Fat 8.5% Dividend Yields From Preferred Shares

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Resource Capital Corporation (RSO) has three preferred shares. The call risk is pretty remote. RSO had the opportunity to repurchase preferred shares at a substantial discount and didn’t do it.
Let’s jump into prices.

Prices
RSO-A and RSO-B are both within my sell range. RSO-C is still respectable as a hold option, the fixed to floating feature is pretty nice. Even though RSO-C will be going to a floating rate after call protection is up, it’s not your normal LIBOR + a spread. The floor on RSO-C will be its current rate, so if rates weren’t attractive at the time, the security would still be paying a decent rate.
To fully understand these preferred shares, it’s important to look at more metrics:

RSO-A and RSO-B are both trading high for their 52 week range. Further, the common equity over preferred equity is 1.19. Compared to other mortgage REITs, this is significant. The preferred equity isn’t going to have as much protection in a major market downturn.
RSO-C has a lot of call protection on the calendar. The security has call protection until 7/30/2024.
Investors who don’t mind the call risk might want RSO-B instead. RSO-A has a higher stripped yield than either of the other two, but there is a small capital loss on calls (if we don’t adjust for dividend... Read more

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