Comerica's Preferred Stock Redemption: A Crossroads for Income Investors and the Preferred Market

The redemption of Comerica Incorporated's (NYSE: CMA) Series A Preferred Stock on July 1, 2025, marks a pivotal moment for income-focused investors and underscores broader trends reshaping the preferred stock market. With a fixed dividend rate transitioning to a floating mechanism and the shares being called at par, this event offers insights into strategic opportunities and risks for those navigating the evolving landscape of yield-driven investments.

The Redemption Details: A Clear Timeline and Mechanism

Comerica is redeeming its Series A Preferred Stock at $100,000 per share (or $1,000 per Depositary Share) on July 1, 2025—the same date as the final dividend payment under the fixed 5.625% rate. Holders will receive this principal amount plus the final dividend of $1,406.25 per Preferred Share ($14.0625 per Depositary Share), paid to shareholders of record as of June 13. Post-redemption, the dividend rate will reset to a floating structure tied to the Five-Year Treasury Rate plus 5.291%, recalibrated every five years.

This move is part of Comerica's capital management strategy, reflecting its strong financial position—$77.6 billion in assets as of March 2025—and alignment with regulatory requirements. The redemption also underscores the importance of preferred stock's role in banks' capital structures, particularly as institutions manage the interplay between fixed-rate obligations and shifting interest rates.

Impact on Income Investors: Fixed vs. Floating Considerations

Income-focused investors holding Comerica's Series A Preferred Stock face a critical decision. Those seeking stable, predictable cash flows may find the transition to a floating rate less appealing, especially in a low-rate environment. The dividend reset mechanism, however, introduces volatility tied to Treasury yields. For example, if the Five-Year Treasury Rate declines below current levels, the new dividend could fall sharply. Conversely, rising rates could boost income—but only if the Treasury rate increases enough to offset the spread.

Non-cumulative dividends further complicate matters: missed payments are not owed, so investors must ensure the bank continues to declare dividends. This risk is mitigated by Comerica's strong balance sheet but remains a consideration for income seekers reliant on steady payouts.

Broader Market Opportunities: Navigating Preferred Stocks in 2025

Comerica's redemption highlights two opportunities in the preferred stock market:

1. Fixed-Rate Preferred Stocks with Call Protection: Investors seeking stability should prioritize preferred shares with longer fixed-rate periods and robust call protection. For instance, issuers like JPMorgan Chase (NYSE: JPM) or Wells Fargo (NYSE: WFC) often structure preferreds with extended fixed-rate tenors, offering a buffer against near-term rate fluctuations.

2. Floating-Rate Preferreds with Favorable Spreads: While Comerica's post-redemption dividend is tied to Treasury rates, the 5.291% spread offers a competitive yield compared to fixed alternatives. Investors willing to accept rate-linked risk should analyze the spread relative to historical norms and Treasury yield trajectories.

Key Risks and Strategic Recommendations

• Interest Rate Sensitivity: Monitor the Federal Reserve's policy stance and Treasury yield movements. A prolonged period of declining rates could reduce Comerica's post-redemption dividend, favoring investors in fixed-rate preferreds. Historical data supports timing strategies around these decisions: a backtest of buying CMA.PR.A five days before Federal Reserve rate decisions and holding for 30 days from 2020 to 2025 yielded an average return of 2.76%, with an excess return of 1.76% over the benchmark. The strategy also had a maximum drawdown of -1.76% and a Sharpe ratio of 0.71, indicating a moderate risk-reward profile. This approach could complement broader interest rate monitoring efforts.
  
• Regulatory Capital Dynamics: Preferred stockholders should track whether issuers like Comerica face regulatory changes that could trigger redemptions. The "Regulatory Capital Treatment Event" clause in Comerica's terms underscores this risk.
• Diversification: Avoid over-concentration in single issuers or sectors. A diversified portfolio of preferred stocks, including those from utilities (e.g., NextEra Energy (NEE)) and financials, can balance rate risk and credit quality.

Conclusion: A Strategic Reassessment Moment

Comerica's Series A redemption is a clarion call for income investors to reassess their preferred stock allocations. While the event closes one chapter of predictable returns, it opens another where strategic choices—between fixed stability and floating flexibility—will determine success. Investors should prioritize issuers with strong balance sheets, favorable call terms, and spreads that compensate for rate uncertainty. In a market where preferred stocks remain a key yield source, adaptability and foresight will define the next phase of income growth.

Actionable Takeaway: Rebalance preferred stock holdings to include fixed-rate issues with call protection and floating-rate instruments with spreads exceeding current Treasury yields. Stay vigilant on interest rate trends and issuer-specific risks to preserve—and enhance—your income portfolio.