October 19, 2020 BARRON’S 27
rate at five percentage points above the five-
year Treasury.
Unlike most $25 preferreds traded on the
NYSE or Nasdaq, the GM Financial issue
trades like a corporate bond at $102, a small
premium to its face value of $100, in the
over-the-counter market, and yields about
5.5%, assuming redemption in 2030.
General Electric has a $5 billion issue of
subordinated debt that trades for 80 cents
on the dollar and should yield about 4.5%
when it becomes a floating-rate security in
- The GE issue has a 5% rate, but it will
float at 3.33 percentage points above the
London interbank offered rate, or Libor,
starting in 2021. Like the GM Financial
security, the GE deal trades in the over-the-
counter market and isn’t listed on the
NYSE.
Wells Fargo, the out-of-favor banking
giant, has a 4.75% preferred (WFC Pr Z)
trading for a slight premium to its face value
of $25. While it has reduced its common
stock dividend by 80%, its preferred divi-
dend looks safe. Wells Fargo and most big
banks maintained their preferred dividends
during the 2008-09 financial crisis.
“Banks were well capitalized coming into
this downturn, and earnings have remained
positive,” Baker says. Indeed, the major
banks reported solid earnings this past
week.
Capital One Financial, the regional and
credit-card bank, sold a 4.625% preferred
issue (COF Pr K) in September that now
trades near its face value of $25.
A large 4.75% issue from industry leader
JPMorgan Chase(JPM Pr J) illustrates the
premium prices in much of the preferred
market. It trades for $27, above its face value
of $25, and has a yield of just 3% to its likely
redemption date in 2024.
Then there is an 8% preferred from
Qurate Retail (QRTEP), the operator of the
QVC and HSN home-shopping channels.
The company is controlled by media mogul
John Malone.
“It’s an appealing security in a low-rate
world,” says Jonathan Boyar, a principal of
Boyar Asset Management, which owns the
preferred. The preferred trades just below
its face value of $100.
Qurate also has two exchange-traded
debt issues, including a 6.25% bond due in
2068 (QVCC) that trades around $23.50 (the
face value is $25) and yields 6.5%. The
preferred yields more because it is junior
to the debt. Qurate has considerable lever-
age with net debt and preferreds of $7 bil-
lion, and it faces a threat from online shop-
ping. Yet it still generates significant free
cash flow.
The pickings might be slimmer than they
were in March, but preferred stocks can still
offer ample yields.B
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