Assiduous Reader BS writes in and says:
I am one of your newsletter subscribers. I currently own quite a bit of BNA.pr.D (on your advice, thank you!) and I see that it will be redeemed this July 9th. I have read through the prospectus but I’m quite new to preferred shares and I’m not exactly sure what will happen in July.
The Company will redeem all outstanding Series 4 Preferred Shares on July 9, 2014 for a cash amount per share equal to the lesser of (i) $25.00 plus any accrued and unpaid dividends and (ii) the Net Asset Value per Unit.
There is a dividend payable on June 7 (record date about May 19) and then on July 9th I will receive the $25.00 but is there any dividend payments that will accrue between June 7 and July 9 ?
If there is more dividend coming, would it be equal to about… $25 x 7.25%/year x 32 days/365days/year = $0.16
The shares are trading today at about $25.03 which seems too high if you’re only going to get $25 on July 9th and too low if you’re going to get $25.16 on July 9th. I’m confused!
If there’s no more dividend coming, should I be trying to sell now if I can get over $25.00?
Any advice you can give me would be greatly appreciated.
Geez, I hate these questions – and, as it turns out, I’ve answered this one before. You have to look at the prospectus, you have to determine what happened years ago, you have to do intricate day counts and if you get one little thing wrong you look like an idiot. So first off, I’ll say that since this is a factual question, you’re really better off asking the company’s Investor Relations department. They’re the ones who should not only know this, but really should be publicizing this well in advance. But they aren’t. So … once more into the breach, dear friends!
We first have a look at the prospectus, which is on the company’s website:
Holders of the Series 4 Preferred Shares will be entitled to receive quarterly fixed cumulative preferential dividends of $0.453125 per Series 4 Preferred Share. On an annualized basis, this would represent a yield on the offering price of the Series 4 Preferred Shares of 7.25%. Quarterly dividends on the Series 4 Preferred Shares will be paid by the Company on or about the 7th day of March, June, September and December in each year. Based on the anticipated closing date of July 9, 2009, the initial dividend (which covers the period from closing to August 31, 2009) is expected to be $0.26318 per Series 4 Preferred Share, and is expected to be paid on or about September 7, 2009 to holders of record on August 21, 2009.
Step 1: Understand the Initial Dividend
OK, there’s a lot of dates here, but only two of them are critical. The initial dividend covers the period from July 9, 2009, to August 31, 2009. That’s 53 days, and the amount paid is $0.26318, so we annualize that (365/53) * 0.26318 = 1.812466, which is a yield of 7.24986% on the $25 par value. To five significant figures everything works perfectly, so we’ve accomplished Step 1.
The dividend is paid in arrears, but we don’t care, at least not for this purpose. The main thing is that the first dividend was paid to include August 31, 2009, and on September 1, 2009, there was one day’s coupon accrued. On September 2, 2009, there were two day’s accrued. On September 3 …
Step 2: Understand the Most Recent Dividend
The last dividend paid had an ex-date of May 20, 2014 and was paid June 7; the dividend amount was $0.453 (according to the TMXMoney.com website) or $0.453125 (according to the prospectus). Now the thing is, dividends are paid quarterly and the first dividend took us up to the end of August, 2009. THEREFORE the last dividend took us up to the end of May, 2014. So we can say that the dividend which will be paid On or about the 7th day of Mar., Jun., Sep. and Dec. is the dividend that was earned up until May 31, 2014.
It is, again, paid in arrears and the ex-date was in advance, but for this purpose we don’t care.
Step 3: Understand the Final Dividend
Remember the last paragraph of Step 1? on September 1, 2009, there was one day’s coupon accrued. On September 2, 2009, there were two day’s accrued. On September 3? Well, we repeat that starting with …
On June 1, 2014, there will be one day’s coupon accrued. On June 2, 2014, there will be two day’s coupon accrued … On July 9, 2014, there will 39 day’s coupon accrued.
Thirty-Nine day’s accrual at 7.25% p.a. is (39/365) * 7.25% * 25.00 = 0.193664, to six decimal places. The initial dividend was rounded off to five decimal places, so the final dividend looks like it will be $0.193664 per share.
Step 4: Double-Check Everything
This is your money we’re talking about here, so make sure you don’t just understand the calculation, but that you agree with all the reasoning. And, as stated above, you’re best off if you contact Investor Relations and confirm everything with them.
