Marty Fridson is a leading specialist in a wide variety of dividend investing strategies; here, the editor of Fridson/Forbes Income Securities Investor looks at a trio of preferred stocks issued by financial firms.
Bank of America Corp. (BAC) is a leading worldwide financial institution. Financial services and products are provided across Commercial and Retail Banking, Corporate & Investment Banking, and Asset and Wealth Management.
The Bank of America 4.00% preferred (BML-L) is a floored, floating-rate structure, callable on any dividend payment date at par plus declared and unpaid dividends. The structure provides BAC cheap regulatory capital. As a result, this issue is unlikely to be redeemed at par in the near future.
The dividend rate is the greater of 4.00% or three- month LIBOR + 50bps (0.50%). With LIBOR completely phased out after June 30, 2023, the dividend rate on this issue will remain floored at 4.00% indefinitely.
Dividends for this preferred are qualified and taxed at the 15%-20% rate. With this review, we recommend BML-L for low- to medium-risk taxable portfolios at or below $20.50.
Morgan Stanley (MS) is a fully integrated investment banking company, offering Investment and Wealth Management Services, Investment Banking & Capital Markets Operations, Lending, and Sales & Trading.
The firm has one of the largest retail brokerage operations in the U.S. market. Earnings and profitability over the last five years have been solid, including 2022, despite growing inflationary pressures and higher interest rates.
The Morgan Stanley 6.50% Fixed Rate, Series P, Non-Cumulative Perpetual (MS-P) is callable at par, plus declared and unpaid dividends, on the initial 01/15/27 redemption date or any dividend payment date, thereafter.
MS’s financial results remain relatively strong, although challenged, with headwinds stemming from higher interest rates, inflationary pressures, and increased volatility. But in view of its strong balance sheet and significant liquidity, we remain positively disposed towards the company.
This preferred investment is suitable for low- to medium-risk taxable portfolios. Dividends are qualified and taxed at the 15%-20% rate. Buy at $26.00 or lower for a 6.25% current yield and a 5.60% yield to call.
Sachem Capital Corp. (SACH) is a Connecticut-based real estate finance company specializing in originating, servicing, and managing first mortgage loans. SACH offers short-term secured, non-banking loans to real estate investors to fund the acquisition, renovation, and development of residential and commercial properties located largely in Southern New England, New York, and Florida.
The company’s lending programs include financing Real Estate Loans and Bridge Loans, as well as Construction and Distressed Loans. The Sachem Capital 6.00% Fixed Rate, Exchange Traded PET Notes (SCCE) is a senior term note due March 30, 2027. The notes are callable on 03/09/24 or any time thereafter.
This issue is suitable for high-risk tax-deferred portfolios. Interest payments are contractual, cannot be deferred, and are taxed as ordinary income. Buy at $23.50 or lower for a 6.38% current yield and an 10.46% yield to call.
