Investment Q&A

Q: Hello, 5i Team,

This is a question from a neophyte investor.

In a recent press release BUS announced the acceleration of A & B Convertible Debentures. To quote: "The Debentures will result in the issuance of up to 2,235,294 Common Shares at an issue price of $0.68 per share."

Can you tell me a) why a Company might accelerate the issuance of debentures and, b) just as importantly, how such an issuance, at that price, would impact upon current shareholders and the value of their shares.

Thank you

Q: I would like to buy some preferred shares of the canadian banks.
Would you recommend one bank over the other and which series.

thanks,

Q: Just to clarify, my question below is about CUS.DB.D

Just wondering what your thoughts are on the offer to redeem the 3 Canexus debentures. As an income seeking investor, should one accept the cash offer or keep the 6.5% debentures until the end of term? Pros and cons? I was also wondering if one doesn't accept the cash offer, will there be a secondary market for these debentures? Will the convertible feature remain in place? Thanks for all your help.

Q: Hi,
I would like to buy some preferred shares as I don't have any Preferred's in any of my accounts but with so many different descriptions out there I'm not sure what I should be looking for. For instance I would like to have a high yield ( > 4.5% ) and a guaranteed return of capital on a set date if held until that date (if there is such a thing out there). I see many new offerings come out through TD & Scotia iTrade but these are usually closed very quickly.

For instance this one came out this morning:
"TD Direct Investing would like to inform you that the following New Issue has just been announced.

Element Fleet Management Corp. - 5.75% 5 Year Rate Reset Preferred Shares, Series I

Short Description: Offering of Cumulative, 5-Year Rate Reset Preferred Shares, Series I via Bought Deal
Price: $25.00 CDN per share.
Settlement: On or about May 5, 2017."

This sounded good but by the time I tried finding out more about the offering it was closed already.

So, is there some guidance you can give on what "buzz words" to look for when a new issue comes out so I can put my "expression of interest" in before the offering is closed?
I guess what I would really like to know are the following:
1) Are 5-Year Rate Reset Preferred shares the best option for capital preservation?
2) Is it best to try and buy Preferred shares on a new offering or to look in the open market?
3) Is there a Preferred share Class that guarantees your original capital outlay?
4) Any other guidance you can offer in looking for the best: time / place / kind when looking for Preferred's?
5) And finally, once I find a suitable Preferred offering - which account type would you recommend best to hold in for tax purposes (i.e.- reg. vs non-reg.)
Thank you.

Q: I own three reset preferreds that were purchased at the issue price. All are underwater by large amounts. AIM.PR.C is trading at $17.52 yielding 8.8%, AZP.PR.B is trading at $19.20 yielding 7.2%, and DC. PR. B is trading at $16.20 yielding 8.8%. With the dividend tax credit the yield averages is well over 10%. How financial stable are those three companies? Are the yields adequate for the risk being taken? Are those shares sells or holds for income?

Q: Good day gentlemen,
Do you have an opinion on this company?
I noticed there is a new debenture that will be issued. It has an 8% yield would you consider this a moderate risk investment?

Q: Can you provide any details about this preferred share ? Thanks, Joe

Q: What are the pros and cons of these two ETFs? Looking forward, which of the 2 do you believe has the best price appreciation potential? Are there better ways to get exposure to preferreds? Please explain. Thanks so much for the guidance.

Q: Monday's list of stocks at 52 week highs included an enormous number of preferred shares? What are the reasons behind this sudden surge? Any prognosis? Thank you!

Q: Recently some US shipping companies have made major gains. Rather than chase a high performer such as DSX I am interested in its preferred, DSX.PR.B, which is also moving up but more slowly with less volatility and with a high yield of around ten percent. (Another possibility: SB and SB.PR.C) Your advice, please. Thank you.

Q: Thoughts on this Preferred Share ETF please. Also FTS.PR.H

Q: I have taken back my portfolio from a fee based brokerage, and included were a number of preferred shares that I am considering selling so that I can concentrate on dividend growth stocks. These preferred's have increased significantly in the past year, and I think this may be a good time to sell, although some are still below their cost. I would keep any that you might think are worth retaining for their dividends.
The issues are Brookfield Office Property 5.15% Preferred P
Enbridge 4% rate reset Prefeered U
Fairfax Financial 4.75% Preferred M
Husky Energy 4.5% rate reset Preferred C
Industrial Alliance 4.3% Preferred G
Royal Bank 3.6% rate reset Preferred M

Thanks very much for your help on this specific opportunity and for your good advice on investments.

Q: Had a bond mature and am considering replacing it with TCN.DB.U. Seems like a pretty good deal, 5.75% 31-MAR-2022 maturity with conversion at 10.46. It's trading at 103.00 and TCN is at 10.90 so you get over double the yield and it should trade with TCN because its already above the conversion rate. Some convertibles come to market with the conversion price 30, 40, 60% above current equity price. Why did this new TCN convertible come to market already at the conversion price?

Q: I own a number of reset prefs. Most trade near the 25.00 range or below.
Two issues puzzle me
Na bank 5.6% reset 2021 at 4.9 plus Boc 5y trades at 27.00
and
Can.west Bank 6.25% reset 2021 at 5.47 plus boc 5y trades at 27.26
My guess at reset dates they will probably be redeemed at 25.
why would they trade so far above the redemption price
thanks

Q: Preference shares
Following your reply, I conclude that, even on a reset date, preference shares may not trade at face value. Therefore, there would be no point in time when an investor is assured of full repayment of capital. Why then would these shares ever be suitable for investor adverse to interest rate risk? The only exception would be the investor willing to hold the shares for an unknown period until the shares are worth more than face value or the issuer decides to redeem them. Also, I wonder whether investors generally understand that, if they pay more than face value for the shares, the dividends represent in part a repyment in capital. Preference shares appear to have an undeserved allure, suitable only for investors willing to gamble with interest rates (perhaps having a trading strategy) or remain invested for an unknow period of time. Perhaps they should generally thought of as speculative and/or suitable only for sophisticated investors. I question whether even investment advisors understand this instrument well, particularly the range of attributes among issues.

Q: Based on bitter experience, I have concluded that preference shares are generally not suitable for an investor disinterested in gambling on interest rates.

My conclusion is based on the following:
- the only type of preference share which assures the investor of a fixed capital repayment amount is one subject to a mandatory fixed redemption date.

It seems to me (perhaps wrongly) that 1. reset shares will not necessarily trade for face value on the reset date and 2. floating rate shares would never necessarily trade at their face value
- in practice, the mandatory redemption type share is not available to a retail investor, if at all.
- apart from interest rate risk, I wonder whether there is a significant spread between bid and ask, placing the investor at an automatic disadvantage at the time of sale

Am I wrong?

Q: Enbridge has a long list of preferreds, with two sets of symbols, PR and PF. What is the difference between the two classes? I was specifically interested in ENB.PF.V - any adders in the grass here? I realize volumes are very small, but this is for a buy and hold account. Finally, how come the preferreds are doing better than ENB and ENF? Thanks.

Q: Hi 5i Team: In an anticipated rising rate environment I am leaning towards adding more ZPR in my preferred share segment of my fixed income portfolio. Am I correct in thinking ZPR is (no pun intended) preferable over HPR at this time? Or should I take HPR as a little diversification as I only hold rate resets in my preferred share portfolio at the present time.

Q: Please don't answer this with the standard reply about split corporations. I know 5i is not crazy about split corporations. No one ever mentions the preferred share side of the split. Everyone talks about the ultra-high yielding Class A shares that pay over 10%. That's not what I'm asking about.

The preferred shares yield about 5%. DFN.PR.A was priced at about 10.50 in 2004 and today its price is 10.34. There was a 30% dip in 2008. Otherwise the graph is amazingly level, showing only a fraction of the losses "normal" preferred shares showed in 2015-16. Also, distributions have never been suspended. A graph of dfn.pr.a compared to the preferred share etfs CPD and HPR may be surprising. The question is, How dangerous are preferred shares of a split corporation? Certainly they have to be safer than the Class A, high yielding shares. Seems like a good place to park some cash, which is what I've been doing. Thank you for your thoughts.

Q: In relation to Jean's question concerning pref shares with reset floors, please note that bank shares do not have such floors for regulatory reasons (in order to be considered as Tier 1 capital).