Using preferred shares you have to accept that there may be some price movement so your cash balance can fluctuate both up and down some. I try to pick stocks where that is not a lot of downside and more upside if anything. Currently I am using FBRT-E and AGNCO. FBRT-E priced today at $20.69 is a fixed rate preferred with a current yield of 9.1%. Trading years past its original call date in 2018. The par is $25 but the parent company will not call at this price as its cheaper to just buy back shares. No call risk in regards to price. The price can drop some if the Fed decides to raise short term rates but conversely, when they begin to cut you can see a rise in price. At the start of the Fed's raises in January 2022, the price was over $25. The low point was January '23 in the $18's. I'm not looking at any more that maybe 1 more raise in rates at the most so I think this upside only.
AGNCO priced today at $24.17 is a fixed to float preferred meaning at a particular date, in this case 10/15/2024, the coupon rate will float based on a spread of 3-month SOFR plus 4.993 %. At today's price, that floating rate would be equal to a yield of 11%. The current stripped yield is 6.76%. There could be some minor downside especially if the Fed's decide to raise rates but that is balanced by the upside pressure of increase in the coupon on 10/15/24. Between now and Oct I expect the price to gradually rise to close or just over $25. A sister preferred, AGNCN, floated in Oct 2022 and i now priced at $25.45.
I already owned these 2 so was pretty familiar with the terms. If we were at the beginning of a rate increase cycle I probably would have stuck with a money market fund or maybe a preferred from a big name company with not a lot of price fluctuation history. The yields would have been a lot smaller though. I take the quarterly dividends in cash and leave them in my cash account or buy more preferred shares depending on if it looks like AIM will call for a buy at the end of the month or not.
