DIGITALBRIDGE GROUP PFI only own a couple of preferred stocks, one of which is DIGITALBRIDGE GROUP INC 7.15% CUM PFD (DBRGPRI) one of your recommendations. I believe the par value is $25. It is now trading over $25 ($25.31 currently). What does it indicate when a preferred trades over par value?
This is a discussion topic or guest posting submitted by a Stock Gumshoe reader. The content has not been edited or reviewed by Stock Gumshoe, and any opinions expressed are those of the author alone.
It indicates that investors are probably overpaying to get the dividend. Or they don’t think DigitalBridge will be able to get funding at a cost of less than 7%, so they’ll keep paying the dividend instead of redeeming the preferreds for $25, as they have the right to do, and refinancing at a lower rate.
Every preferred is different, but DigitalBridge has historically redeemed its preferred shares on a pretty regular basis, and part of my rationale for buying them was the fact that the preferreds I bought between $18-$23 would likely be redeemed at $25 or so within a few years, giving a little boost beyond the dividend… so I’m happy to hold at close to the $25 redemption price, but I wouldn’t pay more than that, and I’ll consider selling if the price drifts too high. Might get more into the math of this in the Friday File, stay tuned.
Thanks Travis, look forward to any additional thoughts.