Preferreds

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Preferred Shares - 2011

Post by like_to_retire » 01 Feb 2011 14:26

Time for a new thread.

I thought it a bit unusual to see RioCan REIT issuing a rate reset preferred share recently, but now I see that Rona hardware is issuing one.

Cumulative 5 Year Rate Reset 5.25% +265. Pfd-3.

RONA Announces $125 Million Offering of Cumulative Rate Reset Preferred Shares

RONA dabbles in rate reset preferred shares.

ltr

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Re: Preferred Shares - 2011

Post by northbeach » 01 Feb 2011 17:52

I still can't figure out if Rate Resets are a good or bad thing.

Now that companies outside of the financials are issuing them, I wouldn't mind finding out. 5.25% for 5 years sounds good to me.

What might the downsides be at renewal time? Any easy to understand explanation would be most appreciated.

Or should I just stay with my CPD.T etf.

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Re: Preferred Shares - 2011

Post by like_to_retire » 01 Feb 2011 18:27

northbeach wrote: What might the downsides be at renewal time?
The downside would be that they continue to reset it every five years because of its low reset spread. So it basically becomes a perpetual share without the higher yield that they enjoy.

The higher spread rate resets yield quite a bit less because they are secure in being reset. You would have to look at these shares and decide if the low yield to redemption is acceptable in comparison to their bond counterpart.

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Re: Preferred Shares - 2011

Post by Peculiar_Investor » 01 Feb 2011 18:42

When in doubt, check with James Hymas -- New Issue: RON FixedReset 5.25%+265 « PrefBlog
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Re: Preferred Shares - 2011

Post by Sensei » 01 May 2011 09:25

Hi,

I seek your help! I've been dabbling in PGX by buying a modest number of units to see what they will do. PGX is a preferred share ETF from PowerShares containing mostly US bank preferred shares. I've read quite a bit about it mainly on Seeking Alpha.

I think I have a reasonable grasp of what yield-to-worst would mean for a preferred share. My question is what would it mean for a preferred share ETF. Concretely here are the details for PGX:

30 SEC Yield 6.68%
Distribution Yield 6.65%
12-month Yield 6.62%

Yield to Worst 5.65%

Is the current unit price too high?

Also, if anybody has an opinion about where this type of investment will go, I'd appreciate the input. Is there any advantage to it over just buying preferreds shares from individual companies?
Cheers

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Re: Preferred Shares - 2011

Post by adrian2 » 01 May 2011 09:29

Sensei wrote:I think I have a reasonable grasp of what yield-to-worst would mean for a preferred share. My question is what would it mean for a preferred share ETF.
I'd say it's the weighted average of each component's TYW, possibly minus an allowance for MER.
Sensei wrote:Is the current unit price too high?
The short answer is "yes", similar to buying a bond above par. But OTOH if a bond has a coupon of 14% and you buy it with a YTM of 10% (thus, above par), it can still be an excellent investment.

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Re: Preferred Shares - 2011

Post by like_to_retire » 01 May 2011 09:36

I'm questioning if it's a good idea to be purchasing US preferred shares since you don't enjoy any tax advantage over bonds, while bonds are senior to preferred shares?

Why not buy corporate bonds?

ltr

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Re: Preferred Shares - 2011

Post by Springbok » 01 May 2011 10:30

like_to_retire wrote:I'm questioning if it's a good idea to be purchasing US preferred shares since you don't enjoy any tax advantage over bonds, while bonds are senior to preferred shares?

Why not buy corporate bonds?

ltr
Just looked at BMO Investorline and don't see much in the way of corporate bonds with that sort of yield. Any better at other brokers?

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Re: Preferred Shares - 2011

Post by scomac » 01 May 2011 10:44

Springbok wrote: Just looked at BMO Investorline and don't see much in the way of corporate bonds with that sort of yield. Any better at other brokers?
Corporate bonds yielding >5% are available at CIBC IE. You have to be willing to go out to 10 years plus maturity and down in credit quality to A or BBB. As examples, I saw several issues from Bell, Loblaw, Telus and Trans Alta when I was browsing the inventory yesterday. Perhaps the best deal I ran across was a Manulife strip maturing in 2018 with a YTM of 4.92% and rated AA (low).
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Re: Preferred Shares - 2011

Post by Springbok » 01 May 2011 11:50

scomac wrote:
Springbok wrote: Just looked at BMO Investorline and don't see much in the way of corporate bonds with that sort of yield. Any better at other brokers?
Corporate bonds yielding >5% are available at CIBC IE. You have to be willing to go out to 10 years plus maturity and down in credit quality to A or BBB. As examples, I saw several issues from Bell, Loblaw, Telus and Trans Alta when I was browsing the inventory yesterday. Perhaps the best deal I ran across was a Manulife strip maturing in 2018 with a YTM of 4.92% and rated AA (low).
Because discussion was about bonds as an alternative to US preferreds, I searched for US bonds, and they are limited at BMOIL. For those prepared to go out beyond 7 yrs, and with lower rating (but still investment grade), there are >5% yields available at BMOIL in Canadian bonds. Is that a high enough yield if US try to inflate their way out of their problems?

I have been reluctant to go out more than 6 years with bonds. As a result, I now have moved some FI to individual preferreds some of which are >6% retractables (6-9yrs). Not FI though but then corporate bonds have equity risk anyway.

Any good ideas on where to place FI welcomed :)

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Re: Preferred Shares - 2011

Post by Norbert Schlenker » 01 May 2011 11:53

If you want high yield in US$, then why go to preferreds? Have you considered normal high yield ETFs like JNK or HYG?
Nothing can protect people who want to buy the Brooklyn Bridge.

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Re: Preferred Shares - 2011

Post by like_to_retire » 01 May 2011 11:58

Springbok wrote:
like_to_retire wrote:I'm questioning if it's a good idea to be purchasing US preferred shares since you don't enjoy any tax advantage over bonds, while bonds are senior to preferred shares?

Why not buy corporate bonds?

ltr
Just looked at BMO Investorline and don't see much in the way of corporate bonds with that sort of yield. Any better at other brokers?
You have to look at USA corporate bonds in the 10 year range and see if the difference in yield compared to the US preferred ETF is worth the risk of seniority.
The PGX has about 39% BBB and 24% BB rated US preferreds. Be sure to look at similar rated US corporate bonds. Is it not better to buy some high yield US bond ETF?

ltr

edit: I see Norbert beat me to it.

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Re: Preferred Shares - 2011

Post by scomac » 01 May 2011 12:02

Springbok wrote: Because discussion was about bonds as an alternative to US preferreds, I searched for US bonds, and they are limited at BMOIL. For those prepared to go out beyond 7 yrs, and with lower rating (but still investment grade), there are >5% yields available at BMOIL in Canadian bonds. Is that a high enough yield if US try to inflate their way out of their problems?
Here is a listing of those USD issues on IE's investory out to 10 yrs. maturity. Only three yield in excess of 5% YTM -- Lloyds, Arcelor-Mital and Alcoa.

Code: Select all

GOLDMAN SACHS 5.375% Mar 15, 2020 $333 $106.1621 4.523% s/a
 USD ---    
Bank of America Corp 5.625% Jul 1, 2020 $480 $107.0711 4.666% s/a
 USD ---    
MORGAN J.P. & CO 4.40% Jul 22, 2020 $330 $100.7343 4.302% s/a
 USD ---    
CITIGROUP INC 5.375% Aug 9, 2020 $534 $106.8282 4.466% s/a
 USD ---    
GENERAL ELECTRIC 4.375% Sep 16, 2020 $166 $100.8132 4.268% s/a
 USD WITHDRAWN    
MORGAN J.P. & CO 4.25% Oct 15, 2020 $1,218 $99.2897 4.342% s/a
 USD ---    
Dow Chemical Co 4.25% Nov 15, 2020 $320 $99.5387 4.311% s/a
 USD --- C Aug 2020   
GENERAL ELECTRIC 4.625% Jan 7, 2021 $1,079 $102.7765 4.271% s/a
 USD WITHDRAWN    
LLOYDS TSB BANK PLC 6.375% Jan 21, 2021 $372 $108.7861 5.210% s/a
 USD AA    
ARCELORMITTAL 5.50% Mar 1, 2021 $990 $102.6892 5.147% s/a
 USD ---    
BP Amoaco Cap 4.742% Mar 11, 2021 $1,200 $104.6314 4.164% s/a
 USD ---    
TIME WARNER INC 4.75% Mar 29, 2021 $1,200 $103.4996 4.312% s/a
 USD ---    
Wells Fargo Fin 4.60% Apr 1, 2021 $1,450 $103.1014 4.213% s/a
 USD AA    
VERIZON COMMUNICATIONS 4.60% Apr 1, 2021 $800 $104.2844 4.070% s/a
 USD ---    
Home Depot Inc 4.40% Apr 1, 2021 $1,000 $102.9053 4.041% s/a
 USD ---    
ALCOA INC 5.40% Apr 15, 2021 $2,370 $103.0706 5.004% s/a
 USD --- C Jan 2021   
"On what principle is it, that when we see nothing but improvement behind us, we are to expect nothing but deterioration before us?"
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Re: Preferred Shares - 2011

Post by like_to_retire » 01 May 2011 12:09

Here is a listing of those USD issues on IE's investory out to 10 yrs. maturity. Only three yield in excess of 5% YTM -- Lloyds, Arcelor-Mital and Alcoa.
The index that PGX follows (BofA Merrill Lynch Core Fixed Rate Preferred Securities Index) has a YTM of 4.73%.
PGX may have a slightly higher YTM, but if a bond ETF is even close to it, it seems a better idea to choose the bonds for their higher seniority. The tax treatment for the bonds or preferreds is the same.

ltr

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Re: Preferred Shares - 2011

Post by Sensei » 01 May 2011 19:57

Hi,

Some of those responses are of use. OTOH, I was looking for more of an apples to apples comparison of a single preferred vs. etf and what the terminology means. (For example, owning a dividend stock is not the same as owning a dividend etf. I was just wondering if the same could be said for preferred etf vs. preferred share and if so what are the differences?)

The tax issue is irrelevant in my case. I've already received two months of distributions on a small experimental position. The tax on PGX for me is 10% withholding, so a better deal than a high yield bond etf.
Cheers

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Re: Preferred Shares - 2011

Post by thegov » 25 May 2011 12:08

Any ideas on Yellow Media's preferred shares?
They've been hammered the last few days.
Thx

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Re: Preferred Shares - 2011

Post by adrian2 » 25 May 2011 12:12

thegov wrote:Any ideas on Yellow Media's preferred shares?
They've been hammered the last few days.
The common shares were hammered much harder...

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Re: Preferred Shares - 2011

Post by zinfit » 25 May 2011 21:05

Canadian Western Bank A preferred are paying 6.6%. Seems like a reasonably safe issuer. What's the catch?

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Re: Preferred Shares - 2011

Post by like_to_retire » 25 May 2011 21:46

zinfit wrote:Canadian Western Bank A preferred are paying 6.6%. Seems like a reasonably safe issuer. What's the catch?
The catch is that's the running yield. Have you calculated the Yield to Reset (which it surely will be called with a 500 bp spread). It will be much lower.

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Re: Preferred Shares - 2011

Post by adrian2 » 26 May 2011 10:29

thegov wrote:Any ideas on Yellow Media's preferred shares?
They've been hammered the last few days.
Also noticed by Mr. Hymas:
But the big news of the day was the yellow blood all over the carpet!

Code: Select all

Ticker 	  Quote 5/24 	      Quote 5/25 	     Bid YTW 5/25  	  YTW Scenario 5/25 	            Performance 5/25 (bid/bid)
YLO.PR.A 	24.11-24 	        23.84-95 	         7.85% 	        Soft Maturity 2012-12-30 	        -1.12%
YLO.PR.B 	18.47-54 	        17.85-99 	        11.99% 	        Soft Maturity 2017-06-29 	        -3.36%
YLO.PR.C 	19.80-20 	        18.88-00 	         8.93% 	        Limit Maturity 	                  -4.65%
YLO.PR.D 	19.96-00 	        19.17-34 	         8.95% 	        Limit Maturity 	                  -3.96%
[added later]

At current prices, YTW of the A class is around over 10% (eligible dividend plus implied capital gain assuming no default), for 19 months money.

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Re: Preferred Shares - 2011

Post by bribarb1 » 26 May 2011 20:08

Scomac
you made reference in a prior post that you reviewed CIBC bond list.
Is this priviledge information? Im a client of CIBC and have never been given access.
How would I go about gaining access to this list.

Thank you

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Re: Preferred Shares - 2011

Post by scomac » 26 May 2011 23:15

bribarb1 wrote:Scomac
you made reference in a prior post that you reviewed CIBC bond list.
Is this priviledge information? Im a client of CIBC and have never been given access.
How would I go about gaining access to this list.
The info I quoted is available to any customer with on-line access. If you have an Investor's Edge account, go to the left hand menu and select fixed income. A drop down menu will appear; select buy a bond. A screen will appear that allows you to enter the various criteria you want to screen the on-line bond inventory for including terms, bond type, currency denomination, yield, etc. If you don't find any issues that appeal from the screen results, you can always call the bond desk and have them search for something that might match your criteria.
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Re: Preferred Shares - 2011

Post by zinfit » 27 May 2011 17:31

Thank you "like to retire" . The CWB preferred A are trading well above 27. In 2014 CWB has the right to call these shares at 25. if this happens there is a size able capital loss to be absorbed. I have sold my position. I bought Primaris Reit. Has a number of malls which will benefit from Targets move into Canada. They almost pay 6%.

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Preferreds

Post by kumquat » 06 Aug 2011 01:58

I've been interested in preferred shares for a while. Malachite has interested me since my expertise in preferred is non-existent. Where do I find it's latest values?

It may be right there on the website, but I couldn't find it. Anyone know?
I don't intend to offend anyone, that part is just a bonus.

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Re: Preferreds

Post by like_to_retire » 06 Aug 2011 08:04

The MAPF Performance is in PrefBlog each month.

Management: please add this to an existing thread on preferreds so we don't have so many.

ltr

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