Financial Post: Opt for dividend half of split-share companies

Eric Lam of the Financial Post has published a piece titled Opt for dividend half of split-share companies in which I am quoted:

James Hymas, an expert on preferred shares and president of Hymas Investment Management, recommends preferred shares over capital shares. “The preferred shares are very often a good investment for a fixed income retail investor looking for a short-term investment. Capital shares are almost always a poor investment.”

While the investments carry a paper expense ratio generally between 1% and 1.5%, the fees are borne almost entirely by capital shareholders.

For example, if the underlying portfolio is worth $15 and preferred shareholders are guaranteed $10 on maturity, then capital shareholders only really have a claim on $5, but are paying fees on much more than that, he said.

Another factor to consider is that split preferred shares often receive very low credit ratings from credit agencies due to the multiplying risks involved in holding a basket of companies. However, Mr. Hymas argues that investors holding split preferred shares are still better off as investors in common or preferred shares in an operating company generally get nothing in the event of a default.

For those interested, Mr. Hymas recommends investors look for annual yields of at least 4.5% or more. Deciding on credit volatility means taking a good hard look at the underlying portfolio.

Mr. Hymas is keeping an eye on two different preferred shares from BAM Split Corp. that carry shares in Brookfield Asset Management Inc. and must be redeemed by 2016 and 2019 respectively. Another is the preferred shares of Dividend 15 Split Corp. II, which holds 15 companies including the big five banks and telecoms such as Telus Corp. and BCE Inc. It matures in 2014.

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