Loyal readers will know my love of the yields being offered by energy preferreds. The great thing about owning these instruments is how quickly one's investment is returned. Many of the securities pay monthly, and with the market still waaaay overpricing the risk associated with these companies in a low-commodity price environment, the math on the yields becomes easy. A monthly-paying security with a 12% current annualized yield is returning 1% per month, a healthy figure to be sure.
With yields so elevated, timing of receipt of payments is crucial. Most readers probably know this, but a quick primer on dividend timetables: A company declares a dividend as payable to shareholders of record as of the close of business on a certain date (the record date). The security will start trading without the dividend (ex-dividend) as of the open of trading on the morning two days prior to the record date (the ex-dividend date). This is due to T+3 settlement requirements. The payment itself is usually made two weeks after the record date, and that date is included in the dividend announcement.
So if a company declares a dividend with a record date that falls on a Friday, the last day to buy the security and receive the dividend is Tuesday; i.e., the day before the ex-dividend date. I call this the "buy date" and it is certainly more relevant than the other two from a cash-flow perspective.
It's easy to click on any financial website and see the ex-date for a security, but with so many securities in the income universe, it's also easy to notice a security's ex-date on the ex-date, and then it is too late to buy as the security is now trading without dividend, and you won't get paid. I can even admit that I sometimes do this myself -- oops -- and in a world where yields on stocks and Treasuries are so low, leaving 1% or more on the table by not knowing the payment calendar is a costly mistake.
This effect is inflated when dealing with securities that pay quarterly, as opposed to monthly. In this case, one can get 3% to 4% back in a couple of weeks, as opposed to the 1% monthly payback from monthly-paying securities. Again, there's no magic bullet here, as the security will trade ex-dividend as of the open of trading two days prior to the record date.
One has to realize, however, the energy preferreds we are dealing with are a very special situation. The huge discounts to par currently reflected in those securities' quoted prices make historical intra-month trading patterns less relevant. If the price of oil moves materially in either direction, the pattern of the last few months has been clearly established that these preferreds will move 5% to 10% in one day. I certainly have the gray hairs to prove it.
Also, any data point that adds to the perception of creditworthiness will also spike these preferreds. A clear example was provided when the preferreds of Miller Energy (MILL; I described this in a prior column) jumped as the company announced the details of its regularly scheduled quarterly payment. This was a very routine announcement, but if the market thinks the company is default-ready (Miller is far from that point, by the way) then even such a basic announcement can be a game-changer.
So, after all that exposition, the key point is that today is the last day to buy and receive the next dividend for many of the preferreds about which I have written. The table below (see View Chart) provides the details, but if you are thinking about locking in some of these outrageous yields, do it before the close of trading today.