The effect of changes in Prime is interesting … but the reported effect of changes in Prime is even more interesting! I received an inquiry today:<\/p>\n
I have been trying to learn more about preferred shares and find the whole matter of floating rates quite perplexing.<\/p>\n
If you would kindly spare me just a moment of your time, would you please explain briefly (again I don’t want to take up much of your time) how the following dividend yield from the globeinvestor.com website is arrived at for the BPO Properties stock with a floating rate listed below.<\/p>\n
Using BPP.PR.G as an example.<\/p>\n
The following dividend information is provided on the globeinvestor.com site:<\/p>\n
Annual Div. 0.61 Yield 5.90<\/p>\n
The following Annual Dividend information comes from your http:\/\/www.prefinfo.com\/ website:<\/p>\n
Floating Rate Start Date : 2001-05-07<\/p>\n
Floating Rate Index ID : Canada Prime<\/p>\n
FR Formula : 70% of index (#3)<\/p>\n
How please is the listed 5.90% yield ($0.61\/share) arrived at? This amount seems to be higher than the (if I am correct) present 2.25% Canada prime rate.<\/p>\n
I thank you in advance for your assistance.<\/p><\/blockquote>\n
BPP.PR.G closed last night at 10.50-bid, but pays its dividend on the issue price of $25.00. The Globe (and virtually everybody else) reports the Current Yield, which is the annual dividend divided by the market price; but they use historical dividend.<\/p>\n
Thus, the dividend paid for BPP.PR.G is 2.25% [Prime] x $25.00 [Par Value] x 70% [Fraction of Prime Paid] = $0.39375 and the price is $10.50 so the current yield – as reported by Hymas Investment – is 3.75%.<\/p>\n
Trouble ensues when prime drops precipituously. The projected quarterly dividend based on Prime of 2.25% as calculated above is just under ten cents. But the recent dividend history of BPP.PR.G is:<\/p>\n
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