Investment Q&A

Q: Thank you for your explanation of floating rate versus fixed rate preferreds with my two examples of BAM.PR,B and BRF.PR.E. { I assume by fixed rate you mean perpetual } ..... I don't really understand the preferred space but have been researching the effects of the virus crash versus these stock prices. Overlaying the price pre crash on the various kinds.... Perpetuals had a little drop and climbed back to close to where they were. Whereas fixed rate resets and floating rates fell between 20% and 40% and are still down there. Well we all know interest rates aren't going up any time soon and it sure looks to me like there isn't a lot of room to fall. Two I'm looking at are FTS.PR.I a floating rate preferred and ENB.PR.H a fixed rate reset preferred.... I'm trying to understand why they were hammered so badly when realistically interest rates don't have much room to drop . I'd still be getting the interest rate based on the stock price which would be close to 10% on one and 7% on the other less whatever the amount of the interest rate drop is wouldn't I ? . What is the investment theory that made them correct so much ? And what market conditions would exist to gain back those losses ? ...Visually it looks to me like in the case of the Enbridge product if interest rates were to drop a half a percent my yield would drop from 10% to 9.5% ..... I know there is something I'm not grasping here . I just don't know what it is . Thank you for your guidance through these financial conditions.

Q: France is starting to see food inflation. In some cases, it's quite impressive numbers percentage wise. If we do get more wide-spread inflation, due to the massive stimulus, would that be a positive for preferred share resets, which I've read go up with higher interest rates? The ETF ZPR currently pays 7% annually, which is usually a sign of future cuts, but on the other hand, it's been going up for 3 weeks. This question is for an account that is 60% in bonds and needs more income.

Q: Question on minimum rate reset and simple rate reset Preferred shares:
Minimum rate reset preferred shares lists distribution rate as higher of Minimum and the BOC 5 year rate +x%. The questions are:
1. Can they change distribution rate before the next reset date?
2. can they change distribution rate formula at the time of the next reset date
3. At the reset date, can they swap with other preferred with lower distribution?
4. I suppose they can recall and pay the face value at the next reset date
5. I understand company can not reduce or stop distribution on preferred shares until they cancel dividend on their common shares, correct?
6. is it possible to have any other fine prints on the prospectus that makes them more riskier investment?

Q: Good morning 5i team
My wife and I are retired, conservative investors with ~ a 45/55 equity to fixed income asset mix. I have an 8-year bond ladder in my RRIF which, along with our CPP/OAS and dividends from blue-chip Canadian stocks cover our expenses. I have some cash to invest in my RRIF. What do you think of investing in a high quality (e.g. Royal Bank) rate reset preferred stock in my RRIF as a bond proxy. I realize this would not have the same protection as a quality bond, but the yield at over 5% looks attractive relative to buying a longer-term quality bond that is yielding ~ 2%.
Thank you 5i for your comments.
Edward

Q: Good morning,
I have just been informed of a Conversion Privilege on FTS.PR.H. Two options (1) do nothing - retaining FTS,PR.H or (2) Convert to FTS.PR.I on a 1 to 1 basis.
I am always puzzled by these conversions.
These two preferred shares both seem to trade at either 10$ or just below that mark. However FTS.PR.I 's average volume is half of that of FTS.PR.H (2083 vs 4549 Ref. Globe Investor). FTS.PR.I has 2.9 M outstanding shares and FTS.PR. H has 7.0 M
I am wondering what is the catch,,, should I take the conversion ?
Looking at all this information, I think I would likely keep my FTS.PR.H since it has more outstanding shares therefore the average trading volume is more than double that of the FTS.PR.I ... easier to sell if need be.
Is this reasoning sensible or am I missing something. What is the point of this "Conversion Privilege"?
This is the last time I invest in preferred shares, as frankly they have not been a good investment.

Best Regards in these difficult times and stay healthy.

Elaine

Q: I hold this in my Cash account (for income) and it is underwater (has been for a while). In your opinion, would I be better off to harvest the loss and purchase 2 or 3 individual top quality preferred shares? If so, can you provide some specific suggestions (I am overweight financials). I assume I would have to wait 30 days to purchase the individual shares to avoid the superficial loss?
Please deduct credits as appropriate.
Thank you.

Q: Would you have any recommendations for convertible debentures? I would only consider companies with solid balance sheets.

Thank you

Q: In my Margin Account I had FRU and IPL which I sold as the dividend had dropped form the 7% range to~2%. The G & M referred the other day to some Preferred shares paying over 6.5% and up. For example BMO PrC - 6.49%; BCE PrC 7.94% and CM PrP at 7.24%.
As a preferred share gets its dividend before the common I would think they are even more secure than the Common.
Your comments please.
Thank you

Q: Can you give me the perpetual preferred share symbols for these companies.

Q: What is your opinion re: Floating Rate Prefs where the interest rate is set quarterly off of the Prime Rate (eg - BAM.PR.B). With the prime rate of 2.45% near the low of the last 20 years (2.25% in March 2009) BAM.PR.B is yielding about 5.75% which looks very attractive since there can't be much more risk of a move down in interest rates. (This assumes that next dividend is based off of the 2.45% and not 3.95% which was the basis for the last dividend that was paid - and is the basis for the indicative yield in Quotes of 9.5%) Ultimately rates will move up as will the dividend....so buying now pretty much sets the floor with quite a bit of upside. Do you agree? Thanks

Q: Good Evening
RATE RESET PREFERRED SHARES
The interest rate on rate reset preferred shares is set every five years by adding to the spread the interest rate of the 5 years Canadian government bond.
What happens if the the 5 years government bond is set at a negative rate?
For instance, the interest rate spread on BAM.PR.Z is 2.96%.
On December 31, 2022 a new interest rate will be set for BAM.PR.Z. Lets assume that the interest rate on the 5 years Government bond is negative on December 31, 2022 at -.5 %.

Will the new rate on BAM.PR.Z be 2.46% (2.96 minus .5) or will be set at 2.96% ??
Thank you for your help during these difficult times.

Q: how often does this pfd reset its dividend ( monthly, quarterly, other) and is it eligible for the Canadian divided tax credit. Also where could I find more specific info on this pfd. Thanks

Q: Wondering if there are any perpetual preferred shares of Cdn. companies that you think are good value at the moment? Thanks, Don

Q: A few days ago BRF.PR.E was recommended on BNN as a candidate for both a good capital gain and at the time a 7.5% yield. It promptly got a 20% hike in price and now yields 5.8% and has returned to it's normal trading level . So I missed that little opportunity. But as I don't have any fixed income it made me have a look around for other beat up preferreds where I discovered another Brookfield product BAM.PR.B down in price and currently yielding 8.8% .BAM.PR.B is a floating rate preferred and I was unable to find out which kind BRF.PR.E is. I don't really understand which type of preferred is more desirable than others but I do have faith in Brookfield getting through this mess maintaining the dividends on their preferred shares. Please explain the desirability of one over the other of these two preferreds ? There is a considerable difference in both their highs in price and current yield . Thank you for your guidance through these tough market times.

Q: A question about corporate bonds from Gary posted April 14, was answered with "We would prefer to comment on individual issues that your broker might have rather than list several that might not be available." I see that your income portfolio includes CVD. This ETF seems to be not very large and not very liquid; is that correct? If so, I would otherwise be leery of taking a position; but here it is in the portfolio. Is it indeed something that is recommended? If not, is there another ETF that would be better? Or is an ETF not the way to go because of the potential failure of some bonds in any basket? Thanks,

Q: Good afternoon - i was reading a Globe piece this morning about the attractiveness of investment grade bonds and it made me wonder if this is a good time to get out of pref shares and into such bonds. Can you comment on this please and which, if any, bonds would you currently suggest. Many thanks.

Q: Hi Team,
I have 500 PWF.PR.A bought on Feb 19 @14.55 in cash a/c and wondering should I keep or sell, and if sell what should I replace with ?
I thank you as always,
Tak

Q: I'm interested in buying the preferred shares of some of Canada's stronger companies. If you were going to buy the preferreds of 5 companies today which ones would you buy? Of course price and yield are important factors. Please be specific as I know each company offers many different preferreds to investors. As always, thanks for your appreciated guidance.

Q: ECN.PR.A will reset Dec. 31/21 at 5.44% over the yield on 5 yr Goverment of Canada bonds , but not less than 6.5%.
On a total return I’m down 14.7% given the current price of $14.40. The current yield is 11.25%. It makes up 7% of my portfolio.
I’m considering averaging down to 10% of my portfolio.
My thinking is that with the very low interest rates it will make more sense for the preferred to be redeemed, since they will be able to raise funds at a lower rate in the market. My second thought is that looking forward to 2021 interest rates could be on the rise. Third the preferred is trading a huge discount .
Is there any overriding reason not to do this I.e. value of underlying shares ECN Common???

Q: I’m confused. I understand that there is risk to prefer chairs in that they rank behind balance but I had of common stock. Therefore the strength of the company affects the strength of the preferred chair. I also understand that with low interest rates the rate reset or perpetual preferreds have had their values affected. What I don’t understand is the minimum rate resets. There are strong companies that have minimum rate resets that will reset at 5+ percent guaranteed in the next few years. Why are these not trading at higher prices.Many of them are trading at 40% of their issue price. Please help me address my confusion.