Assessing the Attractiveness of Popular's 6.125% Cumulative Monthly Income Trust Preferred Securities

Income-generating preferred securities have long appealed to investors seeking stable cash flows, particularly in a low-yield environment. The Popular 6.125% Cumulative Monthly Income Trust Preferred Securities (BPOPM) appear to offer a compelling case for such investors, but a closer examination of its recent performance and risk profile reveals a nuanced picture.

Dividend and Yield Analysis

BPOPM's latest dividend of $0.1276 per security, payable on September 2, 2025, to holders of record as of August 15, underscores its role as a consistent income generator, according to its dividend history. Annualizing this monthly payment yields $1.5312 per security, translating to a 6.125% coupon rate. However, the current market price of $25.20 (as of October 2, 2025) implies a yield of 3.54%, according to the Yahoo Finance quote, significantly lower than the stated coupon. This discrepancy arises because the yield is calculated using the market price rather than the $25 liquidation preference. For investors, this highlights the importance of distinguishing between the stated coupon and the actual yield based on prevailing prices.

Price Performance and Market Context

BPOPM has traded at a slight discount to its liquidation preference for much of 2025, with a price of $24.81 on August 1, 2025, per MarketChameleon. By October 2, the price had risen to $25.20, reflecting a 1.6% increase over two months. This upward movement may signal improved confidence in Popular Inc.'s creditworthiness or broader market optimism about preferred securities. However, BPOPM's annual return of 4.74% as of October 3, 2025, lags behind the MSCI WORLD index's 17.06% gain over the same period, as shown in its dividend history. This underperformance suggests that while BPOPM offers income, it may not provide capital appreciation comparable to equities.

Risk-Adjusted Returns and Volatility

BPOPM's Sharpe ratio of 0.58 and Sortino ratio of 1.06 (as of October 3, 2025) indicate modest risk-adjusted returns, according to its dividend history. These metrics, which measure returns relative to volatility and downside risk, respectively, position BPOPM as a relatively stable but unexciting investment. For comparison, equities typically offer higher Sharpe ratios during bull markets, albeit with greater volatility. The lack of dividend growth-BPOPM's dividend has remained unchanged at $0.128 per share for the past year, per the Yahoo Finance quote-further limits its appeal for investors seeking compounding income.

Attractiveness and Strategic Considerations

BPOPM's cumulative feature, which ensures unpaid dividends accrue and must be paid before common shareholders receive dividends, adds a layer of security for income-focused investors, as noted on Yahoo Finance. Additionally, its monthly payout schedule provides liquidity advantages over quarterly-paying preferreds. However, the security's underperformance against broader markets and its relatively low yield compared to the 6.125% coupon rate suggest caution. Investors must weigh the stability of BPOPM's income stream against the opportunity cost of forgoing higher-growth assets.

For those prioritizing income over capital gains, BPOPM remains a viable option, particularly if its yield rises as the price reverts closer to $25. Conversely, investors with a higher risk tolerance may find better value in equities or high-yield bonds, despite their volatility.