Steel Partners 2/2026 Preferred Stock: 8.9% Yield To Maturity

Steel Partners Holdings

Steel Partners Holdings (NYSE:SPLP) is a holding company or conglomerate. According to their annual report, they have 7 businesses in the industrial sector, 2 in energy and they also own 100% of Web Bank.

The industrial companies that they own manufacture niche engineered industrial products that are leaders in their niches. These products include joining materials, tubing, building materials, performance materials, electrical products, metalized films and a blade business for meat packing. Their industrial products are sold worldwide.

Their energy businesses provide services to the oil and gas exploration and production companies.

In SPLP’s most recent quarterly report, they reported strong profits of $1.45 per share with revenues up 8.6% from the same quarter of 2021 despite having sold one of their businesses. Adjusted free cash flow came in at $48 million or $2.22 per share. Over the last years, SPLP has bought back around 40% of their common shares.

SPLP is an L.P., so investors who avoid K-1s will likely want to avoid this company, although I find K-1’s on preferred stocks to be extremely simple.

Steel Partners Holdings Term Preferred “A” Shares

Steel Partners Holdings Preferred “A” (NYSE:SPLP.PA) is a term preferred stock. It matures on February 7th, 2026 and offers an 8.9% YTM.

For those who aren’t familiar with term preferred stocks, the vast majority of preferred stocks are “perpetual preferred stocks”. In other words, they have no maturity date and can remain on the market forever, theoretically. Term preferred stocks, on the other hand, have a maturity date like a bond and thus they provide great safety against higher interest rates. When you buy a “term preferred” stock, you know exactly what your total return will be if you hold it to maturity.

I really like term preferred stocks. They are great in a market where rates are rising. While many perpetual preferred stocks have nosedived from $25 into the teens, and may never recover, term preferred stocks provide the assurance that you will get $25 par at maturity date. So outside of a bankruptcy type event between now and February 2026, SPLP.PA will pay out $25 plus accrued dividends on its maturity date.

Here are the details on SPLP.PA:

Current Price: $22.97

Yield To Maturity 8.9%

Cumulative Yes

Annual dividend $1.50

Maturity Date 2/7/2026

When I write an article on a bond or term preferred stock, I do not provide the current yield because it has no real meaning and only misleads investors. I have seen many mispricings where investors apparently don’t understand this. They overprice a bond with a high current yield despite the fact that its total return until maturity is poor relative to other bonds or term preferred stocks whose YTM.

One thing to mention about SPLP.PA is that in the prospectus it states that SPLP can pay dividends on SPLP.PA with stock if they choose and can redeem the shares with $25 worth of common stock. This does not concern me. They only paid 1 dividend with stock and that was during the COVID market meltdown where every company was panicked and hording cash. And anyone who held onto this common stock dividend made a lot of money on it. Since this company is constantly trying to shrink their number of shares and is constantly buying back their common stock, it is quite doubtful that they will redeem SPLP.PA with common stock. And of course, you can always turn around and just sell your common shares in the unlikely event SPLP.PA is redeemed with common shares.

Safety

SPLP.PA does not have a credit rating, but from my analysis I consider it very safe. First, the common stock has been rock solid. Looking at the chart below, you wouldn’t know that we are in a bear market. SPLP is up more than 4 fold over the last 2 years.

2-Year Price Chart

In terms of coverage of debt and preferred stock, adjusted EBITDA was $60 million in the most recent quarter which annualizes to $240 million. Their preferred dividends amount to only $10 million per year. The correct way to look at coverage is to combine interest expense plus preferred stock dividends. Annual interest expense is around $40 million while preferred stock dividends come to $10 million. Combining these 2 numbers gets us to $50 million annually which is covered 4.8 times by EBITDA. This is very strong coverage for interest and preferred dividends.

But it is really better than this because SPLP is a huge free cash generator. If we annualize the most recent quarter’s free cash flow of $48 million, that is $192 million. So even free cash flow covers the combined interest expense and preferred expense by almost 4 times.

The company also continues to believe in itself and continued to buy back more common stock during the third quarter.

And lastly, the fact that they operate in 10 different businesses provides great diversification. If times are tough in a sector where one of their businesses operates, that is not a big deal to SPLP, whereas many companies simply operate in 1 sector and have much more sector risk than SPLP.

Summary

Steel Partners Holdings is a company that owns several other companies in various sectors providing great diversification.

Term preferred stock SPLP.PA currently offers an 8.9% YTM and matures on February 7, 2026.

SPLP common stock has been a super performer over the last 2 years, rising more than 4 fold and not pulling back at all during this bear market.

EBITDA coverage of combined interest plus preferred dividends is a very strong 4.8 times and SPLP generates massive amounts of free cash flow.

SPLP continues to buy back its own common stock, so the management clearly sees SPLP as having a bright future.

I believe that SPLP.PA is quite undervalued given the strength of the company and the fact that you have the safety of a maturity date which insulates SPLP.PA from interest rate risk.