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4.25% Investment Share Offer
August 20, 2019
1:41 pm
davidgeorge
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Received an email about 4.25% Investment Share offer.
What is exactly the offer? Thanks.

August 20, 2019

Invitation to Grow More
With our exclusive 4.25%* Investment Share Offering
Dear ......,

It is my pleasure to announce to Members another way we at DUCA can help you do more, be more and achieve more.

We are pleased to offer you a high-interest, long-term investment: Our Class B Investment Shares, Series 4. With a minimum dividend of 4.25%, these new Class B Investment Shares, Series 4 may be an excellent addition to your registered portfolio and tax planning strategies.

Key Features
Minimum deposit: $1,000
Maximum deposit: $2,000,000
Great long-term option: minimum 5-year term
RSP, RIF, and TFSA eligible
Easily transfer all or a portion of current term deposits into Investment Shares at no additional cost, even if the transfer occurs prior to the term’s maturity date.
Limited time, exclusive offer for Members

The capital raised through this campaign will enable DUCA to profitably and sustainably bring the DUCA difference in banking to more Ontarians. This will enable us to expand our reach as we continue to provide competitive deposit and mortgage rates, no-fee banking, and a Profit-Sharing program that rewards Members for their business. So, not only is your participation in the Investment Share Offering an opportunity to enhance your portfolio, but you’ll help grow your credit union which I believe will have a positive impact on the communities we all call home.

Invest in more by calling us at 1-866-900-3822, visiting a DUCA branch, or click on "Learn More" below.

Sincerely,

Doug Conick
President & CEO

Check rates
* Minimum dividend rate is 4.25% annually for five years if dividends are declared. Declaration of dividends is not guaranteed. Dividends are non-cumulative. The Class B Investment Shares, Series 4 may not be redeemed until five years or more after the Issue Date. The Class B Investment Shares, Series 4 are not deposits and are not insured by the Deposit Insurance Corporation of Ontario. Class B Investment Shares, Series 4 are available only by Offering Statement. This is not an Offering Statement. Review Offering Statement for full details prior to purchase. Offer available only to DUCA Members. To become a Member and participate in this Offer, call 1.866.900.3822 or visit a DUCA branch.

August 20, 2019
2:44 pm
_Ax
YYZ
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This is so cheeky... 4.25% minimum guaranteed if dividends are declared and paid at all!

August 20, 2019
3:12 pm
Londonguy
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_Ax said
This is so cheeky... 4.25% minimum guaranteed if dividends are declared and paid at all!  

It's also non-cumulative, so there's no potential for catching up down the road if things go badly for a spell at DUCA and they suspend the divvie. Not to mention you'll have zero liquidity, because there's no third party market to facilitate disposal of your shares if you get fed up.

I don't think I would buy this issue even if it was supposed to be paying 6+% let alone 4.25%. Then again I'm probably not the kind of investor they're targeting anyway

August 20, 2019
5:21 pm
Loonie
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As the email said, it's a long term investment. So, if you think you're going to want to cash it in , it's not for you.
Dividends from stocks are also not guaranteed, so I don't think it's a particularly cheeky offer.
The main issue for me is liquidity. Great for people who want a passive income stream.
Best for long term registered accounts as these "dividends" are not eligible for the dividend tax credit.
I don't see any evidence that they've not met their expectations in the past.

August 21, 2019
6:29 am
savemoresaveoften
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These do not qualify for dividend tax credit if I am not mistaken.
4.25% yield from a FI is certainly not the highest and a lot of other options. e.g. Some big5 div >= and also tax credit eligible. Liquidity another key factor why I dont find the Meridian offering attractive.

August 21, 2019
8:05 am
davidgeorge
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Thank you for your replies. I am not familiar with dividend payment at all. If you invest $10,000, does a minimum dividend of 4.25% mean you will get at least $425 annually? Sounds better than current GIC rates.

August 21, 2019
8:32 am
Doug
British Columbia, Canada
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davidgeorge said
Thank you for your replies. I am not familiar with dividend payment at all. If you invest $10,000, does a minimum dividend of 4.25% mean you will get at least $425 annually? Sounds better than current GIC rates.  

Yes, assuming the board of directors continues to pay the indicated dividend rate in subsequent years. The dividends aren't guaranteed, but generally speaking, it's to the board's advantage to pay the dividends because they could end up with a bunch of unhappy members who desire to redeem their investment shares and the credit union is required to hold, as percentages of their total assets and risk-weighted assets, a certain amount of equity (which can include, principally, retained profits or earnings, member shares, retained profits from business or credit union amalgamations, and member investment equity shares). "Non-cumulative" just means the board isn't obligated to pay any prior dividend payment that they opted not to pay.

Most, if not all, credit unions that do these equity raises have paid their indicated dividends and have not skipped any dividend payments. So, for me anyway (and perhaps @Loonie as well, although @Loonie doesn't generally invest in assets outside of GICs and HISAs), the inability to pay a dividend is not a significant concern.

The biggest concerns that investment shares represent include them being risk capital for regulatory purposes, meaning that they are (a) not guaranteed by any deposit insurer and (b) can be illiquid as redemption requests are subject to board of directors' approval.

Having said all of that, one of the reasons credit unions do these equity raises is, aside from the main reason using being their loan/mortgage book (their assets) having grown such that they need to raise regulatory risk capital to the required minimum level, at regular intervals (every year or two) is to accommodate redemption requests from members. Usually, the board will stipulate you hold your shares for a minimum of 5 years, after which they'll let you redeem between 10-30% of your shares per year at their par value (you get back per share what you paid).

As it is interest income, just like bank interest from a GIC, if you have available RRSP or TFSA contribution room, you can hold them in such a plan. Otherwise, it'll be taxed like GIC or HISA interest.

I can say that I'm a Sunova Credit Union Ltd member through Hubert Financial and they have paid a variable dividend, which is also non-cumulative, of between 4-7% annually in every year for the past 20-25 years or so (perhaps further, but that's far back as I've been able to obtain data).

In this way, it's actually a bit of a misnomer when we see banks doing lots of lending that they need more deposits. That's true, in the sense that the deposits are a source of funding to fund the mortgages they're onboarding; however, as far as regulatory necessity go, it's the equity they need. And, in terms of funding, credit unions and banks generally are awash in cash so they don't actually "need" deposits right now. Only time they "need" deposits is when their mortgage and loan book exceeds their deposits.

Cheers,
Doug

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