Preferred share question BCE.PR. G

Try reading this blog. There are special terms relating to this issue and something about rate resetting with rate tied to prime.

I wouldn't call preferred shares of a multi billion dollar company a dud....you have to look at the reset value. Take into account the rate of the 5 yr canadian bond has dropped, if you have preferred shares of a company with a small basis point reset value upon maturity it is likely getting hit harder than other stable bank type preferreds.
I am in the same boat with FFH.PR.K but don't plan on selling below $25 as the rate reset is 5yr bond +3.5% so even then I should be getting in the neighbourhood of 4% upon maturity in 2107.

gwplant wrote: ↑I wouldn't call preferred shares of a multi billion dollar company a dud....you have to look at the reset value. Take into account the rate of the 5 yr canadian bond has dropped, if you have preferred shares of a company with a small basis point reset value upon maturity it is likely getting hit harder than other stable bank type preferreds.
I am in the same boat with FFH.PR.K but don't plan on selling below $25 as the rate reset is 5yr bond +3.5% so even then I should be getting in the neighbourhood of 4% upon maturity in 2107.

What happens to my issue in 2016?i will read the blog posted by the person above your post. I have lost about 20% from the time I bought this. Any thoughts? Should I be getting rid of this? Will it continue going Down?

Should I hold it to 2016 or sell?

hash76 wrote: ↑Should I hold it to 2016 or sell?

This issue will reset in May 2016 to a floating rate dividend calculated at 100% to 50% of prime. With prime at historic lows, investors are projecting this low rate environment out to reset time. Hence the drop in the pref's value. It currently trades around $17. If prime stays at current levels, the dividend will drop from $1.125 to about $0.71 per share at reset time assuming 100% of prime calculation - meaning a $4.1% yield at cost when it resets . Being a floating rate pref, this can fluctuate but the issuer has the ability to ratchet down the payout to 50% of prime based on terms specified in the prospectus.

At least that is how I understand it. Any pref experts out there please chime in. If you already have this, I would hold - but certainly not buy more given the fact that reset conditions would likely not be in your favour and the fact that yield calculations for issues like this are overly complicated for the average investor. Stick with straight perpetual issues that are easier to understand.

STP123 wrote: ↑This issue will reset in May 2016 to a floating rate dividend calculated at 100% to 50% of prime. With prime at historic lows, investors are projecting this low rate environment out to reset time. Hence the drop in the pref's value. It currently trades around $17. If prime stays at current levels, the dividend will drop from $1.125 to about $0.71 per share at reset time assuming 100% of prime calculation - meaning a $4.1% yield at cost when it resets . Being a floating rate pref, this can fluctuate but the issuer has the ability to ratchet down the payout to 50% of prime based on terms specified in the prospectus.

At least that is how I understand it. Any pref experts out there please chime in. If you already have this, I would hold - but certainly not buy more given the fact that reset conditions would likely not be in your favour and the fact that yield calculations for issues like this are overly complicated for the average investor. Stick with straight perpetual issues that are easier to understand.

Thanks for your detailed response. So what kind of preferred should I be buying in future? Any key buzz words to look out for?

hash76 wrote: ↑Thanks for your detailed response. So what kind of preferred should I be buying in future? Any key buzz words to look out for?

I don't see to many bargains in Canadian prefs. Fixed and floating rate resets too risky because of low rate environment. Perpetual issues are trading at par because of low rates, and you risk capital depreciation if rates suddenly rise. Never mind that, even the chance of near term rising rates will send perpetuals downwards - since they are priced like very long bonds.

I would look to US preferreds under an RRSP if you really need to buy some. GS.PR.A (Goldman Sachs series A, perpetual floating rate) are currently callable at $25 par trading at a discount: $20. Terms of the prospectus are: " The floating rate will be equal to the greater of 0.75% above LIBOR or a minimum of 3.75%". Since LIBOR is ridiculously low you will get the min 3.75% of par or 0.9375/share annual dividend equivalent to 4.69% at today's price. The 3.75% min put a bit of a floor on the share price and if rates rise you will benefit by increase yield and some capital appreciation.

Here's another one: SAN.PR.B (Santander Bank) with terms "LIBOR plus 0.52% but will not be less than 4.00% per annum" currently trading at around $22 yielding %4.5. Again, a bit of downside protection and upside potential in the event of rising rates.

There are really no bargains out there like times in 2009 when I bought Brookfield investment grade prefs at $8 cashing them out years later at par. Right now I have some play money on very speculative resource prefs but I don't think that is what you are looking for given the questions you are asking LOL. Good luck.

STP123 wrote: ↑I don't see to many bargains in Canadian prefs. Fixed and floating rate resets too risky because of low rate environment. Perpetual issues are trading at par because of low rates, and you risk capital depreciation if rates suddenly rise. Never mind that, even the chance of near term rising rates will send perpetuals downwards - since they are priced like very long bonds.

I would look to US preferreds under an RRSP if you really need to buy some. GS.PR.A (Goldman Sachs series A, perpetual floating rate) are currently callable at $25 par trading at a discount: $20. Terms of the prospectus are: " The floating rate will be equal to the greater of 0.75% above LIBOR or a minimum of 3.75%". Since LIBOR is ridiculously low you will get the min 3.75% of par or 0.9375/share annual dividend equivalent to 4.69% at today's price. The 3.75% min put a bit of a floor on the share price and if rates rise you will benefit by increase yield and some capital appreciation.

Here's another one: SAN.PR.B (Santander Bank) with terms "LIBOR plus 0.52% but will not be less than 4.00% per annum" currently trading at around $22 yielding %4.5. Again, a bit of downside protection and upside potential in the event of rising rates.

There are really no bargains out there like times in 2009 when I bought Brookfield investment grade prefs at $8 cashing them out years later at par. Right now I have some play money on very speculative resource prefs but I don't think that is what you are looking for given the questions you are asking LOL. Good luck.

Thanks for your explanation. Gives me a better perspective. My aim was something like this. I have some capital that I was to preserve but don't want to put in a tangerine account. One way could be to get a corporate bond paying 2/3% and if the price goes down due to higher interest rate in market I could hold to maturity. But the bonds interest is taxed fully so I thought preferred was a better alternative. But unfortunately capital is not somewhat safe. Any low paying preferred that are not at a discount and will not be impacted too much as far as price is concerned?