Outlook 2024: Preferred stock new issuance still low with possible pickup if rates go down

Chicago, Dec. 29 – The preferred stock new issue market ended 2023 with $12.01 billion of new paper for the year, the lowest amount of volume since 2009.

Tracking 21 tranches, the number is down from 35 in the markedly thin previous year of 2022.

Preferred stock issuers tend to sell new issuance in falling interest rate environments, so volume could pick up in the year ahead – should anticipated lower rates materialize.

Citigroup Inc. accounted for approximately one-fifth of the 2023 market, followed by Wells Fargo & Co., which issued $1.73 billion in one transaction. Two deals for $1.5 billion each, from Goldman Sachs Group, Inc. and PNC Financial Services Group Inc., accounted for another 25% of the total amount of preferreds for the year. In summary, four banks accounted for around two-thirds of the annual total.

The S&P U.S. Preferred Stock index ended the year up approximately 4%, at 648.55 after a steep rise in January and then a 2023 low at 580.53 in October.

Citigroup

Citigroup, the year’s most substantial issuer, skipped full redemptions on two series as they hit their first call dates in 2023, the series D preferreds issued in April 2013 and the series J preferreds from September 2013.

For the series J preferreds that became callable in September, Citi decided to hedge refinancing bets and call 16,000 of the 38,000 $25-par shares.

The series J issue now has a dividend rate of SOFR plus 430.161 basis points – with three-month SOFR above 5% – this puts the dividend near 10% and stands as the highest dividend on any of Citi’s currently outstanding preferreds.

Only those two series that were callable in 2023 currently have floating rates.

Schwab Center for Financial Research analyst Collin Martin, who is now billed as a fixed income strategist but who previously focused on preferred stock, said in a mid-December interview on InvestmentNews that it is important right now “to really focus on the yields that are out there” because the center “actually thinks that the peak is behind us.”

Martin said he sees a rocky road for 2024, but expects yields to end pretty much where we are now in the year ahead.

Up next, Citigroup will have an opportunity to again decide on a course of action when the $1.75 billion of series M and the $1.5 billion of series U become callable in 2024.

According to Citi’s most recent 10-K, the bank’s tab on dividends totaled $300 million for the fourth quarter of 2023.

The most recent issue in September, the series AA preferred stock, currently carries a dividend at 7.625%.

Outlook

Because of the diminutive state of the market, preferred stock is barely on any analyst’s radar at the moment.

The focus in the 2024 outlooks from major investment banks and financial players is on the yields in bonds, a focus on quality and the outlook for rate changes at the Federal Reserve in the upcoming year.

High yields on quality debt are readily available to investors as 2023 closes.

As rates come in, preferred stock issuers would be expected to start reissuing if market conditions are right, both from financial institutions and from real estate investment trusts.

Currently, though, the asset class has been set aside in favor a stock market that continues to notch higher and a bond market that has not been this attractive in many years.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.