7 Responses to “December 12, 2018”

1. skeptical says:

   December 12, 2018 at 7:01 pm

   Thanks for your work James….You have been very helpful in getting me started with investing in Preferreds.
   A quick question related to portfolio diversification.
   Assuming a portfolio size of $100k (for illustration) which is about a third of total investable assets.
   All holdings are P2(L) and above.
   What`s the maximum safe allocation to one issuer?
   10% of total preferred holdings?
   Something else?
   What’s a good/rational way to decide?
   Does P2(H) necessarily mean we can allocate more to it than to say P2(L)?

   Thanks so much for taking my basic questions over various posts.

2. baffled says:

   December 13, 2018 at 12:21 pm

   interesting question ,skeptical , the small size of the canadian market and the even smaller group of p2 and higher rated prefs makes it hard , you have to watch so you do not end up with too many in the same industry . i think you have to start by knowing your self as an investor , by that i mean are you buying a tax advantaged income stream and not going to care about the value of your stock after you bought , as long as the div is secure and flowing , or are you buying hoping for a capital gain and you want the div so you get paid while you wait ? having said that , for my self i buy an income stream and have no intent to spend the princ . so dont really care what the price does after i bought . i have 10 issues , with max 2 in banks , insurance , pipelines , food ,tel and utilities

3. baffled says:

   December 13, 2018 at 12:44 pm

   left this out of earlier reply , account size is $ 200,000 so about $20,000 in each position

4. skeptical says:

   December 13, 2018 at 1:44 pm

   Thanks for the response baffled.
   I’m looking primarily for income stream and I can take the decline in values in stride so long as dividend is secure. Most floating and fixed resets have this problem-not only is the dividend not secure, they are subject to extreme gyrations in value. But they do offer some advantage.

   The problem arises because certain issues by a given company are very attractive and there’s nothing available from any similar company.
   e.g. in Telco sector, there’s only BCE that has preferred shares, AFAIK. Also, only TD, RY and BMO have perpetual issues. CM and BNS don’t, nor does NA.
   So just like the broader indices of Canadian market, there’s little option but to invest in Big 5, a few insurance cos, TRP/ENB, CU/FTS/EMA and a bunch of splits. Perhaps a bit of BAM/BIP.

5. baffled says:

   December 13, 2018 at 3:00 pm

   skeptical , yup small market , you may have to expand your search pool to p3(h) , or look at funds or etf . 1 small point , when you say the div is not secure , i think you mean the $ amount will vary , but on a p2 or higher i think the div is secure . if you do not want the div $ amount to vary then instead of the resets look at the perpetuals , lots of issues selling at a big discount .

6. skeptical says:

   December 13, 2018 at 3:53 pm

   Good points. Thanks

   Yes, I meant security of dividend amount, not of the dividend itself.

   I think the preferred ETFs in Canada are really an illusion. e.g. all the big ones like CPD, HPR etc. have at least 8 to 10% TD and a similar weight of RBC and ENB. TRP and Manulife are about 5 to 6%. I think most funds don’t want to carry perpetuals hence they are overweight in companies that have more fixed resets and floaters. That’s why P2H issues like GWO and CU are under represented in these ETFs. At least that’s what I think.

   And the fee charged is quite high, like .5% or about 10% of the return is skimmed every year. Not good IMHO. Should be brought down, given that these funds are around a billion dollar in size, they can afford to hire someone like James (if he wants!) and pay him half a million and make it ultra competitive, cost wise. A fund such as that could be run for a couple of million, leading to MER of less than .25%…..someday…

7. baffled says:

   December 13, 2018 at 4:14 pm

   skeptical , i dont like them because of the fees and i just dont believe that with p3 or higher you need management . along with the prefs i hold i also hold some common div payers . if you can not find what you need in the pref issues the commons with a history of paying and raising the div are a good way to go . you again have to decide how much the fluctuating share price is going to bother you , but if that wont bother you then it is amazing what your yield on your original purchase price becomes over time as they raise the div ( my bce is now 10% yield on my cost ) , they do require more effort keeping an eye on the company , the pay out ratios , and the industry they are in , but the rewards are there .