I ran a stock screen focusing on investment grade fixed-income instruments with an eye on value. As support for fixed charges and dividend payments, I look at financial companies because of the steady stream of payments from their clientele. To beat inflation and seek alpha, and with the Fed targeting 0%-0.25% for the federal funds rate, you ought to consider the following:
Bank of America (BAC, Financial) (5.50% Subordinated Debentures)
In FY 2011, the loss before taxes fell to $230 million from $1,323 million, lending more confidence that dividends and interest payments are secure for several more years. The debt to equity ratio has also declined to 1.89 from 2-plus levels. These shares trade near its 52 week highs. So, I would wait for a slide to $22, as it may ease back to early January levels to cool off of its overheated rise. I suggest this for income investors looking to take on a bit more risk apart from their bond portfolio. Keep in mind that this does not qualify for the 15% tax rate.
Barclays (BCS, Financial) (6.625% Non-cumulative Series 2 ADR)
In 2011, EBIT fell by 3% to $9,280 million. Profits in the retail and business banking segment increased by 48% to $5,212 million. Considering that common dividends came out to $0.094 out of $0.396 in total basic earnings per share, the company should have adequate funds to continue to make preferred dividend payments.
Because of its sharp rise, I would wait for a pull back to below $22, which occurred as early as late January. Due to the tumble down to $5 in the throes of the post-Lehman aftermath, I recommend this for retirees that can only take in a medium amount of risk.
JPMorgan Chase (JPM, Financial) (6.20% Capital Securities, Series N)
This security is technically a trust preferred security. It offers the company the advantage of paying tax deductible interest on the debt securities of the trust while carrying the trust's debt on its balance sheet. In this case, the trust's assets are made up of 6.20% Junior Subordinated Deferrable Interest Debentures due 10/15/2034, which were bought from the company utilizing the funds generated from the sale of the trust preferred securities.
EBIT grew by 8% to $26.749 billion in 2011. However, interest expense rose by 6% to $13.604 billion. Preferred stock dividends summed to $629 million. Common dividends were $1.00 per share, and diluted earnings per share was $4.48, so putting this altogether, the company has sufficient capital to continue to pay the dividends.
I believe that now would be a good time to get in because of the high demand for the company's capital securities. I recommend this for investors that are relatively risk averse, and looking for a good brand name to put in the fixed-income portion of their portfolios. This security's distributions do not fall under the 15% tax rate.
Wells Fargo (WFC, Financial) (6.25% Enhanced Trust)
In 2011, EBIT surged by 24% to $23.656 billion, and interest expense declined by 17% to $6.649 billion. EPS was $2.85, and dividends per share were $0.48. Preferred dividend payments were only $844 million. All in all, the company is in a good position to make both sorts of dividend payments.
I would be wary to get into this now because it is nearing 52 week highs, but it has been trading above $25 since October 2011. Be aware that this does not qualify for the 15% tax rate, so if you want to sacrifice yield for safety, this is a good fit for you. Retirees should take a serious look here because of the A- rating.
Bank of America (BAC, Financial) (5.50% Subordinated Debentures)
| Recent Price | $23.80 per share |
| Callable? | Yes, at $25.00 per share, since Jul 2008 The security matures Jul 15, 2033 |
| Preferred Stock IPO | Jul 2003 |
| Dividends | $0.34375 per quarter All payments made since Q3 2003 Next dividend payment is on Apr 16 Record date is on Mar 30 |
| Current yield | 5.7% |
| S&P Rating | A- |
| 52 week trading range | $17.77 - 24.99 |
| 2009 lows | ~$9 (from $24) |
| Ticker symbol (Yahoo! / Google / Fidelity) | IKL |
In FY 2011, the loss before taxes fell to $230 million from $1,323 million, lending more confidence that dividends and interest payments are secure for several more years. The debt to equity ratio has also declined to 1.89 from 2-plus levels. These shares trade near its 52 week highs. So, I would wait for a slide to $22, as it may ease back to early January levels to cool off of its overheated rise. I suggest this for income investors looking to take on a bit more risk apart from their bond portfolio. Keep in mind that this does not qualify for the 15% tax rate.
Barclays (BCS, Financial) (6.625% Non-cumulative Series 2 ADR)
| Recent Price | $23.90 per share |
| Callable? | Yes, at $25.00 per share, since Sept 2011 |
| Preferred Stock IPO | Apr 2006 |
| Dividends | $0.4140625 per quarter All payments made since inception Next dividend payment is on Mar 15 Record date is on Mar 1 |
| Current yield | 6.8% |
| S&P Rating | BBB |
| 52 week trading range | $17.00 - 24.99 |
| 2009 lows | ~$5 (from $27) |
| Ticker symbol (Yahoo! / Google / Fidelity) | BCS-P / BCS- / BCS/P |
In 2011, EBIT fell by 3% to $9,280 million. Profits in the retail and business banking segment increased by 48% to $5,212 million. Considering that common dividends came out to $0.094 out of $0.396 in total basic earnings per share, the company should have adequate funds to continue to make preferred dividend payments.
Because of its sharp rise, I would wait for a pull back to below $22, which occurred as early as late January. Due to the tumble down to $5 in the throes of the post-Lehman aftermath, I recommend this for retirees that can only take in a medium amount of risk.
JPMorgan Chase (JPM, Financial) (6.20% Capital Securities, Series N)
| Recent Price | $25.35 per share |
| Callable? | Yes, at $25.00 per share, since Oct 2009 |
| Preferred Stock IPO | Sept 2004 |
| Dividends | $0.3875 per quarter All payments made since inception Next dividend payment should be on Apr 16 Record date is in the second week of Apr |
| Current yield | 6.0% |
| S&P Rating | BBB+ |
| 52 week trading range | $22.75 - 25.65 |
| 2009 lows | ~$12 (from $25) |
| Ticker symbol (Yahoo! / Google / Fidelity) | JPM-PY / JPM-Y / JPM/PY |
This security is technically a trust preferred security. It offers the company the advantage of paying tax deductible interest on the debt securities of the trust while carrying the trust's debt on its balance sheet. In this case, the trust's assets are made up of 6.20% Junior Subordinated Deferrable Interest Debentures due 10/15/2034, which were bought from the company utilizing the funds generated from the sale of the trust preferred securities.
EBIT grew by 8% to $26.749 billion in 2011. However, interest expense rose by 6% to $13.604 billion. Preferred stock dividends summed to $629 million. Common dividends were $1.00 per share, and diluted earnings per share was $4.48, so putting this altogether, the company has sufficient capital to continue to pay the dividends.
I believe that now would be a good time to get in because of the high demand for the company's capital securities. I recommend this for investors that are relatively risk averse, and looking for a good brand name to put in the fixed-income portion of their portfolios. This security's distributions do not fall under the 15% tax rate.
Wells Fargo (WFC, Financial) (6.25% Enhanced Trust)
| Recent Price | $25.55 per share |
| Callable? | Yes, at $25.00 per share, after Jun 14, 2012 |
| Preferred Stock IPO | May 2007 |
| Dividends | $0.390625 per quarter All payments made since inception Next dividend payment is on Mar 15 Record date is on Mar 14 |
| Current yield | 6.0% |
| S&P Rating | A- |
| 52 week trading range | $23.21 - 25.92 |
| 2009 lows | ~$10 (from $24) |
| Ticker symbol (Yahoo! / Google / Fidelity) | FWF |
In 2011, EBIT surged by 24% to $23.656 billion, and interest expense declined by 17% to $6.649 billion. EPS was $2.85, and dividends per share were $0.48. Preferred dividend payments were only $844 million. All in all, the company is in a good position to make both sorts of dividend payments.
I would be wary to get into this now because it is nearing 52 week highs, but it has been trading above $25 since October 2011. Be aware that this does not qualify for the 15% tax rate, so if you want to sacrifice yield for safety, this is a good fit for you. Retirees should take a serious look here because of the A- rating.
