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Floating Rate Preferred Stock

In today’s low yield world, investors are looking to other sources to spruce up their returns.  But fixed rate options such as municipal or corporate bonds expose the investor to interest rate risk when rates start moving up.

There is an alternative that offers a fixed floor that will adjust upward as LIBOR rates move up.  Several of these issues are issued by such companies as Met Life, Goldman Sachs and US Bank.  Here are some details on these issues:

Met Life MET-A  This issue offers a rate the greater of 4% or 1% above the 3 month LIBOR.  The 4% is calculated using the $25 call price so it will pay $1.00 each year, in this case it pays .25 each quarter.  It currently is paying the 4% minimum, however as of today it trades at 23.25 so the current yield is 4.3%.

Goldman Sachs GYB  This issue offers a rate the greater of 3.25% or .85% above the 3 month LIBOR.  The 3.25% is calculated using the $25 call price so it will pay $.8125 each year, in this case it pays .203 each quarter.  It currently is paying the 3.25% minimum, however as of today it trades at 16.60 so the current yield is 4.89%.

US Bank USB-H  This issue offers a rate the greater of 3.5% or .6% above the 3 month LIBOR.  The 3.5% is calculated using the $25 call price so it will pay $.875 each year, in this case it pays ..218 each quarter.  It currently is paying the 3.5% minimum, however as of today it trades at 22.20 so the current yield is 3.94%.

Some of these payments are qualified while others are considered ordinary income, the website below does explain which they are.  As always contact your accountant for confirmation.

These issues are rated by rating agencies such as S&P and Moodys.  There is a fantastic website to get all the detailed information about these and other preferred stock, it is Quantium Online and is a great resource to learn more.

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