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Preferred shares
September 22, 2019
5:52 pm
AltaRed
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Bud said
how to profit from this information? prospectus too hard to understand enough to decide  

To the extent a NVCC compliant issue and a non-NVCC compliant issue have, today in the market, the same YTW, the non-NVCC compliant issue technically has more value, if for no other reason than it MIGHT have to be recalled someday at par (with a corresponding huge capital gain). All one can do is to do the YTW calculations and see whether random chance is worth the effort. Probably not and the short answer is: I don't really care.

September 22, 2019
6:53 pm
Bud
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Pfds nowadays seem riskier than the more straightforward blue chip common for the average investor. Pfd has less downside common more upside both similar dividend

December 11, 2019
1:22 pm
Bud
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Td Split corp. pfd recommended good? risk? seems like a safe dividend without losin principle "no brainer"

https://03fd212c-7b45-4409-b290-698c20089de1.filesusr.com/ugd/78f11d_228862838d034dbdb170c8cc9cd7ee68.pdf

December 12, 2019
6:44 am
savemoresaveoften
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Bud said
Td Split corp. pfd recommended good? risk? seems like a safe dividend without losin principle "no brainer"

https://03fd212c-7b45-4409-b290-698c20089de1.filesusr.com/ugd/78f11d_228862838d034dbdb170c8cc9cd7ee68.pdf  

Its not principle guaranteed.

December 25, 2019
8:14 pm
Bud
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these split shares another Canadian Banc Corp. preferred and common split what could go wrong with the pfd bk.pr.a?

March 6, 2020
5:04 am
Bud
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These bank and other split preferreds like XTD.PR.A seem to be the solution for the reset predicament. They are redeemable?

Any examples of minimum rate resets which have a floor

March 6, 2020
7:48 am
Doug
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Bud said
These bank and other split preferreds like XTD.PR.A seem to be the solution for the reset predicament. They are redeemable?

Any examples of minimum rate resets which have a floor  

A couple general comments:
- (1) Redeemable does not equal the issuer's obligation to redeem; you can sell them at any time for the prevailing market price on the secondary market, in consideration of liquidity issues particularly with split corp preferred shares, but the issuer may redeem at their reset date or earlier (as described in the prospectus)
- (2) Retractable preferred shares, on the other hand, typically, mean that the issuer is mandated to recall the preferred shares at set dates and, also typically, at par value. Only two such retractable preferred shares in Canada exist: (i) Brookfield Investment Corporation and (ii) Canadian General Investments, Inc., a closed-end mutual fund corporation
- (3) Be very careful with split corp shares as often they use financial engineering and leverage. You are honestly better off just buying the prefs and common shares of TD directly (split 50/50), if that's what you're interested in.
- (4) For the "floor," you'll want to look for the word "minimum" in the title of the rate reset preferred share, but as always, double-check the specifics of the issue in the prospectus. Preferred share investing is time-consuming and somewhat painstakingly nit-picky. If you're retired with lots of time on your hands, then you certainly have the time for such research. sf-cool

Cheers,
Doug

March 7, 2020
4:31 am
Bud
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Doug said
- (3) Be very careful with split corp shares as often they use financial engineering and leverage.

- Preferred share investing is time-consuming sf-cool

Cheers,
Doug  

Time consuming opaque yes

Can you expand on engineering leverage as it relates to
XTD.PR.A for example, how could it blow up? It seems to be performing. Is only risk if Td cut its common dividend?

March 7, 2020
5:21 am
Doug
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Bud said

Time consuming opaque yes

Can you expand on engineering leverage as it relates to
XTD.PR.A for example, how could it blow up? It seems to be performing. Is only risk if Td cut its common dividend?  

It's complicated. I haven't researched it specifically. You might search "Market Call Tonight" and "Market Call" episodes on BNN Bloomberg where analysts have discussed split corp shares.

This Reddit thread does a reasonably good job of explaining the potential pitfalls.

While there's little to no risk of TD cutting its common share dividend, and, in turn, its preferred share dividends are safe because of their position in the capital share structural hierarchy, TD Split Corp. is not an issuance of TD Bank. Even if it were an issuer-sponsored closed-end fund, that doesn't matter. The dividend payments of TD Split Corp. do not equal the dividend payments of TD Bank. They are based on a combination of the dividends on the TD common and preferred shares and the price performance of the TD and common and preferred shares. If TD's shares are always in an upward trajectory, it's likely no problem. However, if TD's shares are trading downward, and the dividend payments more than the current dividend payments of the underlying TD common and preferred shares, TD Split Corp will have to (a) borrow money or (b) issue more shares, which devalue the net asset value of your asset, in order to make their dividend payments. There's also the ongoing management expenses, too, for operating TD Split Corp that affect TD Split Corp's overall cash flows.

In short, if you don't understand it, avoid it. That's why I said if you're attracted to the idea, you could buy half TD commons and half TD preferreds. Or, you could just buy TD commons.

Cheers,
Doug

Full and Fair Disclosure: I own ~250 common shares in TD Bank.

March 7, 2020
5:54 am
savemoresaveoften
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In layman's term, what TD split can "afford" to pay out is the sum of TD common share dividend + pref share dividend that TD split physically hold. On top they can generate some extra income such as writing calls and puts etc. No magic to it.

My beef against these type of product is the runner / company has to get PAID doing it, so all things being equal, you always get less than if you can replicate their "strategy" easily.

Just like Doug says, invest your money 50/50 in the common and pref shares, rather than invest in that product. This way guarantee you have the dividend tax credit advantage too (Not sure how the TD split works when it comes to the tax credit implication)

March 7, 2020
10:09 am
Doug
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savemoresaveoften said
In layman's term, what TD split can "afford" to pay out is the sum of TD common share dividend + pref share dividend that TD split physically hold. On top they can generate some extra income such as writing calls and puts etc. No magic to it.

My beef against these type of product is the runner / company has to get PAID doing it, so all things being equal, you always get less than if you can replicate their "strategy" easily.

Just like Doug says, invest your money 50/50 in the common and pref shares, rather than invest in that product. This way guarantee you have the dividend tax credit advantage too (Not sure how the TD split works when it comes to the tax credit implication)  

Concur with all of that and, though they do use option writing strategies to generate the extra income, that in and of itself isn't necessarily problematic. It has more to do with the fact that they've essentially hamstrung themselves in paying a consistent dividend (at least on the prefs) whilst not necessarily having the income to support it. Factoring all of that in, plus the MER of the fund, you're almost certainly worse off than other strategies.

If yield is something you seek, you can look into BMO's covered call ETF strategies. There's a management fee for those, of course, but since the dividend isn't guaranteed (you will earn more when the market is more volatile and less when the market is not volatile), there isn't the sort of leverage involved.

Still, don't put everything into a BMO covered call ETF to generate the 4-7% yield as you will still see some capital price declines on the value of your ETF holding; it generally speaking, though, should decline less than the underlying stocks would on their own. Personally, I would probably be comfortable with 5-10% of that ETF in my portfolio, but YMMV. (First time using that acronym now!) sf-cool

Cheers,
Doug

March 7, 2020
11:50 am
Norman1
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TDb Split Corporation actually holds just common shares of Toronto-Dominion Bank. It doesn't hold any TD Bank preferred shares.

Not sure what problem the TDb Split shares are supposed to solve. The concept itself is a problem as the company attempts to pay out more than it collects in dividends from the TD Bank common shares. The company tries to make up the shortfall by writing covered options on the TD Bank common shares.

What a load of baloney! Just because one tries, it doesn't mean one will make up the shortfall.

The February 28 net asset value per unit (a unit is one Priority Equity share and one Class A share) of $14.08 indicates that they have not been making up the shortfall. The Class A shareholders would only be receiving $4.08 of the original $10 issue price back had the shares been redeemed last week.

That's not the way split corporations are traditionally constructed.

Traditionally, the two classes of split corporation shares each put up 50% of the funds for the underlying bank shares. One class get the dividends of the underlying shares. The other gets any capital appreciation of the underlying shares.

The result is that one class invests $1 but gets the dividends on $2 worth of underlying shares. The other class also invests $1 but gets the capital gains on $2 worth of underlying shares.

March 7, 2020
10:13 pm
Bud
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Both seem to be trading stable around $25 solid? Minimum floor means dividend will never be under 5.75%? What could go wrong?

PPL.PR.K & PPL.PR.M both have a minimum floor of 5.75% after 5 years from the issue date.

March 8, 2020
7:20 am
canadian.100
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Bud said
Both seem to be trading stable around $25 solid? Minimum floor means dividend will never be under 5.75%? What could go wrong?

PPL.PR.K & PPL.PR.M both have a minimum floor of 5.75% after 5 years from the issue date.  

Those are superb issues - the 5.75% minimum floor is going to keep the value at or above par/issue price, and a great return with a dividend tax credit. The risk is if interest rates start rising and go through the roof - highly unlikely in my opinion - I think interest rates will continue to go lower and likely stay low for a long time to come.

March 8, 2020
4:51 pm
Bud
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PPL.PR.K & PPL.PR.M 

why arent they trading higher rates r doppin like a rock

March 8, 2020
6:48 pm
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Bud said
PPL.PR.K & PPL.PR.M 

why arent they trading higher rates r doppin like a rock  

I did not read the terms and conditions of these issues - but I suspect they may be redeemable (that is the issuer can redeem them at certain dates) so the risk that the issuer could pull these from investors at those predetermined dates - however, the investors normally get the full par value usually $25 per share - so I suspect that keeps the issue from trading too high. Potential buyers in the after market do not want to pay $27 per share if they will only get $25 back at redemption date. These issues should probably be treated like bonds - say in 5 years (or on the predetermined redemption dates) they get redeemed. You earn your dividends for the 5 or whatever years and you get your principal back.

March 9, 2020
7:18 am
savemoresaveoften
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any preferred without min floor got clobbered as rates tanked (most resets at 5y GOC + x spread). Those that has minimum floor rate will trade close to $25 or premium as rates drop. The premium is also capped as the call risk at $25. Also as stock market tanked, the common share yield becomes more attractive relative to these pref, another reason why they wont fly off the shelf.
They are good div stocks in a low rate environment.

March 9, 2020
8:03 am
Doug
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Bud said
PPL.PR.K & PPL.PR.M 

why arent they trading higher rates r doppin like a rock  

I suspect it's because the market is expecting these will be redeemed. Note, while these issues may be paid off, the company may still require the same amount of capital. So, if interest rates stay this low, or go lower, as seems likely, for a sustained period of time, Pembina Pipeline Ltd, as a reasonably good credit relative to its peers, should be able to take advantage of the lower pricing and re-issue similar preferred shares—with or without a minimum floor. If these get called within the next year or so, you may have a small capital loss as your purchase price would be higher than you would receive ($25.00).

Honestly, I am now expecting the BoC to cut rates by a further 50 bps, possibly in advance of its April 15th scheduled meeting. Analysts are now forecasting, and I concur with this generally, that the BoC rate will go to 0.25% by year's end (1% lower from where it's at it now).

I'll go a step further and predict we'll see the BoC go to negative rates at some point next year, either to 0% or -0.25%. I expect the Government of Canada to permit them to go modestly (no more than -1.00%) into negative rate territory for the short- to hopefully medium-term.

Cheers,
Doug

March 9, 2020
8:39 am
Bud
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PPL.PR.K $ 23.76 
CHANGE
-1.49 (-5.901%)
VOLUME
9,350

PPL.PR.M $ 23.46 
CHANGE
-1.84 (-7.2727%)
VOLUME
11,300

March 9, 2020
2:31 pm
savemoresaveoften
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Bud said
PPL.PR.K $ 23.76 
CHANGE
-1.49 (-5.901%)
VOLUME
9,350

PPL.PR.M $ 23.46 
CHANGE
-1.84 (-7.2727%)
VOLUME
11,300  

these are very thinly traded and mkt properly pricing PPL credit going down the drain (as evident by the massive selloff of PPL shares which are down 30%+ at one point).

If they go lower to $20 handle cuz mkt continue to liquidate, they will be a decent find I think...

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