Looking for dividends

Assuming they will continue to pay the dividend and redeem. What if they just suspend the dividends on the preferred and lock the preferred owners? Remember this transaction is not change of control, so that will not trigger. These are the reasons I hate preferred’s. There is no honor amongst company management. If they can fund common purchase, then fund the preferred too, or provide additional explicit guarantee.

Of course, that’s a possibility. But they are cumulative preferreds, so it would pile up as a liability. And it would impair their credibility if they wanted to do another preferred, not that this is especially likely. But it would be nice if they explicitly addressed an intention to pay it.

Jim

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Of course, that’s a possibility. But they are cumulative preferreds, so it would pile up as a liability

A dividend, cumulative or otherwise is not a liability. I am not sure whether they have any restrictions on whether common dividend cannot be paid until preferred is paid etc. Still an organization can do many thinks to screw the preferred owners. They can strip the assets of the primary entity, via spin-off, etc and leave a shell company with no assets, which will never pay the dividend. The preferred holders at some point throws the towel and willing to take whatever price available on the market and the management can buy it in the open market, once they own substantial amount can redeem or get current etc.

The legal protection for preferreds are so light, and unenforceable, I am coming to a point where I will no longer be investing in REIT preferred’s, in fact most prefreed’s with an exception of few banks preferred’s.

Few extra percentage of return is not worth the risk, risk of no legal protection, no voting power, not able to participate on the upside, but fully exposed to the downside, and unlike bonds in insolvency have very little way to enforce your claims.

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Ah, ok. After investigating further, I stand corrected on the issue of cumulative preferreds being a liability. Only declared dividends are a liability, and while a cumulative dividend in arrears may be noted in the financial statements, it’s not technically a liability until declared.

Jim

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More from AFG:

American Financial Group, Inc. (NYSE: AFG) announced that its Board of Directors has approved an increase in the Company’s regular annual dividend to $2.52 from $2.24 per share of common stock. The increased dividend, when declared, will be paid on a quarterly basis of $0.63 per share of common stock beginning in October 2022. The new dividend rate represents a 12.5% increase over the annual rate paid thus far in 2022. The Company has increased its dividend in each of the last seventeen years.

Now yields ~ 1.8%, but special dividends have nearly always equalled or exceeded declared dividends.

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AFG just reported, beating both top and bottom lines, but the stock has fallen 7% over the past few days to 135. A special dividend of $4 was declared, in addition to the regular dividend, currently yielding 1.8% - that’s an effective yield of almost 5%, assuming no other special dividends get declared.

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VZ current price is $41.75 and dividend yield is 6.26%; There are some covered call scenario where you can get more than 15% return.

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