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Convertible Securities On The Right Track
Convertible bonds and preferred shares are among the lesser known securities available to investors. But for those who seek income and still want to participate in the upside offered by common shares, convertible securities are the perfect hybrid. (For an overview of convertibles, refer to Introduction to Convertible Preferred Shares.)
IN PICTURES: Seven Ways To Position Yourself For Recovery
Essentially, convertibles are issued as a means of raising capital by companies who would not be able to do so otherwise. That means they have to offer better returns, either by way of dividends or interest. And because they can be "converted" directly into the issuer's underlying common stock, they tend to move in tandem with the common, albeit in a muted fashion.
Great Yield and Good Upside Potential
Our focus here is on convertible preferred shares, which come in a variety of packages. Suffice to say, a prudent investor will always check with his/her financial advisor before making any investment decisions. Remember, with convertibles, the devil is always in the details.
That said, here are three very attractive convertible preferred shares that currently offer a great yield pickup over high grade corporates.
Archer Daniels Midland (NYSE:ADM) is one of the world's largest processors and marketers of agricultural products. The company's 6.25% equity units, due 6/1/2011 (NYSE:ADM-A), are currently yielding 8.11% and have had quite a run. The preferreds have risen roughly 90% since bottoming last October and trade currently around $38.50.
Sweetening Its Product Line
This spring, ADM acquired German chocolate giant Schokinag-Schokolade-Industrie Herrmann GmbH & Co. KG, adding tremendous sales potential to its already vast $70 billion in annual sales.
Archer Daniels' convertible preferreds are rated A2 by Moody's and BBB+ by S&P.
Mylan Inc., 6.50% mandatory convertible preferred stock (NYSE:MYLNP) currently offers investors a 6.8% yield. Mylan (Nasdaq:MYL), a mid-cap generic and brand name manufacturer of pharmaceuticals, sells over 570 products to customers in more than 140 countries.
The convertible preferreds are rated B- by S&P and have seen gains of over 120% since the 52-week lows that were set in the fourth quarter of 2008.
Insurance and Reinsurance
XL Capital Ltd.'s 10.75% equity security units (NYSE:XL-Y) yield a whopping 10.18% annually and have seen an unbelievable rise of over 330% year-to-date. XL Capital (NYSE:XL) offers a number of lines of insurance and reinsurance primarily to other insurance companies and various commercial and professional service firms.
Moody's rates the shares Baa2 and S&P gives them a BBB-.
The Wrap
For those who need income but don't want to miss out on big moves in the overall market, convertibles are a hidden treasure that offers both. And the three issues described above possess both great yields and significant momentum behind them.
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
IN PICTURES: Seven Ways To Position Yourself For Recovery
Essentially, convertibles are issued as a means of raising capital by companies who would not be able to do so otherwise. That means they have to offer better returns, either by way of dividends or interest. And because they can be "converted" directly into the issuer's underlying common stock, they tend to move in tandem with the common, albeit in a muted fashion.
Great Yield and Good Upside Potential
Our focus here is on convertible preferred shares, which come in a variety of packages. Suffice to say, a prudent investor will always check with his/her financial advisor before making any investment decisions. Remember, with convertibles, the devil is always in the details.
That said, here are three very attractive convertible preferred shares that currently offer a great yield pickup over high grade corporates.
Archer Daniels Midland (NYSE:ADM) is one of the world's largest processors and marketers of agricultural products. The company's 6.25% equity units, due 6/1/2011 (NYSE:ADM-A), are currently yielding 8.11% and have had quite a run. The preferreds have risen roughly 90% since bottoming last October and trade currently around $38.50.
Sweetening Its Product Line
This spring, ADM acquired German chocolate giant Schokinag-Schokolade-Industrie Herrmann GmbH & Co. KG, adding tremendous sales potential to its already vast $70 billion in annual sales.
Mylan Inc., 6.50% mandatory convertible preferred stock (NYSE:MYLNP) currently offers investors a 6.8% yield. Mylan (Nasdaq:MYL), a mid-cap generic and brand name manufacturer of pharmaceuticals, sells over 570 products to customers in more than 140 countries.
The convertible preferreds are rated B- by S&P and have seen gains of over 120% since the 52-week lows that were set in the fourth quarter of 2008.
Insurance and Reinsurance
XL Capital Ltd.'s 10.75% equity security units (NYSE:XL-Y) yield a whopping 10.18% annually and have seen an unbelievable rise of over 330% year-to-date. XL Capital (NYSE:XL) offers a number of lines of insurance and reinsurance primarily to other insurance companies and various commercial and professional service firms.
Moody's rates the shares Baa2 and S&P gives them a BBB-.
The Wrap
For those who need income but don't want to miss out on big moves in the overall market, convertibles are a hidden treasure that offers both. And the three issues described above possess both great yields and significant momentum behind them.
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
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