies. I would not use them in lieu of cash personally. I'd just put them in the Variable Portfolio as a pure speculation. I say this as someone that issued preferred shares when financing my own company with venture capital. There are risks!
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