August 24, 2010: Preferred Stock Picking Gets A Lift From Schwab

Recently, with little fanfare, Charles Schwab introduced a preferred stock screen device on it's research platform that allows investors to screen by current yield, S&P credit ratings, sector and company names for approximately five hundred securities. Indeed, the basics are there for the investor seeking to spice up income within a portfolio.

I set the screen for yields of greater than 6% and an S&P rating of "A" for all ten sectors Schwab provided. Here is what showed up (all were rated A-):

Ameriprise Financial 7.75 Sr. Notes (AMPpA)
Barclays Bank 6.625% Series 2 ADS (BCSpR)
Barclays Bank 7.75% Series 4 (BCSpC)
BNY Capital IV 6.875% (BKpE)
Harris Preferred Capital "A" 7.735% (HBCpR)
HSBC Holdings 6.2% Exch (HBCpA)
HSBC USA $2.8575 cumulative (HBApZ)
HSBC USA 6.50% (HBApH)
Prudential 6.5% (PUKpA)
Prudential 6.75% (PUKpR)
Santander 6.5% (STDpC)
Santander 6.8% (STDpA)
Wachovia Capital Trust IV 6.375% (WBpB)
Wachovia Capital Trust IX 6.375% (WBpC)
Wachovia Capital Trust X 7.85% (WBpD)
Wachovia Pref Fdg 7.25% (WNApR)
Wells Fargo 7.5% Convertible Pref. (WFCpL)
Wells Fargo 8% (WFCpJ)
Wells Fargo Capital Trust IV (WSF)


For less experienced investors the screen tool could induce one to become too smart by half. Although the call price is listed on the screen, there is no date of the call listed and the information tag on the right side of each security line provides only the most elementary of data. Many of the preferred securities are priced over their call, and other qualities unique to each preferred are not referenced. This could well create an "oops" result and unexpected losses of capital.

That said, the screening tool is a useful first step for users of the Schwab online brokerage.