Stifel Preferreds Reviewed: Still Give 'D' A Buy Rating

Stifel Financial Corp.'s preferred stocks offer attractive yields despite recent legal challenges impacting net income and tangible common equity; however, tangible common equity remains nearly 5x the value of outstanding preferreds. All Stifel preferreds are non-cumulative, eligible for a 15% tax rate, and were recently upgraded to BB by Fitch. The analysis favors preferred stock "D" as a buy, balancing yield and risk compared to Stifel's senior notes.

Analysis

Stifel Financial Corp.'s (SF) preferred stocks present attractive yields, a key consideration for income-focused investors, despite recent legal challenges that have pressured the firm's net income and tangible common equity (TCE). Notwithstanding these legal headwinds, Stifel's TCE remains substantial, covering the value of its outstanding preferred shares by nearly five times, indicating a comfortable coverage ratio. All of Stifel's preferred issues are non-cumulative and benefit from eligibility for the 15% tax rate, potentially enhancing their after-tax returns. A recent upgrade by Fitch to a BB rating for these preferreds signals an improved credit assessment. In comparison to Stifel's 2047 senior note, the preferred stocks offer a higher yield, whereas the senior note provides greater safety and a superior credit rating but comes with a lower yield and longer duration risk. The source article specifically highlights the "D" series preferred stock (SF.PR.D) with a buy rating.

Key Decisions for Investors

• Investors seeking income could evaluate Stifel's "D" series preferred stock, balancing its attractive yield and BB rating against its non-cumulative feature and the ongoing legal issues facing the parent company.
• Closely monitor developments related to Stifel's legal challenges, as these could materially affect future net income and tangible common equity, potentially altering the risk profile of its preferred securities despite current strong coverage.
• Evaluate Stifel's preferreds against its 2047 senior note by considering the trade-off between the preferreds' higher yield and potential tax benefits versus the note's superior safety and rating, while also factoring in the note's longer duration risk.