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Like other mortgage providers, Countrywide's earnings have been hit hard by reduced demand for mortgage-backed securities. Falling values for mortgage-backed securities have also constrained the firm's ability to raise money to provide more home loans. But in all except a worst-case scenario, CFC's diverse revenue stream and banking operations should cushion the blow and help the company pull through the current credit crunch.

Dividend:  This preferred stock pays a $1.75 per share dividend, distributed in quarterly installments. At the current share price, the stock yields 9.3%.

As trust preferred shares, the dividends on CFC-PB are taxed at your ordinary income tax rate, so the shares are best held in a tax-advantaged IRA or 401(k) type of account.

The shares are currently rated in the lower rung of investment-grade as Baa3 (Moody's) / BBB+ (Standard & Poor's). That means they are considered medium quality and dividend payments are considered reasonably secure for the time being. They rank as "junior debt," meaning investors have a claim on the company's assets in case of bankruptcy before either owners of traditional preferred or common shares.

The shares can't be called until November 2011, so they should offer an above-average income stream for many years. They don't mature until November 2036, and that could be extended until November 2066.

Countrywide does have the right to defer preferred share dividend payments for up to five straight years before it's required to sell common shares to pay the dividends. The company can also defer the preferred share dividend for up to ten straight years without being considered in default. These clauses do create additional risk not covered by the investment-grade credit rating.

As a mortgage lender, Countrywide needs to borrow money to originate new loans. If dividend payments were deferred, however, then that could have a devastating effect on the company's credit ratings and common share price, making it difficult to raise the capital needed to fund new loans. But on that note, Countrywide has a stellar dividend record. It has paid a regular quarterly dividend on its common shares since 1982.

Valuation:  When these preferred shares are redeemed or at maturity, investors will be paid the $25 par value (barring unforeseen circumstances like bankruptcy or liquidation). Since you can buy the shares well below that price, you would be looking at a solid capital gain if you held them until your principal is returned. In other words, the price is a bargain.

Bank of America (NYSE: BAC) recently announced the purchase of $2 billion of Countrywide's convertible preferred stock. The capital infusion has eased concerns about the company's ability to raise enough money to continue operating. It also sent Countrywide's common and preferred shares soaring.

Action To Take --->  Despite the rally, we believe CFC-PB still has room to run, and we are cautiously optimistic the company will sustain preferred share dividend payouts at the current rate.

Good Investing!

Carla Pasternak
Editor
High-Yield Investing
http://www.StreetAuthority.com

Carla has been employed in the investment industry for more than two decades. In addition to her work as a writer for several other nationally recognized financial publishers, her previous experience includes a position as President of a well-respected investor relations firm. She has also been writing shareholder reports for public companies (annual reports, speeches, corporate profiles, slide shows, etc.) since 1980.

A highly successful investment analyst, Carla specializes in high-yield, income-paying stocks. In that pursuit, she's always mindful to select companies that not only pay rich dividends, but that also have the potential to deliver strong long-term capital gains.

On the educational front, Carla holds both MBA and Ph.D. degrees. When she's not watching the market, she's teaching business courses at the college level and managing several million dollars in portfolio assets.

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