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Investment Q&A

Not investment advice or solicitation to buy/sell securities. Do your own due diligence and/or consult an advisor.

Q: Hello 5i Team

I found this site recently, it appears to have a substantial amount of information on Canadian preferred shares. It appears to be a recently created website in the last four months. Share with fellow members if appropriate.

canadianpreferredshares.ca/

Thanks
Read Answer Asked by Stephen on March 31, 2020
Q: I have few questions regarding preferred shares. Many solid companies ''before covid19'' have preferred shares over 8% div. If that rate is OK for me for long term even without price appreciation, how safe will you quote them in general? What is the risk associated with that investment? Will you favor ''retractable'', ''rate-reset'', ''perpetual'', ''fixed-floating'' or ''floating rate''? How to find the term of a specific share?
Thanks a lot
Read Answer Asked by Daniel on March 25, 2020
Q: A subscriber named Peter asked for your opinion on GMP.PR.B preferred stock on March 17, but you didn't really answer his question. Instead, you commented on the common stock. Please don't do this again as I am NOT interested in the common stock. I am interested in the preferred stock, which is now down $3 from when Peter asked his question. I know this is a lower-rated pref, but surely the current discount is overdone?

Clearly, in the current virus-riddled economic environment, GMP will have to cut the dividend on its common stock. However, they cut the common dividend to zero a few years ago, but kept paying the preferred dividend. What is your opinion on the coverage for the preferred dividend? Would you recommend that preferred stockholders sit tight, buy more, or sell?

The rate resets on March 31, 2021 at 2.89% above 5 year Canada bonds. Even if the yield on 5 year government bonds goes to zero they'll pay a 2.89% x $25 face value = $0.7225 annual dividend. This seems attractive to me, or am I not properly understanding the yield calculation?
Read Answer Asked by David on March 25, 2020
Q: These preferred shares pay a dividend equal to $25 face value x prime rate. The issuers, BCE and BAM, are both blue-chip companies, so the dividends are presumable well-covered. However, the prices of these preferred shares have been hammered, falling in lock-step with interest rates. To me, the sell-off seems to be overdone, perhaps because they are so thinly traded. What is your view on these variable rate preferred shares as a buy and hold investment for a retiree living on investment income? What do you think prime rate will settle out at once the pandemic panic is over, say a year from now?
Read Answer Asked by David on March 25, 2020
Q: Close to retiring and have to live off my investments, which today is 100% equities. Bonds are not paying anything. Would it be a good idea to sell 50% of equities and buy Prefered shares, many having12% yield? Understanding if not recalled hold forever and pass on to my estate. How about !00% preferred for income.?
Thanks
Cec
Read Answer Asked by Cecil on March 23, 2020
Q: I am a buy and hold investor with 5 to 10 years of time horizon
I have roughly 7.5% of my portfolio in a 8 different preferred shares. They are in the order of their weights: PWF.PR.F, EFN.PR.I, ENB.PF.I, TRP.PR.K, ALA.PR.K, GWO.PR.M, FFH.PR.M, ENB.PR.A. All except one (FFH.PR.M) are either Perpetual or Minimum rate reset preferred. Minimum divided rate at reset or the current rate for perpetual on the face value is from 4.76% to 5.8%. In the last few weeks, their prices have dropped considerably. I am using preferred as part of my Fixed income. Because they are perpetual or Minimum rate reset, I expected them to be much more stable or even appreciate with the cut in the the interest rate. What is your advise under the current circumstance. My guess is that their dividend is at risk and that’s why they have dropped? As you can see they all have dividend paying common shares. What is your advice? Should I sell some of them and if so which ones?
Read Answer Asked by Naren on March 23, 2020
Q: Hi Peter & 5i,
These are preferred minimum rate reset shares. Both have a minimum reset at 4.90%. Never to be reset at below this rate.
My questions:
1. If there is a minimum rate reset, investors are not concerned about falling rates (because falling rates don't affect these) but they are concerned about the ability of TC and PPL to pay the future dividends.
2. In your opinion should investors be concerned about the ability to pay the preferred share dividends? (There are lots of common share dividends that would be cut before the preferred share dividends).
Thank you for your answer and calmness during these unforseen times.
Read Answer Asked by Dennis on March 20, 2020
Q: Hi 5i: I hold ENB.PR.Y; ENB.PR.H and FFH.PR.K in my RRSP all of which are down over 50 per cent but have provided some income. In total they represent about 2.5 percent of my portfolio.Given the fixed nature of this payout and my little interest in preferred shares, I am wondering whether it would make sense to sell these and top up some of my other blue chip dividend holdings which are down (e.g. BIP, Telus, Royal Bank, BNS, TD, FTS) and hold a better upside over the next couple of years? Appreciate your advice as always …now more than ever.
Read Answer Asked by Martha on March 19, 2020
Q: I found the earlier question about PPL prefers interesting. So my thought is to sell my PPL common and get the tax loss and buy the PPL preferrred even though the up side on the prefers is only about 100%. In doing some research I found that I do not understand the dynamics of rate reset perfers. The A is reset in 2013 and is down 2.5% today. The S is reset in 2020 and is up 7%. Both are down about the same from the issue. I would have thought that the 2020 resets would be much less valuable as they are sure to be called at the current market price and reissued at low interest. What am I missing
Read Answer Asked by Don on March 19, 2020
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