gw thoughts on commons versus preferredThanks for taking the time to explain the preferred shares. I tend not to buy a lot of preferred shares and needed some clarification. I agree with you completely about the series 1 and 2 and would not touch those. Buybacks on those to the extent possible makes a lot of sense to me too as you are suggesting.
I do understand that eventually the company is going to seek to redeem the 3 and 5 series (or do cheaper buybacks as they have been doing). My thinking though is that, if we're working on the assumption that the company is going to turn around without bankruptcy (which is my assumption), then the commons make a lot of sense too.
Scenario 1 -- Bankruptcy or company shows imminent signs of it: Even though this is not where I think it's going, I'm going to start with this scenario.
If you hold C&D series shares, you will be high on the list of creditors and will probably get some back some or most of your capital especially if you bought your C&D cheap on the secondary market and have been collecting a quarterly dividend that's about 15% of the 11 bucks a share you paid (assuming you buy today). Because of low volumes, it may be hard to unload your C&Ds if the company enters a "death spiral". However, you are sitting in a pretty good spot.
If you hold commons your dividend is about 18% if you buy in the low 80s. You are in trouble if the stock is halted and never resumes due to bankruptcy. May end up getting a big fat zero per share. Your dividend may also be cut along the way.
However, due to the extremely depressed prices of the commons right now and the fact that this outcome is not imminent, you can probably make some nice capital gains and lock in those profits. If you're nimble, you can get out before anything really bad happens because the trading volume will be high, there will be some bounce when shorts cover, etc.
Preferred's look better in this situation but there are many ways to mitigate risk if you watch the markets closely and can trade your way out.
Scenario 2 -- Our working premise: company makes a recovery
In this case, eventually your C & D series are redeemed for $25 (unless you sell into a buyback sooner than that). Your dividend is secure and you double your share price. Some very nice gains are made.
I think the commons, in this scenario, fare even better though. Commons are valued right around annual EPS and less than a tenth of book value. Even if book value is cut in half (very pessimistic) because of write-downs on intangible assets, you are at a fifth of book. Moreover, if dividend holds at 15 cents, it's better than that on the C&Ds. You stand to very realistically see your share price triple or better while making a better dividend.
I tend to really like the commons over the preferred shares since I watch the trading regularly anyway.
Mark