E In My Opinion, The Value Of The Fail To Redeem Clause Is Greatly Overstated

Granted that I hold a contrarian view concerning the FTR clause, during my time as a well-respected Seeking Alpha contributor, I proved my point repeatedly: The FTR clause is not only overvalued, often it lowers the profitability of a particular preferred investment. Ironically, TNP preferred shares brought the FTR clause to my attention when several of my followers commented that I had been mistaken about my choice of the best TNP preferred to purchase because I hadn't taken the FTR clause into account, arguing that it reduced my risk and, therefore, negatively affected what I considered would be the best TNP preferred to buy at that particular time. 

The following is a screenshot from that particular article published May 16, 2016, which is included in my book, The Art & Science of Preferred Dividend Investing:

(Click on image to enlarge)

TNP's B & C Series preferred shares contained the draconian "fail-to-redeem" clause that would place a great burden upon TNP if those shares were not redeemed in a timely fashion. (B shares would breach the conditions of the clause if uncalled by 7/30/19, and C shares would do likewise after 10/30/20.) Consequently, investors valued both the B & C shares approximately $2/share more than the D, which has no such clause.

Although a contrarian view, one which I still hold today; should the B be called in a timely fashion, I contend that my D shares would be considered more valuable because TNP displayed the fiscal strength to be able to redeem the shares as required. And should it redeem the C Series in a timely fashion, I expect my Ds would benefit even more. I'm aware that Tsakos might have to issue additional commons and/or preferred shares to pay for this call, which might or might not prove advantageous were this to occur. Time will tell. What I am certain of is that if the shares are redeemed in a timely fashion, I will continue to receive dividend payments at the effective higher yield I've had since the day I bought them, as displayed above. Conversely, should TNP fail to redeem as required and incur the costly penalties, I believe all the preferred shares - series B, C, and D - will suffer accordingly, but I will have been invested at approximately $2 less per share, or more succinctly, I would be at risk for $2 less per share.

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This is my opening article as a TalkMarkets contributor. I'm simply an average market investor with one claim to fame: I know more about preferred investing than most, and the majority of my ...

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