Preferred Play on N.Y. Community Bancorp

NEW YORK (TheStreet) -- Preferred shares can produce a lot of money for investors, as they did for Berkshire Hathaway(BRK.A Quote) and some Citigroup(C Quote) holders. Now, a current exchange offer from New York Community Bancorp(NYB Quote) highlights an attractive opportunity.

New York Community Bancorp on July 29 commenced an offer to exchange $275 million in BONUS units for common shares. BONUS stands for "bifurcated option note unit securities," and each BONUS unit includes one trust-preferred share and a warrant to buy roughly 2.5 common shares for $20 each.

Warren Buffett's Berkshire Hathaway purchased $5 billion in preferred shares issued by Goldman Sachs(GS Quote) in October. In addition to a juicy 10% dividend, the deal includes warrants that allow Berkshire Hathaway to buy $5 billion in common shares at $115. Goldman's shares closed at $164 yesterday. And some investors who bought Citigroup preferred, or trust-preferred, shares at a discount before the company announced its recently completed exchange offer for common shares also profited. The company valued the preferred shares at par when the exchange was made.

New York Community Bancorp's preferred dividend is much safer than that of the common stock. The preferred dividend is cumulative, and while the company can suspend the dividends for up to 20 quarters consecutively, it's not allowed to pay any dividends on common shares until all preferred dividends in arrears are doled out.

Investors have pushed down the common shares by a third in the past year, suspicious that the dividend could be cut, even though the company has managed to maintain a quarterly payout of 25 cents a share since the second quarter of 2002.