Noreen Rasbach of the Globe and Mail was kind enough to quote me yesterday in a story titled A new direction for fixed-income investing:
The huge benefit to investing in preferred shares is their tax advantage, according to James Hymas, president of Toronto-based Hymas Investment Management Inc. and a preferred-shares expert.
“The great distinction between preferred shares and long-term corporate bonds is that preferred shares give you entitlement to the dividend tax credit – which for most people has the effect of multiplying your return by a factor of about 1.3.”
Investors who want to take advantage of the dividend tax credit need to hold their preferred shares in a taxable account, not an RRSP.
Preferred shares provide holders with a dividend and a stated dollar value per share when it is redeemed by the company. The prices of the shares trade up and down.
Often, Mr. Hymas said, investors are attracted by a high yield and buy preferred shares, and a short time later the issue is called for redemption at a far lower price than they paid for it – “and they end up with a very poor return or even losing money.”