BCE Inc. has announced:
BCE Inc. will, on September 1, 2012, continue to have Cumulative Redeemable First Preferred Shares, Series AA outstanding if, following the end of the conversion period on August 22, 2012, BCE Inc. determines that at least 2.5 million Series AA Preferred Shares would remain outstanding. In such a case, as of September 1, 2012, the Series AA Preferred Shares will pay, on a quarterly basis, as and when declared by the Board of Directors of BCE Inc., a fixed cash dividend for the following five years that will be based on an annual fixed dividend rate equal to 3.45%.
BCE.PR.A is interconvertible with BCE.PR.B on September 1, and notice of conversion is required to be with BCE by August 22, 2012. Note that brokerages and other custodians will have deadlines slightly in advance of this – so if contemplating conversion, find out your deadline immediately! The Notice of Conversion was discussed on PrefBlog.
I recommend that holders of BCE.PR.A convert to BCE.PR.B. The total dividends paid over the next five years will greater for the latter issue if the average prime rate exceeds 3.45% (provided that this issue continues to pay 100% of prime, which it will do unless the current price of $21 increases to over $25). This condition will be met if prime increases steadily to 4% at the end of five years. This is a reasonably good bet, even with the Fed announcing continued financial repression through the end of 2014. Additionally, I judge the chance of an overshoot of this figure to be much greater than the chance of an extreme undershoot; in other words, I judge the chances of average prime being 5% to be much greater than the chance of average prime being 2%.