Tag: Minibonds

Mini Bonds: A Small Investment with Big Potential

by Fred Fuld III

Mini bonds have gained popularity among investors due to their affordability and accessibility. These bonds, often referred to as notes, typically trade for around $25 on the NYSE and NASDAQ. They offer a unique opportunity to invest in debt securities at a fraction of the cost of traditional bonds, which normally trade in $1000 denominations with a $5000 minimum.

One of the most significant advantages of mini bonds is their low entry point. For investors with limited capital, these bonds provide a way to diversify their portfolios without breaking the bank. By investing in a variety of mini bonds, investors can spread their risk across different issuers and sectors, potentially reducing their exposure to market volatility.

Another benefit of mini bonds is their liquidity. As they trade on major exchanges, investors can easily buy and sell these bonds, ensuring that they can access their capital when needed. This liquidity can be particularly valuable in times of market uncertainty, as investors can quickly liquidate their positions to meet their financial obligations.

Mini bonds have a big advantage over preferred stocks, because the bonds will eventually be paid off at maturity.

However, while mini bonds offer several advantages, it’s essential to consider potential drawbacks. All bonds can drop in value when interest rates rise. Also, investors should carefully evaluate the creditworthiness of the issuers before making an investment.

Additionally, mini bonds may have limited trading volume compared to stocks. This can sometimes lead to wider bid-ask spreads, which can impact the overall return on investment if sold before maturity. 

Here are some examples of a few muni bonds:

Southern Company Series 2020A 4.95% Junior Subordinated Notes due January 30, 2080 (SOJD) 5.07% yield.

Southern Company (The) Series 2020C 4.20% Junior Subordinated Notes due October 15, 2060 (SOJE) 4.79% yield.

Assurant, Inc. 5.25% Subordinated Notes due 2061 (AIZN) 5.82% yield.

Stifel Financial Corporation 5.20% Senior Notes due 2047 (SFB) 5.44% yield.

Brookfield Finance Inc. 4.625% Subordinated Notes due October 16, 2080 (BNH) 5.88% yield.

Babcock & Wilcox Enterprises, Inc. 8.125% Senior Notes due 2026 (BWSN) 8.65% yield.

In conclusion, mini bonds offer a unique investment opportunity for both experienced and novice investors. Their affordability, liquidity, and potential for diversification make them an attractive option for those seeking to build a well-rounded portfolio. However, investors should be aware of the potential risks associated with these bonds, such as credit risk and limited trading volume. By conducting thorough research and carefully considering their investment goals,investors can make informed decisions about whether mini bonds are a suitable addition to their financial strategy.

Disclosure: Author didn’t own any of the above at the time the article was written.

PINES and QUIBS and PD’s Oh My! How About Minibonds for Income Investors?

by Fred Fuld III

Have you ever considered Minibonds™ for an income portfolio or your retirement plan? (Not muni bonds, mini bonds.) These are bonds that are traded just like stocks on the New York Stock Exchange, American Stock Exchange, or NASDAQ for around $25 per share.

They are almost like preferred stocks except that they pay interest instead of dividends and they generally have a specific maturity date. In addition, they usually pay interest quarterly instead of semi-annually. Sometimes they are referred to as PINES (Public Income Notes) or QUIBS (Quarterly Interest Bonds) or QUICS (Quarterly Income Capital Securities) or QUIDS (Quarterly Income Debt Securities). There are even a few that are issued as Perpetual Debt, which means that there is no maturity date.

The advantages of Minibonds to the corporate issuers are that the interest is deductible to the corporation (unlike dividends which are not deductible).

The advantages to the investor are as follows:

  • The bonds are ‘safer’ than preferred stocks (in other words, if the corporation goes out of business, the bonds are generally paid off first before the preferred or common stock).
  • The Minibonds (with the exception of the perpetual debt bonds) have some limited protection against inflation versus preferred stocks in that if interest rates go up, their value will drop, yet the par value (usually $25) will be still paid back at maturity. Whereas, preferred stocks have no maturity.
  • The small denomination is a benefit, especially when looking at an annual IRA investment.
  • A fourth benefit is that since they are traded like stocks, there is more liquidity than buying or selling a $5,000 bond. However, these are still very illiquid investments. Most have a very low daily volume.

Here are a few worth reviewing in no particular order. Keep in mind that the stock ticker symbol shown may differ depending on which financial website you are looking and and which brokerage firm you are using. When you enter a quote on these with your broker and it doesn’t look right, you may need to call them to make sure you are using the correct symbol. For example, I found three different symbols for the Ford note, depending on the web site and broker.

Ford Motor Company 6.20% Notes due 6/1/2059 (F-B) (F-PB) (FpB)

Duke Energy Corp., 5.625% Junior Subordinated Debentures due 9/15/2078 (DUKH)

Chicken Soup for the Soul Entertainment, Inc. 9.50% Notes Due 07/31/2025 (CSSEN)

Bank of America Corp, 6.45% Income Capital Obligation Notes ICONS due 12/15/2066 (MER-K) (MER-PK)

AT&T Inc., 5.625% Global Notes due 8/1/2067 (TBC)

Pitney Bowes, Inc., 6.70% Notes due 3/7/2043 (PBI-B) (PBI-PB)

QVC Inc., 6.375% Senior Secured Notes due 9/13/2067 (QVCD)

Just remember, even though these muni bonds are exchange traded, they are not anywhere as liquid as the stocks of the companies that issued them.

Happy investing!

 

Disclosure; Author didn’t own any of the above at the time the article was written.