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Preferred shares
September 13, 2020
10:06 am
Bill
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I didn't refer to individual stocks, I referred to mutual funds precisely to mitigate the risk related to individual companies.

Though I haven't checked its veracity I read in the National Post a few years ago that zero of the big 5 banks have reduced their dividends since the 1940s. Zero. Over the course of a lifetime. In fact, they have increased them regularly and repeatedly, plus their stock values have soared in value over that time, absolutely destroyed GICs and other interest-based investments. And dividends are normally regularly increased, so even a few cuts now and then end you up with way more than you started, unlike annuities. That's been the history, absolute domination over guaranteed savings vehicles, very important info to get out there.

I'd never buy an annuity at today's rates. Though you're right, Loonie, due to my decisions along the way I've no need to consider them.

True about not many boomers getting max CPP, too bad for them, young people might be happy to learn it's a good priority re retirement planning. Especially as it's enriched now and possibly to be more so in the future.

As far as what we "shouldn't discourage", well, actually, despite those who seek to shape and curate our conversations we adults are free to discourage, encourage, etc as we wish.

September 13, 2020
10:08 am
AltaRed
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Bud said
Remind us again what are the preferreds with a "floor" why do they have a "floor" under them?  

That was the only way those issues could be marketed at that point in the bond yield curve cycle, without having to offer even more yield. IOW, the issuer may have had to offer 6% yield to sell them without a floor, but only 5.5% with a floor. The issuer's worst case scenario would the fees (cost) to 'call' them at the end of the 5 year term for something they could then issue at a yield below that floor. The first issues with a 'floor' are coming up shortly. It will be interesting which ones are called and which ones are not.

September 13, 2020
10:35 am
Righand
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Norman1 said

Loonie said
Yours is certainly a cautionary tale, Norman. Sorry for your losses, but we all benefit from your sad experience now.
You might have been better off with GICs at those trustcos. …

Yes, I would have received my principal back with a Central Guaranty Trust GIC instead of 100% loss of my principal in their preferred shares.

I think people who buy lots of GIC's forget that a 4% to 5% per annum payout is good only if the original investment is returned. It is actually not good if something happens and the original investment is gone within ten or twenty years.

Preferred shares are shares and not a GIC or a bond. I think the correct way to frame the risk of using them to generate retirement income is to consider living off the common shares of the same issuers.

If one is comfortable with the idea of living off the common shares, then one has understood the risk involved. If one is not comfortable with that, then one has not really understood the risk and really should not be trying to live off the preferred shares.

Contrary to all the malarkey from the brokers, the risk of the preferred shares is not that much less than that of the common shares. When Nortel imploded, both common shareholders and preferred shareholders were wiped out.  

I have to disagree completely. Example, CU.PR.I
I much prefer the pref over the common because they may reduce the common but they can't touch the pref unless they eliminate the common. So, if one is comfortable with the common as you mention then wouldn't one be a little more comfortable owning the pref ? I am.
Only caveat is the high spread, it could get called if rates return to higher levels.
It resets on Dec 1 this year so with rates so low the floor should take care of the present rate for 5 more years.

Also in the case of CU , common vs the pref, the pref is not as volatile. At the March 23 low the common got hit hard while the pref returned to par rather quickly and the common still hasn't recovered.

September 13, 2020
12:02 pm
Bud
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CU.PR.I why trading so high above par? whats the catch

September 13, 2020
2:00 pm
AltaRed
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Bud said
CU.PR.I why trading so high above par? whats the catch  

It is trading right around par, just over/under $25. It will either reset at GoC5+369 on Dec 1 of this year, or default to minimum 4.5% yield or be called. It is a highly interesting one to watch given GoC5 may be in the order of 0.4-0.5% on Dec 1 (for a new value of about 4.1-4.2%....which then defaults to 4.5%. Is that spread high enough for CU to call it and re-issue at a lower yield of say 4.3%, or do they let it ride at 4.5%? That is why it is trading in a narrow band around par of $25.

September 13, 2020
3:13 pm
Bill
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CU common shares have increased their dividends every single year since 1972, 48 straight years now. A staple utility dividend aristocrat in mutual funds, has been its history.

September 14, 2020
1:50 pm
Bud
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TRP-C? why so low

September 15, 2020
7:45 am
asiamalekas
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Bud said
TRP-C? why so low  

-----
Hi Bud,

I think it's low because once it resets the yield goes to 5.25%. Market is pushing up the yield by lowering the share price.

https://canadianpreferredshares.ca/rank-TC-Energy-preferreds/ page shows in great detail all TC preferreds and how they rank against each other. Based on all the metrics I see here, the price is at the right level for now.

September 16, 2020
11:30 am
Norman1
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Righand said

I have to disagree completely. Example, CU.PR.I
I much prefer the pref over the common because they may reduce the common but they can't touch the pref unless they eliminate the common. So, if one is comfortable with the common as you mention then wouldn't one be a little more comfortable owning the pref ? I am.

There's no significant difference.

Both common and preferred share dividends can be suspended with equal ease by simply not declaring them. To have to suspend common share dividends too is not a very demanding requirement.

There is actually no legal obligation to pay any dividend, even when a company has the money to pay them.

It is similar to having an employment contract that prohibits partial departmental layoffs. The employer can just layoff the entire department.

September 16, 2020
2:07 pm
Righand
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Norman1 said

Righand said

I have to disagree completely. Example, CU.PR.I
I much prefer the pref over the common because they may reduce the common but they can't touch the pref unless they eliminate the common. So, if one is comfortable with the common as you mention then wouldn't one be a little more comfortable owning the pref ? I am.

There's no significant difference.

Both common and preferred share dividends can be suspended with equal ease by simply not declaring them. To have to suspend common share dividends too is not a very demanding requirement.

There is actually no legal obligation to pay any dividend, even when a company has the money to pay them.

It is similar to having an employment contract that prohibits partial departmental layoffs. The employer can just layoff the entire department.  

I beg to differ because there is a BIG significant difference. The pref dividends are cumulative and the common are not.

September 17, 2020
6:53 am
savemoresaveoften
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Righand said

I beg to differ because there is a BIG significant difference. The pref dividends are cumulative and the common are not.  

Keep in mind not ALL prefs are cumulative. a lot of the bank ones are non-cumulative.

September 17, 2020
7:43 am
Righand
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savemoresaveoften said

Keep in mind not ALL prefs are cumulative. a lot of the bank ones are non-cumulative.  

Of course they aren't !! If you follow the post you will see that we were specifically talking about CU.PR.I

I tried earlier to edit the post to make it clear but it seems that after a certain time editing is not available.sf-confused

Also keep in mind that every pref comes with its own set of distinct characteristics .

BTW, I don't know of ANY bank that has cumulative dividends.

September 17, 2020
8:02 am
Jon
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The company can still decide to not declare dividend on cumulative preferred share for an extended period of time.

Bank are required to issue non - cumulative, non-redeemable preferred share for it to be considered as tired one capital. If this is the case, I double the point of holding them compare with common share of a bank, as those share have nearly all the risk of common stocks, but none of the upside (capital gain) of common stocks.

https://www.investopedia.com/terms/t/tier-1-capital-ratio.asp


https://www.osler.com/en/resources/governance/2010/corporate-review-december-2010/basel-iii-higher-capital-requirements-for-banks

September 17, 2020
8:27 am
Righand
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Jon said
The company can still decide to not declare dividend on cumulative preferred share for an extended period of time.

Bank are required to issue non - cumulative, non-redeemable preferred share for it to be considered as tired one capital. If this is the case, I double the point of holding them compare with common share of a bank, as those share have nearly all the risk of common stocks, but none of the upside (capital gain) of common stocks.

https://www.investopedia.com/terms/t/tier-1-capital-ratio.asp


https://www.osler.com/en/resources/governance/2010/corporate-review-december-2010/basel-iii-higher-capital-requirements-for-banks  

Agreed, the only bank pref that I bought was RY.PR.Q because it pays 5.5% vs. the common of 4.7% but they will probably be called shortly, almost like a 5 yr gic if you have confidence in the bank.

September 19, 2020
1:49 pm
maxb
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I unfortunately bought some of these rate resets.. but I was double unfortunate when I bought a few more....

I will never buy any interest rate related investment unless there is an end date !!! At some point both borrower and lender must be able to reconcile the amount owed and get out.

OTHERWISE GET COMMON SHARES AND BE AN OWNER !!!!

September 20, 2020
11:10 pm
picassocat
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Well, if you like dividends, you might look into these preferred shares

Bombardier Inc Pref Share BBD.PR.C
Forward Div Yield 16.95%

Bombardier Inc Pref Share BBD.PR.B
Forward Div Yield 9.07%

September 22, 2020
3:56 pm
dentgal
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I'm in the same sinking boat with Max B. My rate-resets were suggested by my financial adviser. They are probably down 40% from what I paid for them:(

September 22, 2020
4:11 pm
AltaRed
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Consider them a long term hold, e.g. until BoC5 (5 year bond) yield gets back to 2.5-3% or so. Those pesky 5 year fixed resets will recover nicely then.... May be a long wait but why not if one has the time to wait?

September 22, 2020
4:28 pm
Bill
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Something's down by 40%, to some people that might be a buying opportunity.

September 22, 2020
5:16 pm
asiamalekas
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AltaRed said
Consider them a long term hold, e.g. until BoC5 (5 year bond) yield gets back to 2.5-3% or so. Those pesky 5 year fixed resets will recover nicely then.... May be a long wait but why not if one has the time to wait?  

---------------------------
Yes wait for them to rebound and get the capital gains and even greater yields. Todays average current yield of the " 5 year resets " is 6.35%. In other words you can be collecting this yield while waiting to get an even better yield in the future.

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