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Preferred shares are a great way for new or timid investors to branch out from typical fixed income assets like bonds and CDs into stocks.
They offer a less volatile price option to that of common shares of the same stock which keeps you're principle more in tact.
Preferred shares also give you priority of payouts over common stock holders. That means you still get paid if dividends get cut.
Drop your comments or questions for this episode on one of our posts.
Preferred shares mentioned during this episode include:
QRTEP
PARAP
CEQP/PR
GOODN
ARR/PRC
IIPR/PRA
ABR/PRD
We talked about putting 90% of funds allocated for Preferred Shares into the above and then potentially picking one of the following with more risk.
AULT/PRD
CDR/PRC
If you're looking for a more detailed summary of this episode, click here.
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**DISCLAIMER**
Ticker metrics change as markets and companies change, so always do your own research. The content in this podcast is based on personal experience and is for educational purposes, not financial advice. See full disclaimer here.
Episode music was created using Loudly.
Welcome to Roaming Returns a podcast about generating a passive income through investing so that you don't have to wait to retirement to Live Your Passion. And today's episode, Tim and Carmela talk about an investment opportunity you don't usually hear about. We haven't even heard that many experts talking about it. And what's really unique about it is it's kind of a hybrid between bonds and your traditional stocks. Let's get this party started.
Hello peeps,
welcome back. teams that are much much less grumpy mood today. I had Chipotle. Well, there's that and he's not sick. Apparently he was on the verge of getting sick last week. So we decided to wait to record this because he was just the grumpy grotto. Pat's
got the vid. I'm not sure what I lost my taste. Oh, he
was not happy about that. It's nonsense. That's it today. As promised, we're going to talk about preferred shares.
They're just literally like it sounds like they're called preferred chairs for a reason.
I won't attempt to absolute favorite. I don't really have
a lot in the portfolio because I'm waiting for the bottom to bottom and prefers because like they kind of go hand in hand with bonds and bonds because interest rates are sometimes up sometimes down but prefers has been continuously going down for like the last year year and a half so I'm wait from the bottom and I'll properties I'll probably load up on a couple of them.
tells me all the time how they're essential to any income driven portfolio.
They are because like when you look up income investing like the generic simplistic definition is you basically are investing for income you want your income to be consistent every month you want to get $1,000 or $2,000 Every month well, bonds, CDs, and preferred shares are one way that you can do that because you know exactly what you're gonna get. They don't cut the yield rates and bonds and CDs and preferred. So if you get a if you lock in a preferred share at 46 cents a quarter or 18 cents a month or whatever you get, that's what it's always going to be regardless. So
that's one of the biggest things about Preferred shares. They sound like their shares, which they kind of are but they actually kind of fall into the fixed income category which makes them like a weird hybrid between a stock and a bond. We
only differ like the only big difference between preferred shares and normal stock shares is a few few hold normal shares. You can have voting rights. So if a company says hey, we're gonna go from an REI T to a BDC yea or nay they send that out to the shareholders if your preferred shareholder you don't get that. Oh, no. Like most people don't vote in like elections. Why would they vote in that so?
So pretty much the only reason they're like a stock I guess is the price change. They do fluctuate.
Everything's price changes. But bonds are pretty like low volatility when the price change in bonds and CDs like it'll drop like a maybe a penny or two or preferred. Like, some days they'll go up 12 cents. So some days they'll go down 50 cents or whatever. Like again, that goes back to the whole fundamental principle of your investing for income and not principle so prefers who gives a rat's ass what they do, you know, you're gonna, you know, at the end of the duration, they're either gonna call it back or continue to pay you dividends. That's something that's different between preferred and bonds. I forgot to mention that earlier. Bonds maturity date, they mature, they cash out, they give you the cash in your, in your in your portfolio in your records account. Preferred. They may cash out as it says maturity date of say August 1 2024. on that on that date. They might cash it out, call it back, but they might not and they'll just keep paying your dividend until they feel like calling him back. And they might call before then too. But we'll get into that.
So if they have a call back, they don't usually come with a call back. They all they all will have a call back date. Now
does that mean that they do or do not hit that
bait? Mark a lot of times they
don't see right here. They'll have a date that they actually like keep paying even though it's
like this one like this one. I'm looking at this as a call date of January 28. Like when that comes around. They'll probably just they won't call it back. They'll just keep paying the 15 cents a month.
Really, that's kind of interesting.
Now sometimes they will call them back early. And when they do that, that's why it's imperative. When you shop for for purchase for preferred shares, you get them at discount because if you buy it say it's a $25 par value and you buy it at 27 because you really liked the company. I don't know when that one was over parks. I don't look at them, but say like Amazon for example how to prefer chair they don't but say they did. And that was like $28 You bought at $28 and ammo. And they up and decided we don't want to have that anymore. They'll call it back early and they'll give you par value so you'll lose money. That's why you always always always want to buy them at discount.
Yeah, that's one of the reasons that acts like a bond is they actually have a par value, or is it called the NAF price.
par value? Is it okay.
Which is the one with the net price? Price
or funds?
Oh yeah, the closing funds. That's right. I'm not the wizard when it comes to the actual kinds of investments. That would be sir Timothy over here through Tim has the Asian telemarketer. People call him.
Yeah, and that's a long time ago.
The one negative that I thought was a pretty big one to mention was that these don't always allow you to do drip. Some
do some don't some likes, but that's not a huge negative if you get one that does drip, good, good for you. But if not, they'll just pay you cash and then you put it in whatever you want. So it's not a huge deal, which is what you do if you had a bond bond and CDs and some of the ETFs do that like some of the ones that were in do that actually. Speaking of which, if you signed up for the email list, I gave you a great email today with like 12 different investment ideas.
He was so into it. So into it. And there's some stuff in there that we're not going to probably talk about, probably on the podcast for another month two, maybe three depending on how they go. Probably
been like December would be my guess when I talk about them but they yield between 17 and 49 30%. But I don't know about the price volatility yet so I can't really recommend them. So
if you're on the newsletter list, kudos to you for getting the insight on that early on.
Sidebar, just the you know, promo and myself you should sign up for the newsletter. Preferred Okay, so I'm looking at one right now and my Schwab brokerage account, it's AR AR which is a monthly paying dividend software some people invest in some people don't it pays like 18% So people like that they like it's monthly because it's a a tank so you can just flip that's why I like monthly ones in my portfolio because if it tanks, you can just get rid of it. It is what it is no big deal. But AR AR AR actually has preferred share PRC and if you look at the price of ARR versus its preferred to ARR bounces all over the place it goes up 1520 It goes down 1314 points I don't go like two or 3% the preferred is it's like the tortoise that kind of just goes up a little bit goes down a little bit so you don't get the upside. If you say I say ARR emerged with someone and like the stock shot through the roof, the preferred wouldn't go above like 25 or 26. You wouldn't get that upside. But they have a cap on the downside right here. The downside is like say ARR had a crappy earnings or like they cut their dividend and their common stock. Well, the preferred wouldn't go down like that would probably drop it 15 to 20% preferred would go down maybe 5% If that. And even then you don't really care because you've got it at a discount and as long as you're getting the money then you should be you should be up in the long run regardless if it goes down 5%
Or these have betas
I don't believe so. I don't think they measure beta and preferred shares. They
still are less impacted by market fluctuations. Right? They are Yeah. So we're looking at one right now.
They are our PRC. And like you see there's a couple huge spikes here. That's probably a one or two to maybe two to three week period. I don't know. And it's like 50 cents. It's like they don't go up a lot and they don't go down a lot. You don't really seem good. Now this one overextend like a couple of weeks. This one went down like $1
Asking there's some kind of bad news or some something but
they always go down before their dividend to that they're the exact same thing as we just discussed before the ex dividend preferred will always go down on the date that they pay their dividend out. So if you like one, you can pick it up for even that little bit less, more more of a discount. One
of the negatives I can see potentially for these preferred shares is that a lot of companies will increase their dividend payout, I guess to keep up with inflation or their earnings or whatever you want to call it. Because these are fixed, income oriented. Whatever you buy it up.
Even if you buy like it gives you a current current yield, you're always gonna get this so when you buy it it will give you a yield of whatever nine changes
in this chart. Do you then get that impacted in the one you own?
This will change based on the buy or sell price? This won't. This is always the same. So I'm asking
the grandfathered in what you bought it at, like Will the dividend go up ever?
No. We said at the beginning the dividend doesn't go up ever. It's consistent. It's why it's an income investing it like you know exactly what you're getting from this.
Now if you weren't invested in it would that possibly change the dividend
would not change now. The yield the yield will change based on price but the price the payment never will change.
Okay. I thought for some reason.
On the flip side like there's a lot of places that will cut their dividend and when they cut their dividend for example a camping world cut there's by like 50% If Camping World had a preferred it would still be at that price always it wouldn't matter what the what the common shares if that was
one of the big incentives that I think I think you've said before that the dividend payouts for preferred shares are a little bit less than the common stock correct or
low as this one ARR like they're currently at 80% dividend and this one's at 8.4.
So that much of a difference. Why would you pick this one over that one? For
the security this was like an AR can cut their dividend any point because it's an REI T and they are like notorious for slashing their dividends.
So there you go, guys.
It's basically if you're a cautious investor and you feel like dabbling in the high high yield investing, I would start with preferred shares just because you're gonna get a consistent payout and you're not going to have the price volatility that you would in the common shares.
A lot of companies have these a lot of people don't realize right what was the one that there's a
lot of if you go in if you search any ticker that I give you I don't know like off the top of my head with like, say I give you like a column for example, the egg one, if you go in into your brokerage account, like I know and Schwab if you type in column and like you scroll down to the bottom, it'll tell you if it has preferred shares or not. So there's a lot of companies that you don't know of that have preferred shares that actually have preferred shares. So
is it easier to find them in our Schwab account
was absolutely 1000. So
if you guys have a different brokerage account, and you don't want to open a Schwab account, you can always shoot him an email, Tim at income investing for nomads.com That's me and he can do the research for you and actually see if there's one because it's not that difficult to see it. In Schwab, like all we have to do is type it in scroll down to the bottom and I'll actually say if you have one or if they are
in the ending, it's easy in Schwab because it's literally just a slash like other ones, or a period or an underscore last
year by the model slash Actor Award from Zoolander.
They don't have ratings you have to worry about rating cuts or anything. And on the page, it tells you everything like it'll tell you the next page and next ex dividend date, the next payment date. I'm telling you the payment you're gonna get. It'll tell you if it's cumulative, or non cumulative is super important. That's one thing I would recommend if you're going to get into convert into preferred shares, you want cumulative. What that means is if they suspend the dividend on the common share, for any reason they have to pay you your preferred share dividend and if they don't, they'll like they'll keep adding to it like say they don't pay you for three months. I'll take three months as a sage This one's 15 cents so it'll be 1530 for you get 45 cents the next next time they pay. The cumulative super important because that way you're guaranteed to get your money unless they go bankrupt. But it tells you the extraordinary call to all that pretty much every preferred has that that's the company can call the share back at any point. That's what I was mentioning earlier. You don't want to be buying over par ever, ever because they can call it at any point and
that's across the board. You don't want to buy bonds over par you don't want to buy those closed ended funds over the Nath price. Same thing with true for these preferred shares.
This one here's interesting, it's convertible and what that basically if you find one that you really like it meets all the criteria that I just mentioned, but it says convertible as a yes, that means if you own the preferred share, and when they when they when it matures, or they call it back they'll actually convert what you have into the common share. So you have to make sure you really liked the company at that point. So if this was convertible on this one like this, this
it's right here. That's your warning. Yeah. And they just do it on a whim if that
happen or tells you that it's convertible, and then the next it's gonna be called on January 28. Okay,
I see what you got. So instead of just giving your cash back, we'll give you the cash back I just turn your
preferred shares into common shares. Oh,
that's Sneaky sneaky. Well, that's, it requires you to Read
Rom with that. Actually, I wouldn't care too much about that, that happening. But the problem with that is if they're, like, say it has 5 million preferred shares, and they convert them over to common shares, it's diluting the shit out of the common shares.
So that'll actually push prices down, though price is down
yields down all that other nonsense. It's just horrible. Like I don't like when they do that. So that's
a big one to be aware of. One of the other pros that we kind of touched on in another episode, we were talking about how they can be harder to sell when the volume goes down. So preferred shares just by nature or lower volume because people don't really know about them.
We don't really have a lot of volume. It's like 20,000 and this is like one that trades like millions upon millions is common shares a day and this one only has like under 20,000 switching and
one because like not many people know about him. Tim was mentioned in something about how he he's on a whole bunch of different subscriptions and he never sees any of them talking about it, but the one person I guess he reached out he reached
out it was the dividend Hunter His name is Tim Fallon feelin for I don't know how to say his name. Sorry. He's a pretty cool dude. He's like an old guy that lives in a camper sometimes. He has. He has an email thing and I'm working. He was like he always said if you have any questions or concerns or any ideas for investing, shoot me an email and I shot him an email about preferred Sure. I think it was See, I want to say see, pq it was an oil one. And I said, Well, this one's like, you know, it's like 20%, undervalued and it pays out like a percent and it's a good it's a good oil company. He's like, I don't like it because it doesn't have a lot of valid volume. And I don't normally do preferred shares. But then like, four months later, he had like two or three preferred shares in his portfolio. I was like, Oh, you sneaky bastard. You took my idea. And you ran with it.
So that's kind of cool that Tim's questions led to some influence. So I guess let's talk about some options or some examples. We call this one Q tip even though it's
great to have queer tab. No offense to anyone that's gay, but queer Tibits QR, T P. It basically, I'm sure a lot a lot. A lot of the old old heads out there know like, the shopping on TV thing. HVAC, HVAC, HVAC?
Oh yes. The shopping at nighttime with the weird person with
a shopping on on on the TV that that's that company there. That's their preferred I forget what I think it's QR so we have this. It's their preferred sharing sounds sketchy. It is sketchy. Is 65% discounted right now and it pays out like 29% yield. That's insane. So that's why we're in it. It's, I mean, whatever he pays you $8 a year per share. So it is what it is. That's pretty good one that goes ex dividend on the 14th is PA our PA rip rapa that's paramount that I think it's paramount like the movie place.
Oh, I feel like theaters are having a comeback. Most the
ones he QP that's the one that I was in. And I asked that Tim found out about it and he said it didn't have enough volume. Oh
there they are. actually have some of these on this list. Good and see QP
slash prs. A good one 8% discount 9% yield. That's a really good really, really, really good oil company.
Don't worry about writing these down, guys. I'll make sure I put them in the show notes. Good and
I just tried to look up and I'm not sure if they call the back or not. So I can't verify if that one's there. But it's it's basically it's an REI T the parent company is good G
7% discount. Well 9%
yield the ARR PRC the one that I was just quoting off of when I was looking at it's 25% discount 8% yield thanks on this one's really good it's a I P r dash P R A that is the marijuana dash as a slash marijuana REIT
Oh check that out Mary Jane read.
And I think that's like the wave of the future whether or not they get on board with it or not. Most
places haven't. We live in Pennsylvania. We're in Pennsylvania right now and Pennsylvania is a pretty conservative state and they have state stores and stuff. So
one of the absolute best is ABR slash PRD. That's arbor. That's it. We actually have the parent company in the portfolio and we're doing outstanding with it. And that's a 26% discount with 8% yield. Do we have any other paper? No. Why not? Good answer.
Would you say here? Oh, what does this adult a
you lt SL s PR D these are just like if you really want a lot of cash quickish This is 33% discount at 28% yield. And CDR it's another Rei T PRC it's 48% discount of 14% yield.
You gotta be a little careful with those higher yield ones though that those like crazy the reason
that I do the discount like the hot like the higher discounts like 2725 26 is because they most of the time they have a good track record of repayment and they actually will at some point go back up to their par value. So you actually be making 2725 23% plus all the dividends you collect through the years. These other ones at the bottom of the 53 in the 48% discount, I have no guarantee that they're going to go back up. Same with the queer tip. I don't know if it's ever going to go back up to its par value of 100. So 10
strategy is whatever you have allotted for preferred shares put about 90% in the ones we talked about before and then if you're going to do a pick a flyer one of those to
a U Lt. Cdr before I did the annual T one and
that one looks less risky just based on numbers and then
so you put $1,000 into one of them what I would do rather than reinvest, I would just take the cash and then once you get $1,000 and you broke even then it doesn't doesn't matter what the hell happens with at that point. Yeah,
so if they have a drip option, turn it off and if it's just cash pull it out. We do that with a lot of the ETFs well ETFs and we did it with crypto. We did it with a bunch of different stuff because it just you have to have money in there to make money but it allows you to basically get your money back way sooner than later to take your risk further down every month or every time it pays out. So then just riding free money at that point.
Maybe might be my mentality but if I put $1,000 into a stock and I get $1,000 in dividends I take the $1,000 cash out, then I have zero risk on the stock. I don't give a shit what it does, because I've already made my initial investment back. So everything else is just ROI. So
those are super hard to track. I'm actually right now trying to figure out how to set up a tracking system so that you guys can see our portfolio performance from month to month. It's not exactly easy, because it's like we have that kind of stuff happening and we have he'll sell partial shares here and there he'll buy partial shares, hope dump stuff he'll buy back in what I do
is I take ones that I'm up a lot and I sell them and I buy ones that I'm down and so I'm doing your your cash, some strategy, but I'm using my profits.
Oh so he's using the what does that cost average? But it's not really cash average. It's more like you're reallocating your portfolio rebalancing your portfolio.
So I do I don't like to have more than like 6% in any one thing and sometimes it gets like up to eight or nine I have to
so Yeah, he'll look at it from a percent base but he'll also look at it from a like if the value is significantly over and you look back at the history and it's not really trending super, super high. It kind of doesn't make sense to leave it all on the table and take losses. That's one of the biggest things that people have issues with the day trading and the other trading. It's like when do you get out? That whole greed thing takes over and then the easiest way to mitigate that is pick out your initial investment and then just let things ride.
It's what they were crypto. Yeah. So I do it with stocks all the time. And that like I just find that way easier. It's not stressful. I don't have to be on the computer all the time.
I should probably add that to the list of things to like mitigate stress and emotions. But that's that's a big one is like if you really don't have your hard earned cash, it's just like gravy train. It's almost like making this into a game to be honest. And I think if you think about it as a game, you tend to make more intelligent decisions, because most people who play games are like trying to 100 100% everything. Yeah, trying to win. So I don't know. Like, I know that sounds like a screwed up like mentality to shift into because then it's not real. But I actually think people make better decisions when there's not pressure to really,
like shouldn't make decisions ever based on treasure.
And we did talk about that like you should never make a decision if you feel any type of emotional like anything, whether it's fear, whether it's FOMO, whether it's
because the fundamentals will change. And that's why I like the high yielding things because when the fundamentals change, the share price will drop but the high yield I should have made a good portion of what it drops. So I shouldn't be like riding kind of level on worst case scenario.
So let's circle back and let's compare preferred shares to some of the other ones that weren't bonds. So where do you get bonds? We didn't close any funds a little bit right?
Close it as long as we have to do one we're gonna do an episode on at some point.
You said some of these are actually BDCs or REITs.
Most like a lot of them are Rei T's or MLPs or BDCs. So
maybe we should do that episode next so people understand what the heck that actually is.
It's he's the real estate. It's not rocket surgery. rocket surgery. BDC is a business development company. We kind of went over that when we discussed Hercules capital. Yeah,
we touched on it every here and there. I feel like we should have a dedicated episode to each one. LP is
literally just dealing with like oil and natural gas. Usually, although I can thinks in NLP I'm not sure but I'm pretty sure it is.
Okay, so that everything you wanted to talk about today, for clothes on it's
for preferred shares.
Why I get the names wrong and everything my bad guys she's bad. I am so bad with acronyms. Not even funny.
They have questions I can ask. So if you guys have questions on specific ones, let us know given like five or six good examples, the ones that can generate them some of the comments they want.
So check out the show notes. If you found this podcast episode useful, helpful, full of information. If you guys do us a HUGE favor go on wherever you're listening to it and leave a review. That's how the algorithms work to get this in front of other people who might need this information as well. We're just trying to get the information out there so we can help people get better control of their income, passive income generation so that they can live more passionate fulfilling lives sooner than waiting 30 years plus to retire and possibly keeling over. So we're definitely in the more hybrid strategy of living more fulfilling now.
Don't leave if you don't want to retire financially before but like say you have a newborn you can literally open up a brokerage account and do this dividend income investing they should their college should be paid for and probably their first house
oh I want to do an episode on that that talks about the the kid things. There's some really cool incentive. I'm gonna do an episode we're definitely going to do an episode on different kinds of investment accounts because there's a lot of US tax savings and stuff for those kid ones in school and education. funds. So that'd be really fun. And
we have to do an episode or tidbit on the tax refund thing. Because we we actually ran the numbers and you literally can make 200 Some $1,000 Just off investing your tax refunds.
Crazy stuff, guys.
Alright, that's all for today. We are going to record a special bonus one, probably right after this. So stay tuned.
Adios Amigos