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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: Would you recommend investing in this preferred at this time (given the drop in its price recently), and would you consider the preferred as a safer investment vs investing in the common shares. The reset is Canada 5 year bond yield + 4.78% (September 30, 2019). I am not sure, but are there any more Canada bonds to be issued going forward? If not how will the rate be set in the absence of further Canada bonds being issued..
Read Answer Asked by Joseph on May 03, 2017
Q: Hello, 5i Team,

This is a question from a neophyte investor.

In a recent press release BUS announced the acceleration of A & B Convertible Debentures. To quote: "The Debentures will result in the issuance of up to 2,235,294 Common Shares at an issue price of $0.68 per share."

Can you tell me a) why a Company might accelerate the issuance of debentures and, b) just as importantly, how such an issuance, at that price, would impact upon current shareholders and the value of their shares.

Thank you
Read Answer Asked by Ryczard on May 02, 2017
Q: Just to clarify, my question below is about CUS.DB.D

Just wondering what your thoughts are on the offer to redeem the 3 Canexus debentures. As an income seeking investor, should one accept the cash offer or keep the 6.5% debentures until the end of term? Pros and cons? I was also wondering if one doesn't accept the cash offer, will there be a secondary market for these debentures? Will the convertible feature remain in place? Thanks for all your help.
Read Answer Asked by Colin I on April 27, 2017
Q: Hi,
I would like to buy some preferred shares as I don't have any Preferred's in any of my accounts but with so many different descriptions out there I'm not sure what I should be looking for. For instance I would like to have a high yield ( > 4.5% ) and a guaranteed return of capital on a set date if held until that date (if there is such a thing out there). I see many new offerings come out through TD & Scotia iTrade but these are usually closed very quickly.

For instance this one came out this morning:
"TD Direct Investing would like to inform you that the following New Issue has just been announced.

Element Fleet Management Corp. - 5.75% 5 Year Rate Reset Preferred Shares, Series I

Short Description: Offering of Cumulative, 5-Year Rate Reset Preferred Shares, Series I via Bought Deal
Price: $25.00 CDN per share.
Settlement: On or about May 5, 2017."

This sounded good but by the time I tried finding out more about the offering it was closed already.

So, is there some guidance you can give on what "buzz words" to look for when a new issue comes out so I can put my "expression of interest" in before the offering is closed?
I guess what I would really like to know are the following:
1) Are 5-Year Rate Reset Preferred shares the best option for capital preservation?
2) Is it best to try and buy Preferred shares on a new offering or to look in the open market?
3) Is there a Preferred share Class that guarantees your original capital outlay?
4) Any other guidance you can offer in looking for the best: time / place / kind when looking for Preferred's?
5) And finally, once I find a suitable Preferred offering - which account type would you recommend best to hold in for tax purposes (i.e.- reg. vs non-reg.)
Thank you.
Read Answer Asked by Alan on April 27, 2017
Q: I own three reset preferreds that were purchased at the issue price. All are underwater by large amounts. AIM.PR.C is trading at $17.52 yielding 8.8%, AZP.PR.B is trading at $19.20 yielding 7.2%, and DC. PR. B is trading at $16.20 yielding 8.8%. With the dividend tax credit the yield averages is well over 10%. How financial stable are those three companies? Are the yields adequate for the risk being taken? Are those shares sells or holds for income?
Read Answer Asked by George on April 24, 2017
Q: Recently some US shipping companies have made major gains. Rather than chase a high performer such as DSX I am interested in its preferred, DSX.PR.B, which is also moving up but more slowly with less volatility and with a high yield of around ten percent. (Another possibility: SB and SB.PR.C) Your advice, please. Thank you.
Read Answer Asked by Kurt W on April 10, 2017
Q: I have taken back my portfolio from a fee based brokerage, and included were a number of preferred shares that I am considering selling so that I can concentrate on dividend growth stocks. These preferred's have increased significantly in the past year, and I think this may be a good time to sell, although some are still below their cost. I would keep any that you might think are worth retaining for their dividends.
The issues are Brookfield Office Property 5.15% Preferred P
Enbridge 4% rate reset Prefeered U
Fairfax Financial 4.75% Preferred M
Husky Energy 4.5% rate reset Preferred C
Industrial Alliance 4.3% Preferred G
Royal Bank 3.6% rate reset Preferred M

Thanks very much for your help on this specific opportunity and for your good advice on investments.
Read Answer Asked by doug on April 03, 2017
Q: Had a bond mature and am considering replacing it with TCN.DB.U. Seems like a pretty good deal, 5.75% 31-MAR-2022 maturity with conversion at 10.46. It's trading at 103.00 and TCN is at 10.90 so you get over double the yield and it should trade with TCN because its already above the conversion rate. Some convertibles come to market with the conversion price 30, 40, 60% above current equity price. Why did this new TCN convertible come to market already at the conversion price?
Read Answer Asked by Ian on March 31, 2017
Q: Preference shares
Following your reply, I conclude that, even on a reset date, preference shares may not trade at face value. Therefore, there would be no point in time when an investor is assured of full repayment of capital. Why then would these shares ever be suitable for investor adverse to interest rate risk? The only exception would be the investor willing to hold the shares for an unknown period until the shares are worth more than face value or the issuer decides to redeem them. Also, I wonder whether investors generally understand that, if they pay more than face value for the shares, the dividends represent in part a repyment in capital. Preference shares appear to have an undeserved allure, suitable only for investors willing to gamble with interest rates (perhaps having a trading strategy) or remain invested for an unknow period of time. Perhaps they should generally thought of as speculative and/or suitable only for sophisticated investors. I question whether even investment advisors understand this instrument well, particularly the range of attributes among issues.
Read Answer Asked by Carl on March 28, 2017
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