7 Responses to “July 25, 2023”

1. Joel A says:

   July 26, 2023 at 12:03 pm

   Dr. Jim, If you care to set me straight on exactly what this means regarding BCE.PR,Q. I have tried many computations and did well in math, but this seems to never work out when I do the work. This is from SEDAR:

   Principal Characteristics of Series AD Preferred Shares Dividends:
   From March 1, 2008, floating adjustable cumulative preferred cash dividends, as and when declared, will be payable monthly on the twelfth day of each month following the month of March 2008, with the annual floating dividend rate for the first month equal to 80% of Prime. The dividend rate will float in relation to changes in Prime and will be adjusted upwards or downwards on a monthly basis whenever the Calculated Trading Price of the Series AD Preferred Shares is $24.875 or less or $25.125 or more respectively. The maximum monthly adjustment for changes related to the Calculated Trading Price will be +/-4.00% of Prime. However, the annual floating dividend rate applicable in a month will in no event be less than 50% of Prime or be greater than Prime.

   Thanks in advance if you take it on. JA

2. jiHymas says:

   July 26, 2023 at 12:35 pm

   It’s not clear what the problem is. What is not working out?

   You might try my publications at Interconvertibility and Interconvertibility Part 2 for a review.

   There’s an introductory article HERE.

3. Avoid the Herd says:

   July 26, 2023 at 10:23 pm

   Joel, the BCE floaters pay a dividend equivalent to the prime rate. Note the last sentence:

   “However, the annual floating dividend rate applicable in a month will in no event be less than 50% of Prime or be greater than Prime.”

   Since all BCE issues are trading under $20, there is zero concern that the dividend would be adjusted below prime. In fact, most holders of the BCE floating Prime prefs would welcome such a scenario as they would be able to sell their holdings for more than 35% above current levels.

   A couple of weeks ago, the BCE Prime floaters could be bought for approx $18; this corresponds to a dividend yield of approx 39% above prime, essentially in perpetuity. Not a bad deal.

   FYI, $17.85 translates to Prime plus 40%.

4. RAV4guy says:

   July 27, 2023 at 9:29 am

   Joel, you refer to “BCE.PR.Q” which is a fixed rate reset issue and “Series AD Preferred Shares” for which I find the symbol to be BCE.PR.D, which is a floater. Could you clarify this discrepancy?

5. RAV4guy says:

   July 27, 2023 at 10:28 am

   Joel, if you are referring to BCE.PR.D, I see the following from the BCE website:

   June 12 BCE paid $.13958; which is paying at the rate of $1.67496/year; which is paying at the rate of $1.67496/$25.00 = 6.69984% on the par value; which can be rounded to 6.70%; which was the prime rate from January 25/23 to June 6/23.

   July 12 BCE paid $.14358; which is paying at the rate of $1.72296/year; which is paying at the rate of $1.72296/$25.00 = 6.89184% on the par value; which can be rounded to 6.89%. The prime rate from June 7/23 to July 12/23 was 6.95%.

   So BCE paid slightly less than the prime rate of 6.95% for the July payment. However, BCE can limit the monthly change by this clause:

   “The maximum monthly adjustment for changes related to the Calculated Trading Price will be +/-4.00% of Prime.”

   I have not researched what this clause exactly means. If it means the monthly change could be no more than .04*.067 = .00268 then BCE could have increased the monthly rate to .0695 (only plus .0025).

   Did BCE underpay the holders of BCE.PR.D?

6. jiHymas says:

   July 27, 2023 at 10:56 am

   From the prospectus:

   ‘‘Prime’’ for a Month means the average (rounded to the nearest one-thousandth (1/1000) of one percent (0.001%)) of the Prime Rate in effect on each day of such Month.

   Prime changed from 6.70% to 6.95% effective June 8. So June had seven days of 6.70% and 23 days of 6.95%, and

   [(7*6.70%)+(23*6.95%)]/(7+23) = 6.891667% which is rounded as per the above to 6.892%.

   The monthly dividend should have been 6.892% * 25 * (1/12) = 0.143583. I don’t see a specification for the decimal place rounding of the dividend payable, but the actual dividend paid was $0.14358

   “The maximum monthly adjustment for changes related to the Calculated Trading Price will be +/-4.00% of Prime.”

   I have not researched what this clause exactly means.

   See page 18 of the prospectus. If the Calculated trading price is 25.50 or more, the “Adjustment Factor for a Month” will decline by 4%; thus, if the prior adjustment factor was 97%, it will then decline to 93% and you will only be paid 93% of prime for that month. However, if the issue gets really popular and the Calculated Trading Price is $30, the Adjustment Factor will still decline to 93% because the maximum monthly adjustment is +/-4.00% of Prime.

   Avoid the Herd said above: Since all BCE issues are trading under $20, there is zero concern that the dividend would be adjusted below prime.

   I would have said “extremely small” rather than “zero” because I’m a timid little mouse, but yeah … the Adjustment Factor has been 100% for years and there is no immediate prospect of any decline in this figure.

7. RAV4guy says:

   July 27, 2023 at 3:34 pm

   Thanks James for looking at the prospectus and explaining to me that BCE is paying the dividend on BCE.PR.D correctly. I was too busy (or too lazy) to look at the prospectus myself. I do not own any of BCE.PR.D myself.

   Why are there no recent new issues of this type of preferred share (Ratchel Rate?)? They look like an ideal, straight forward and simple investment for a retail investor who wants some preferred shares to go along with their GICs and common stocks.

   I do own a floater in that I have BN.PR.K which has different rules. I could not find the prospectus for it on SEDAR and Brookfield Investor Relations could not provide it when I asked.