I have posted this many times on this board and on FNMAS. You being a new poster here never saw those posts so please understand my reply is going to be very brief to avoid boring everyone else here who has already heard the story. I am not avoiding your question which is a fair one.
I am retired. I invest for a living and have done so for many years. I primarily hold high yield stocks, mReits, ETFs and mutuals, with a sprinkling of tech and growth stocks added for interest and potential bigger gains or as M&A targets like Twitter and Square. I am not a highly active trader like many here are, nor do I short anything. I do not trade on margin and I never borrow money to invest. I invest against what might be called a "passive/aggressive" objective of taking more risk than normally suits a retiree, but try to avoid extreme risk in distressed plays. I have a LOT of history in distressed and bankrupt companies that I have successfully traded for over a decade. That is why I am here in Fannieland. I often investigate either preferred or bond strategies in these opportunities as an alternative to the absolute risks of owning common stock.
I chose a preferred position sensing a likelihood for receivership. I chose FNMAS within the family of Fannie pfd's because of its high coupon, relative activity and liquidity and because of 3 year redemption dates that make the equity of value if liquidation does not occur (such as if the Perry Appeal eventually succeeds). It is similar to taking a hedged position in Fannie Mae.
I have assessed 3 potential outcomes in the end game.
1. I can lose 100% and move on.
2. I can get liquidation preference on FNMAS in a range from $16 to $25 with an investment that will require 3-4 years to net a 6X to 8X return.
3. I get restored dividends that at face would net eventual $2.06/share JPD and a near $25 S/P. Once/if release occurs, it should take about 5 years for a full 8.25% JPD to top out, so let's just assume it restores at 1/2 of coupon and just goes up, year after year, from then on. That would be a $1.03 divvy on what today is a $3 stock. That's a 30%+ yield for as long as it lasts. There is not another redemption period for FNMAS until December, 2018 and then none until 2021 so a solid payout is likely, though not assured.
Commons will get a much larger, incremental reward payday in an R&R scenario... Ackman says $20, other pundits predicting $100's/share which I view as way out of the reality zone. But they also carry the much higher risk profile of shares with no recovery likely under liquidation.
So that's why I'm here and why I own preferreds. Someone with a higher risk tolerance can benefit handsomely by owning common shares under certain outcomes being sought in courtrooms across America.
Believe it or not, this is the brief version. Apologies to those that have already seen this before.
JMHO.
