Be Quick To Buy This Rare Over 7% Yielding Liberty Broadband Preferred

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Liberty Broadband preferred stock offers stable income, backed by a significant stake in Charter Communications, ensuring high safety for dividend payments.The preferred stock is trading under par, ...

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Preferred Stock","LBTYB":"自由全球","LILA":"Liberty Latin America Ltd. Class A","LBTYK":"自由全球","LU0208291251.USD":"FRANKLIN MUTUAL U.S. VALUE \"A\" (USD) INC","BK4122":"互联网与直销零售","LILAB":"Liberty Latin America Ltd.","LU0130517989.USD":"HARRIS ASSOCIATES US VALUE EQUITY \"R\" INC","QRTEP":"Qurate Retail, Inc.","LILAK":"Liberty Latin America Ltd. Class C","BK4561":"索罗斯持仓","LBRDA":"Liberty Broadband Corporation - Class A","LU0130518102.USD":"HARRIS ASSOCIATES GLOBAL EQUITY \"R\" INC"},"translate_title":"赶快购买这款罕见的收益率超过7%的Liberty Broadband Preferred","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"LILAB":1,"TREE":1,"QRTEP":1,"LTRPB":1,"LTRPA":1,"LILAK":1,"LILA":1,"LBTYK":1,"LBTYB":1,"LBTYA":1,"LBRDP":1,"LBRDK":1,"LBRDB":1,"LBRDA":1,"GLIBA":1,"CHTR":1,"GLIBP":1},"content_text":"Liberty Broadband preferred stock offers stable income, backed by a significant stake in Charter Communications, ensuring high safety for dividend payments.The preferred stock is trading under par, presenting a good buying opportunity. If interest rates are cut, the price can easily return to above par.The mandatory redemption at par on March 8, 2039 is an attractive characteristic that is not often encountered in preferred stock.There's not many fixed income securities available from Liberty companies, but the Liberty Broadband preferred is worth considering.   designer491 Part I: quick intro into Liberty Broadband The objective of this article is to present why retail investors should consider buying Liberty Broadband preferred stock (NASDAQ:LBRDP). Readers who are already familiar with Liberty Broadband may consider skipping this part I and immediately scroll to part II where the preferred stock itself is discussed. An article about an investment in a certain preferred stock may dive immediately into the key characteristics of the preferred security, such as the current share price versus par, dividend yield, maturity, rating, trading volume, numbers of preferred shares outstanding and others. This will all be done in part II of this article. In the case of Liberty Broadband (LBRDA) (OTCQB:LBRDB) (LBRDK) it seems better, however, to first provide a quick introduction into the company that is the issuer of the preferred stock. This is simply because having some background information about the set-up of the company is needed for a full view on the preferred stock. So, in this part, I will provide a quick intro into Liberty Broadband. As is often the case with the Liberty family of companies, of which Liberty Broadband is a part, there's some specific governance, ownership and finance structures at play. These are relevant for making an informed investment decision when investing in any of the Liberty securities. In this intro, there are three topics for Liberty Broadband that are relevant for a full view on the Liberty Broadband preferred stock:  Liberty approach to providing shareholder returns Relation between Liberty Broadband and Charter Communications (CHTR) Liberty Broadband stock classes, including the preferred stock  The first one is important because it touches on why Liberty companies are not normally paying dividends and why the Liberty Broadband preferred stock is thus a rare fixed income security. The second is important because Liberty Broadband owns a significant stake in Charter Communications. This stake is the key source of cash for Liberty Broadband, with which the dividends on the preferred stock are paid. The third one is important because an overview of the Liberty Broadband equity classes is needed to have a view on the balance sheet of the company and the place of the preferred shares in it. 1. Liberty approach to providing shareholder returns \"Liberty\" is a reference to a portfolio of companies, mostly with a focus on Telecoms and Media, that is controlled by John Malone and a group of close associates. Liberty Broadband is part of this portfolio. Some other example companies in this rather large family are Liberty Latin America (LILA) (OTCPK:LILAB) (LILAK), Liberty Tripadvisor Holdings (OTCQB:LTRPA) (OTCQB:LTRPB), Liberty Global (LBTYA) (LBTYB) (LBTYK) and also Charter Communications (CHTR). There's plenty to write about how these companies operate, but for the purpose of this article it's key to summarize the general approach at all of these Liberty companies to providing returns to shareholders. Liberty companies always aim to be as tax efficient as possible. Providing shareholder returns is usually done through generating capital gains and not via the payment of dividends. Capital gains have lower or no tax burden. Paying dividends is usually less tax efficient, because of dividend tax and/or corporation tax. Liberty companies will avoid paying dividends as a rule. Liberty would rather invest to grow capital gains than generate profit to pay dividends. If you try to look for a dividend paying Liberty common stock or preferred stock, you'll conclude that these are hard to find. The Liberty Broadband preferred stock, that is the topic of this article, is an exception to this and in that sense a rare security. It's a fixed income security, issued by a Liberty company that would rather avoid paying dividends. The above is only a very small summary of the way that Liberty provides shareholder returns. For more elaboration on some of the challenges for retail investors with investing in Liberty equity, I'd refer to a previous article about the Liberty Broadband preferreds, titled \"Liberty Broadband Preferreds Are An Uncommon And Solid Telco Income Play\". Of course, there's plenty of other material on Seeking Alpha about each Liberty company that provides background to the separate securities per company. 2. Relation between Liberty Broadband and Charter Communications The second background topic is the relation between Liberty Broadband and Charter Communications. Liberty Broadband, in its current structure, formed only about 4 years ago in 2020. There was a restructuring of some Liberty companies at that time that resulted in the simplified set-up that exists today. This is shown in the right-hand side of the below image.   Liberty Broadband structure (Company presentation) Liberty Broadband merged with GCI Liberty in a stock for stock merger. The resulting set-up was Liberty Global, shown on top, with a ~26% stake in Charter Communications, full ownership of GCI Alaska and a stake in Lending Tree (TREE) and evite. Note that Skyhook was sold off later in 2022. Charter is the key meaningful asset for the purpose of this article. Charter is worth in the billions of dollars, while the stakes in the other companies are relatively insignificant in size. The stock-for-stock merger that led to the structure on the right-hand took place by replacing the GCI common and preferred shares (GLIBA) (GLIBB) (GLIBP) with Liberty Broadband securities. The Liberty Broadband preferred stock has thus replaced the GCI preferred stock and has the same characteristics. The ticker changed from (GLIBP) to (LBRDP), but that is the only real change to the security. The IPO prospectus about the security refers to GCI Liberty, but the terms are now all valid for Liberty Broadband. The takeaway is here that the Liberty Broadband preferred stock has not been issued initially by Liberty Broadband, but it was initially issued by GCI Liberty and had to be taken over as part of a merger. What is important is that the preferred stock was initially issued by the small GCI, but that they're now a part of the much larger Liberty Broadband with a 26% stake in Charter Communications, one of the largest telcos in the US. The fact that the preferred stock is now on the balance sheet of Liberty Broadband is a big difference, risk wise. There's only ~7.2M preferred shares outstanding, with a total annual dividend of $1.75 per share. The total dividend payments amount to ~$12.6M annually (7.2M * $1.75). This may have been a sizable amount for GCI in the old structure, but you can consider it insignificant for Liberty Broadband in the new structure. Only in case of some major catastrophe for Charter Communications and Liberty Broadband, they would not be able to come up with $12.6M to pay the dividends. How does Liberty Broadband obtain cash from the stake in Charter Communications? Liberty Broadband does this by selling Charter shares to Charter Communications itself. This happens as part of the Charter share repurchasing program. For example, over 2023, Liberty Broadband sold $394M worth of Charter class A common stock back to Charter. At the same time, Charter bought back shares from the market as well. The total Charter repurchases are done in such a way that the total ownership of Charter remains for 26% at Liberty Broadband. If Charter repurchases one share from Liberty Broadband, it will at the same time repurchase 4 of the same shares from other parties in the market so that the ownership split between Liberty Broadband and other parties remains the same. Liberty Broadband maintains the same ownership of Charter Communications over time, while receiving cash when the Charter shares are sold back to Charter. Liberty Broadband has enough Charter shares, in excess of $12B worth by YE2023, to keep selling for many years or even decades to come. This brings in the cash at Liberty Broadband to cover the dividends on the preferred stock and other costs, such as interest in loans, salaries and company expenses. In essence, Charter Communications is the source of the money for the dividends on the Liberty Broadband preferred shares and this means that there's a high level of safety of dividends being paid. Charter debt, as a reference, is rated BB+, so this is only one step below investment grade and that can be used as a proxy for the Liberty Broadband preferred stock in my opinion, although the Liberty Broadband preferreds have no rating of their own, probably because of low volume of available shares. 3. Liberty Broadband stock classes including the preferred stock Liberty companies often have several stock classes. In the case of Liberty Broadband there are the A class (LBRDA), B class (OTCQB:LBRDB), C class (LBRDK) and the preferred stock (LBRDP). A key reason for having several classes of stock is that it allows to distribute voting power unevenly. The Liberty executives can in that way control the company with ownership of far less than 50% of the equity. The series C class, or \"capital stock\", (LBRDK), for example, carries no vote at all, while this class has the highest number of shares outstanding. As of YE2023, Series A common stock outstanding was 18,233,573, Series B common stock 2,025,232, Series C common stock 123,704,814 and Preferred stock 7,183,812. The graph below shows that the market price of each class of common stock hardly differs. Data by YCharts An additional remark about the stock is that Liberty Broadband closely tracks the movement of the Charter Communications stock. This is an illustration of the link between the two companies that was discussed in the previous paragraph above. Data by YCharts The reason for showing the different classes and numbers of outstanding Liberty Broadband shares is to clarify how small in size the preferred stock volume is in the balance sheet of Liberty Broadband. The inherited GCI Liberty preferreds are there on the balance sheet, but they're a tiny item. The market cap of all the Liberty Broadband common shares approaches $9B, while the market cap of the preferreds only approaches $200M. Part II: Liberty Broadband preferred stock An investment thesis for any preferred stock is that it's a good idea to invest if there's a safe income from a stable business and that the purchasing price is acceptable. Any additional attractive features of the preferred may provide icing on the cake. The key characteristics of the Liberty Broadband preferreds are summed up in the table below.  Liberty Broadband Corporation - Series A Cumulative Redeemable Preferred Stock  Par value $25   Trading price at time or writing (Aug 29, 2024) $23.80   Yield at time of writing 7,35%   Redemption date (mandatory redemption at par) March 8, 2039   Dividend payment dates 1/15, 4/15, 7/15 & 10/15   Quarterly dividend amount / preferred share $0.4375 ($1.75 annually)   Number of preferred shares outstanding per YE2023 7,183,812   Specific characteristics  Cumulative Mandatory redemption    CUSIP 36164V503   Click to enlarge From the above table, I'd like to highlight that the preferred stock is currently trading below par, which makes it a good time to buy now. I'm mentioning this also, because there's a specific characteristic to the preferred stock, which is that it has a mandatory redemption at par on March 8, 2039. There's only one other cumulative preferred stock known to me that has this feature, which is the Qurate preferreds (QRTEP), issued by Qurate that is also a part of the Liberty family. The mandatory redemption is an uncommon and attractive feature for a preferred stock. A further discussion about this feature and how uncommon it is can be found in this article on Seeking Alpha.  The Liberty Broadband Preferred Stock is accounted for as a liability on the balance sheets because of the feature that it's mandatory redeemable. As a result, all dividends paid on the Liberty Broadband Preferred Stock are recorded as interest expense in the Company’s consolidated statements of operations. Total interest payments by Liberty Broadband over the preferreds and all the other debt amounted to just over $200M in 2023. In comparison with the earlier mentioned cash amount of $394M from Charter coming in 2023, this is completely acceptable. The thesis for any preferred stock as stated above seems to fit this Liberty Broadband preferred stock perfectly. The share price is below par, there's a high level of safety and an investor is certain that all outstanding shares will be redeemed at par in 2039. Until then, there's an above 7% annual yield. One final remark that I'd like to make for the readers in the US is that there's often comments in the discussions sections of articles about how dividends from common or preferred stocks are treated by the US tax authorities. This is a topic for which I'd refer to professionals who can advise in this area as I lack the expertise to comment on that. Conclusion for the investor The Liberty Broadband preferred stock is rare because it's a fixed income security from Liberty, ultimately backed by Charter Communications, and it has a mandatory redemption feature at par in 2039. The preferred stock was initially issues by the \"small\" GCI Liberty, but it's now on the balance sheet of the much larger Liberty Broadband, which makes is a much safer preferred. The current trading price is below par, but investors should anticipate that interest rate cuts can push it up to above par, so a buying decision is better taken sooner than later. In short, if a Telco fixed income security with an above 7% yield is a good addition to your portfolio, be quick to consider the Liberty Broadband preferreds.  Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. 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