Sallie Mae (SLM), the education loans company, has a preferred floating rate stock that is very interesting.
- Par Value is $100.
- Currently trade around $60.
- Dividend is floating based three-month LIBOR plus 1.70% per annum. Three-month LIBOR is at an all time low. Here is the libor rates history. The last four dividends add up to $2.14 or 3.5% at the current price.
- They are callable at anytime at $100. They do not mature.
- They trade on NASDAQ under the symbol SLMBP.
- The are non cumulative meaning if the company misses a dividend payment, they don’t have to pay later.
- For every 1% the libor rate goes up, the stocks yield will go up 1.67% due to discounted stock price.
- If LIBOR rates go up from historic lows, the stock price will go up significantly. For example, in 2006-2007, the three-month libor was around 5+%. If rates go up to that level, this stock will yield 11+% at the current price of $60. During that time, the stock was trading around par value or $100.
- 3.5% is a decent yield in this environment.
- SLM is a $9 billion company.
- Taxed at 15% dividend rate.
- Need to more research on SLM. The security is only good as the viability of the company.
I will update the site once I do more due diligence on SLM.
Disclosure: I do not own SLM