Q: Hello,
I am wondering if you can please provide some info on this preferred share. Bought many years ago as a "safe" investment only to see value decrease. Finally, it has hit 25 dollars. What is reasoning to hold preferred shares like these and why has this one risen? What makes this desirable now? Are they safer than common shares? I remember being told from an advisor that this is considered fixed income which I don't have a lot of. I have hated preferred shares for so long and am wondering if it makes sense to sell and reallocate funds to a bank or insurance stock. Thank you!
I am wondering if you can please provide some info on this preferred share. Bought many years ago as a "safe" investment only to see value decrease. Finally, it has hit 25 dollars. What is reasoning to hold preferred shares like these and why has this one risen? What makes this desirable now? Are they safer than common shares? I remember being told from an advisor that this is considered fixed income which I don't have a lot of. I have hated preferred shares for so long and am wondering if it makes sense to sell and reallocate funds to a bank or insurance stock. Thank you!
5i Research Answer:
Lots of investors hate preferreds but they can serve a role. They are 'sort of' fixed income. They are a hybrid between debt and equity. They rank higher than common shares, and dividends must be paid on preferreds before common. But they are not guaranteed. If they trade at a discount, investors can do well if the company decides to redeem them (entirely at the company's option in nearly all cases). With lower rates, many preferreds have done better. These prefs are callable at $25 in August, and BMO has called some preferred shares earlier this year, so some investors may be betting on this for this series. Safety and dividend income (with a tax credit) are the main pros.