The Wall Street Journal reports that the average yield on preferred shares is 4.56 percent according to a Bank of America Corp (NYSE:BAC) Index. This dwarfs the 0.73 yield on a five year Treasury.
David Einhorn's Greenlight Capital returned -2.9% in the second quarter of 2021 compared to 8.5% for the S&P 500. According to a copy of the fund's letter, which ValueWalk has reviewed, longs contributed 5.2% in the quarter while short positions detracted 4.6%. Q2 2021 hedge fund letters, conferences and more Macro positions detracted 3.3% from Read More
Preferred stocks are in between stocks and bonds in a firm’s capital structure. Preferred stocks trade on an exchange and pay a regular dividend like a bond. The preferred bond is paid after bond creditors are paid but before common stock holders are paid.
Companies Sold $13.6 Billion Preferred Stock To Major Banks
Year to date, companies have sold $13.6 billion of preferred stock, the fastest annual pace since 2008 according to Dealogic. Financial firms account for more than 88 percent of that issuance, with major banks such as JPMorgan Chase & Co. (NYSE:JPM), Citigroup Inc. (NYSE:C), and Goldman Sachs Group, Inc. (NYSE:GS) offering preferred shares.
Banks improving balance sheets and underlying earnings together with preferred stock higher yields make the securities an attractive investment, according to Douglas Baker, a preferred stock fund manager at Nuveen Asset Management.
Other companies are using the low rate interest rate environment to issue new preferred stock at lower yields to refinance older issues. For example, the board of trustees of the Gamco Global Gold Ntrl Rsrcs&Incm Tr BY (NYSEMKT:GGN) by Gabelli has announced an underwritten offering of four million 5.00% series B Cumulative Preferred Shares at a public offering price of $100 million.
The offering closes on May 7, 2013, as reported by COMTEX.
The fund expects to use the proceeds from the offering to redeem the remaining outstanding shares of the Fund’s 6.625% series A Cumulative Preferred Shares. Amounts in excess of the redemption amount of the series A Preferred Shares are expected to be used for investment purposes consistent with the Fund’s investment objectives.
The Gamco Global Gold Ntrl Rsrcs&Incm Tr BY (NYSEMKT:GGN) by Gabelli is a non-diversified, closed-end management investment company with $1.2 billion in total net assets whose primary investment objective is to provide a high level of current income. The Fund invests primarily in equity securities of gold and natural resources companies and intends to earn income primarily through a strategy of writing (selling) primarily covered call options on equity securities in its portfolio. The Fund is managed by Gabelli Funds, LLC, a subsidiary of GAMCO Investors Inc. (NYSE:GBL).
Further reading- Bill Gross: Even European Sovereign Debt Expensive