Seapeak's preferred shares present an intriguing opportunity for income-focused investors, bolstered by a robust underlying cash flow that defies reported net losses stemming from non-cash writedowns and strategic restructuring. This analysis delves into the stability and attractiveness of these securities, considering both their strong fundamentals and potential market risks, particularly those associated with geopolitical developments.
For several years following the acquisition of Teekay LNG Partners by the private equity firm Stonepeak, the preferred shares of the acquired entity have remained publicly traded on a Tier-1 exchange. Seapeak continues to furnish quarterly financial reports, enabling investors to maintain a clear understanding of its financial health. A key takeaway from recent disclosures is the consistent strength of the company's cash flow, which adequately covers preferred dividends. The reported net losses for the third quarter and the first nine months of 2025 are primarily attributable to significant non-cash items, such as an $82 million in asset writedowns and various restructuring expenses, rather than operational deficiencies. This distinction is crucial for preferred shareholders, as their distributions are tied to cash flow, not necessarily to net income, especially when non-cash charges heavily influence the latter.
The Series A preferred shares, offering an attractive 9% yield, are technically callable by the company. However, Seapeak has consistently demonstrated a preference for maintaining its cash distributions rather than exercising its option to redeem these high-yield securities. This suggests a strategic decision to sustain investor confidence and perhaps indicates a perceived value in keeping these shares outstanding despite their cost. While this is a positive sign for current holders, it also underscores the company's ongoing commitment to its preferred shareholder base.
However, the investment landscape is not without its challenges. A significant risk factor for Seapeak, particularly in its LNG shipping operations, is the potential imposition of sanctions on vessels involved in Russian LNG projects. Geopolitical tensions can swiftly alter market conditions and introduce unforeseen complexities. Despite this, preferred equity holders typically enjoy a higher degree of protection compared to common unitholders. Their fixed dividend payments and seniority in the capital structure provide a cushion against operational disruptions and market volatility. This structural advantage makes preferred shares a relatively safer bet in an otherwise uncertain environment, especially when the underlying company demonstrates strong cash flow and a commitment to its distributions.
In summary, Seapeak's preferred shares stand out as a compelling choice for investors seeking stable income. Despite the headline net losses driven by non-cash adjustments and restructuring activities, the company's robust cash flow provides ample coverage for its preferred dividends. The ongoing decision not to call the Series A preferred shares, which yield 9%, further reinforces the company's commitment to these distributions. While potential sanctions related to Russian LNG projects present a notable risk, the inherent protection afforded to preferred equity holders—given their position senior to common unitholders—makes this investment an attractive proposition for those prioritizing consistent returns and downside mitigation.
