2023-08-11 09:00:00 ET
Summary
- Stifel Financial Corporation has three preferred stocks to consider: 6.25 DPSHS PFD B, DEP RP SHS PFD C, and 4.50% DEP PFD.
- Stifel Financial is a diversified global wealth management and investment banking company with client assets of $389.8 billion.
- The Stifel Preferreds have different characteristics and call protections, and investors should compare them to other investment bank firm options. Two from MS are analyzed for this purpose.
- I provide possible trading options for investors to consider and match up with their portfolio allocations and goals.
Introduction
Now retired, I took the chairmanship of my United Methodist Conference's Investment Committee, whose task is investing money held to cover the pension and medical costs when our pastors retire. The funds are divided between two managers, one of which became Stifel Financial Corporation ( SF ) when one of the managing groups changed firms. In researching our new manager and as a personal investor looking to expand my Preferred stock allocation now that I feel the FOMC is nearing the end of its rate hikes, during my research on Stifel, I found they had three Preferreds to consider. This article reviews what I found. The issues are:
- Stifel Financial Corp. 6.25 DPSHS PFD B ( SF.PB )
- Stifel Financial Corp. DEP RP SHS PFD C ( SF.PC )
- Stifel Financial Corp. 4.50% DEP PFD (SF.PD)
Understanding the issuer
stifel.com
The Stifel Financial Corporation dates back to 1890 and held client assets of $38.98 billion at the end of 2022. Bank loans were $20.6 billion on that date.
The Stifel Financial website provides the following about the firm.
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Stifel is a diversified global wealth management and investment banking company focused on building relationships that help individuals, families, and organizations pursue their financial goals.
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As your trusted advisor for individuals or families, we'll bring clarity to your financial goals and deliver sound advice to help you navigate uncertain times.
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From raising capital to structuring mergers and acquisitions, and beyond, Stifel helps companies, organizations, and municipalities navigate complex financial issues.
Here is a link to the 2022 Annual Report. For more recent results, the latest quarterly report provided the following data.
During the last winter's banking crisis, Stifel sent a letter outlining their capital strengths to calm the nerves of their client base. More recently, the SEC fined Stifel when some clients claimed investment risk misrepresentation by their brokers ( article ). For more about the Issuer, I suggest this article from June: Stifel: Well-Rounded IB With Upside by another Seeking Alpha contributor.
Reviewing and comparing the three preferreds
quantumonline.com SF.PB quantumonline.com SF.PC quantumonline.com SF.PD
Factor | "B" | "C" | "D" |
Issue date | 2/22/19 | 5/12/20 | 7/14/21 |
Issue size (shares) | 6m | 8m | 12m |
Coupon | 6.25% | 6.125% | 4.50% |
Call date | 3/15/24 | 6/15/25 | 8/15/26 |
Latest price | $22.92 | $23.78 | $16.12 |
Latest yield | 6.85% | 6.49% | 6.97% |
YTC | 21.1% | 9.0% | 20.5% |
All three are non-cumulative, rated BB-, and are eligible for the 15% tax rate on payouts. The financial strength of Stifel can be seen in the low 4.5% coupon the 2021 Preferred required to be issue at Par compared to the 6.25% in 2019 or even the slightly lower 6.125% required just as the market was recovering from COVID. Someone was on the ball issuing $300m in new preferred stock months ahead of the FOMC raising rates! Some of those proceeds were used to Call a 6.25% coupon Preferred.
There is one clear choice to skip over based on YTC data. I checked my calculations and inputs several times since SF.PC is so much below the others. As for picking between "B" and "D", while I see "B" getting Called like "A" was, the 4.5% coupon on "D" means investors could wait a long time hoping for it to be Called.
Portfolio strategy
For investors wanting income, holding the SF.PC would be the better option as it has 15 months more of call protection than the SF.PB issue; keeping in mind its low YTC. The best YTC issue is obviously SF.PD, which also has the most Call protection time and coupon wise.
The next step should be comparing the Stifel Preferreds against another Investment banking firm. I found two from Morgan Stanley ( MS ) I thought matched up well in terms of coupon, Call date and rating. Both do have longer Call protection than any of the Stifel issues.
quantumonline.com MS.O quantumonline.com MS.P
Factor | MS.PO | MS.PP |
Issue date | 10/18/21 | 7/28/22 |
Coupon rate | 4.25% | 6.50% |
Latest price | $18.54 | $25.85 |
Latest yield | 5.77% | 6.05% |
Call date | 1/15/27 | 10/15/27 |
YTC | 13.8% | 5.6% |
Like with Stifel, the YTCs on these two issues presents the same choice: lower coupon has better YTC but less chance of that actually happening. Also, Morgan Stanley's slightly better rating has these issues having lower YTCs than the Stifel issues, including the one with the most Call protection. Based on the investors risk appetite, they have choices to make.
Possible actions to take
Here are my thoughts for readers to incorporate into their own based on their portfolio allocation needs and investing goals.
- Swap SF.PC due to its low YTC into one of the other SF Preferreds.
- Investors needing short-term income that could end soon, SF.PB to me is the better option though its possible life is short.
- Think of SF.PD as a long-term 4.5% "CD"; useful if rates return to the dismal levels prior to 2022. That said, I would swap it out for the 4.25% MS.PO issue for the longer Call protection, just in case rates do fall.
- I don't see owning the MS.PP for its meager 5.6% YTC unless the higher rating is attractive (and it's not that much higher). Unless the income is needed, I find the MS.PO more attractive but less likely to be Called.
Final thoughts
Along with the three Preferreds discussed, there is also a Note available, the Stifel Financial Corp. 5.20% SR NT 47 ( SFB ). That is too far out for my taste or needs, but here is the basic data on that issue.
The Note currently sells at $20.98 for a 6.2% yield. The 5.2% coupon helps protect investors from it being Called (it is eligible), as two of the Preferreds have higher coupons.
Despite its 2047 maturity, this Note still has a higher rating than the Preferreds due to its higher ranking in bankruptcy and unlike the Preferreds, payment cannot be skipped without that declaration.
For further details see:
Stifel Financial Offers 3 Preferred Stock Options