Sallie Mae Preferred Looks Interesting

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.

The positives:

  • 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.

The negatives:

  • 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

2 thoughts on “Sallie Mae Preferred Looks Interesting

  1. If u like SLM preferred, look at OSM and ISM. These are SLM baby bonds (senior unsecured) that pay YoY CPI + 2% and 2.05% respectively. Both trade near par, mature in ~5 years and offer better yields than preferreds.

    • Yep, there are def positives to the bonds.

      1. Bonds vs preferred.
      2. Mature in less than 5 years.
      3. Nice they give a monthly dividend.

      However, I see the preferreds having a better upside since they trade 60 cents on the dollar. In the next five to ten years if the preferreds ever get near their par value, you are essentially doubling your money.

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