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Courtesy of Qurate

Investors can now earn a lush dividend yield of over 7% on a little-known preferred stock issue of

Retail business

the home buying business that counts media mogul John Malone as a significant shareholder.

Qurate Retail’s preferred 8% $ 1.3 billion issue (ticker: QRTEP) is now trading around $ 103, a 3% premium to face value. The current yield is 7.6%, and the yield is 7.13% assuming the company chooses a 100 buyout in September 2027, according to Bloomberg.

“The risk / reward ratio compared to other fixed income investments is quite compelling,” says Jon Boyar, director at Boyar Asset Management. Boyar also appreciated the preferred stock after its issue in 2020 and traded at a discount from its face value at 94. The issue traded to 108 last year.

New privileged issues from banks like

JPMorgan Chase

(JPM) and

Wells fargo

(WFC) only earn 4%, while the average junk bond earns around 5%. Investors need to buy CCC-rated speculative debt to earn a 7% yield now.

The Preferred Qurate pays a quarterly dividend of $ 2 which is cumulative, meaning the company must make up for any missed payments.

Qurate Retail (QRTEA), which operates the QVC and HSN home shopping channels, is leveraged, with debt of more than $ 7 billion against a market value of $ 3.2 billion. It has a basic double B credit rating – a high rating for junk bonds – from Fitch Ratings. The preferred is not specifically rated by Fitch.

Buyers of the Favorite can take comfort in the fact that Malone and Qurate Chairman Greg Maffei, who has worked closely with Malone for over a decade, are holders of both the Favorite and the Common Qurate.

Malone, who is a member of the board of directors of Qurate, owns more than 850,000 preferred shares valued at approximately $ 87 million and 30 million common shares, representing a stake of approximately 7%. Qurate stock fell 15 cents, to $ 7.85, Wednesday afternoon.

When the preference was issued in September 2020, the company said that Malone and Maffei intended to be “long-term holders” of the security which will expire in 2031. The preference was issued as a dividend. to ordinary shareholders of Qurate.

This is what Maffei said at the time: “Well, yes, we are dividing the common stocks of Qurate into a bond-like instrument and more indebted common stocks. In line with a lot of other things we’ve done to provide investor choice, it should also increase investor choice, just like our trailing actions and spincos have.

The high Preferred Yield reflects Qurate’s high financial leverage and some investors are concerned about the long-term sustainability of the company’s home buying business in an era of cutoff. The company achieves more than half of its sales on the Internet.

Free cash flow was healthy and this prompted the company to pay a special dividend of $ 1.25 per share to common stock holders at the end of 2021. Operating profit, however, fell by 24 %, to $ 432 million, in the third quarter compared to a year ago. There was also a fire at the end of the year at one of Qurate’s distribution centers located in North Carolina.

Here’s what Fitch said about the Qurate in September:

“The company is focused on creating and sustaining customer interest through direct engagement with consumers on its major video and internet platforms and mobile platforms, differentiating the company from the platforms of traditional or transactional electronic commerce. However, while the timing of a full economic recovery remains fluid given the lingering uncertainties around the pandemic, the strength of the model can be tested against increasing competitive pressures as people increasingly return to business. in person. “

Qurate has successfully shifted its business model to the internet and could be an acquisition target.

The preferred offers a good return and holders align themselves with two savvy investors in Malone and Maffei.

Write to Andrew Bary at [email protected]