3 Responses to “August 12, 2019”

1. cttglvr says:

   August 12, 2019 at 11:32 pm

   Hello to all. I’ve been following this site for quite a while and appreciate the knowledge James shares.

   A question for all. I’m retired and hold quite a few preferred shares, reset and perpetual. If companies might recall perpetuals like PWF.PR.I (I own) that yields 6% at $25 and trading over par should I sell that preferred now and move to a similar issue that has a similar yield and is less likely to be called trading at less that par? I’m hoping to avert a capital loss like I took…although small when the Union Gas perpetuals were taken out at $25.

   One final question…BPO.PR.T preferred reset is now yielding almost 8% and will for almost 5 years as it recently did a reset. Buy more or am I missing something?

2. jiHymas says:

   August 13, 2019 at 2:09 am

   With respect to BPO.PR.T: it reset effective 2019-1-1 at 5.383%, so it pays 1.34575. At today’s closing bid of 17.05, the Current Yield is 7.89%.

   However, it will reset again in the future and again and again until it is called for redemption (or it disappears in some other way; a Plan of Arrangement, perhaps); and given the low price a redemption at par in the foreseeable future is certainly not something you should be counting on.

   When it next resets, it will do so at a spread of 316bp over Canadas; given today’s five-year Canada yield of 1.20%, that implies a future dividend rate in the neighborhood of 4.36%, a far cry from the current rate. I calculate the ‘all-in’ yield (which includes an allowance for future changes in rate) to be a shade under 7.00% – quite a significant difference!

   An accurate assessment of yield must take into account potential changes in dividend, otherwise you’re just fooling yourself – which will generally be to your cost!

   I have developed a spreadsheet that allows you to calculate the expected, ‘all-in’ yield and provide a detailed example of its use in the post What is the Yield of HSE.PR.A?. I strongly recommend that use this spreadsheet and play with a little – see how differing assumption change the calculated yield and comparing it with other issues using the same underlying assumptions.

   As far as PWF.PR.I is concerned … congratulations on recognizing that redemption is a risk to be avoided, not a reward to be sought! That insight puts you well ahead of a lot of other investors in the preferred share market, I can tell you that much!

   I suggest you read my essay linked in the post Implied Volatility of Straight Perpetuals and come to grips with the choices involved. There’s a spreadsheet that goes with that too, which you can play with until you’re satisfied you are equipped to make decisions.

   With regard to specific advice … well, I can’t really do that for non-clients, particularly since I know nothing about your circumstances. Other posters on this blog suffer no such professional constraints, however, and maybe they will help a bit; the Financial Wisdom Forum is also a good resource, with many knowledgeable retail investors participating. You may also be interested in a subscription to my monthly newsletter, PrefLetter.

3. cttglvr says:

   August 13, 2019 at 10:32 am

   James…my sincere thanks for your informative reply. I will definitely follow the links you provided and do some more research.