These redemptions are great news for the banks, since they have been done on the cheap, as a result of the regulatory change, and will save the companies quite a bit on dividend payments. That's good for common shareholders too, of course, while income-hungry investors are left in the cold.
Neither Bank of America nor JPMorgan Chase have issued any preferred shares since the trust preferred redemptions, but other banks have, at lower rates, which will still be attractive to some investors.
BB&T (BBT) on July 18 redeemed $2.475 billion in trust preferred and other capital securities, of which $1.525 billion had fixed coupons of 6.75% or higher. $350 million in enhanced trust securities had a coupon of 8.10% and $575 million paid a whopping 9.60%. The company then on July 25 issued $1 billion in noncumulative preferred shares, with a coupon of 5.625%, callable on August 1, 2017. The preferred shares are rated Baa2/BBB, and were trading at a slight premium on Monday, closing at $25.17.
Wells Fargo (WFC) on June 15 redeemed $1.8 billion of trust preferred securities, with an average coupon of 6.31%. The company on August 13 issued $750 million in noncumulative preferred shares, rated Baa3/BBB+, with a coupon of 5.20%.
Pursuing Higher YieldsThere are opportunities out there for investors looking for a higher level of current income, who are willing to take on greater risk than that represented by the above bond or preferred stock examples. Energy limited partnerships can offer attractive dividend yields, with some growth prospects. While the following two examples have seen moderate share price declines year-to-date, in a weak market for energy prices, they both feature attractive dividend yields, with dividends increasing over time, and very strong price performance over the long haul. Kinder Morgan Energy Partners, LP (KMP) is mainly a gas pipeline operator. The partnership shares have a yield of 5.98%, based on the most recently quarterly distribution of $1.23 and Monday's closing price of $82.23. The company has had a very strong track record for dividend increases over the past several years. The five-year total return for the partnership units was 130%, through Monday's close. KMP data by YCharts
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