9 Responses to “May 3, 2022”

1. skeptical says:

   May 4, 2022 at 8:58 am

   And so it begins..
   ENB.PR.U redemeed.
   Which means BNB.PF.U is also gone.
   A very happy Wednesday to all of you!

   https://www.enbridge.com/media-center/news/details?id=123720&lang=en

2. skeptical says:

   May 4, 2022 at 9:28 am

   So the philosophical question of the moment:

   Is 6% the line BBB+companies won’t cross for their actual cost of dividends at this moment? Of course, at Goc5 reaching 5%, all bets are off.

   Consider that for every 1% rise in GoC5 yield, the cost of the company increases by 1.3x for dividend payments. And for insurance/banks even more because of the surtax.

   Contenders for redemption in the coming months:
   BAM.PF.J (Dec, 3.15)
   MFC.PR.I (Aug/Sep, 2.85)
   TA.PR.F (June, 3.1)
   PPL.PR.O(Sep, 2.9x)
   TD.PF.I(Oct, 3.01)
   NA.PR.C(Nov, 3.48)
   and so many others….

   And then, if you want a decent dividend income, you have to go to the arms of perpetuals who would be yielding 5.5% by then, or may be less.

   In the whole hype of rising rates, let’s not forget that a 6% dividend is almost 8% in interest cost.

   Of course, inflation and higher yields can destroy the plans of everyone.

3. stusclues says:

   May 4, 2022 at 1:52 pm

   Regarding TA.PR.F, my conclusion is that it is highly likely to be extended.

   The issue is trading at a premium (at least as indicated by IVT) but that seems to me to be primarily reset yield chasing (set to reset at a yield of 6.9% as I write).

   Transalta has been completely mum on the topic to-date. Given current pricing, a call on TA.PR.F would be a shock to market actors.

   Disclosure: I dumped by TA.PR.F in favour of TA.PR.D and other mis-priced issues.

4. skeptical says:

   May 4, 2022 at 2:04 pm

   stusclues – perhaps you are right.
   It all depends on the situation of the issuer.
   Do they find the reset too expensive as compared to their alternative modes of funding?
   Again, if we see Goc5 rise above 3%, are we going to see TA pay 6.1% dividend?

   Given current pricing, a call on TA.PR.F would be a shock to market actors.
   So was the ENB.PR.U call. So let’s see how it all unfolds.

5. stusclues says:

   May 4, 2022 at 2:17 pm

   TA has a 6.5% 03/15/2040 bond yielding 6.6% on my screen today. With TA.PR.F yielding 6.1% on reset (current conditions), this is a seniority spread (using the 1.3X equivalency) of 1.3%. This is not something that ought to concern Transalta IMO.

6. stusclues says:

   May 4, 2022 at 2:26 pm

   sorry – TA.PR.F will yield 6.9% on reset as above, resulting in a seniority spread of 2.4%. Conclusion the same.

7. mbarbon says:

   May 4, 2022 at 8:59 pm

   Any thoughts on the split-prefs for yeild ? some are at/over 5% with Lots of equity backing….

8. skeptical says:

   May 5, 2022 at 10:11 am

   IMHO, the market is simply demanding more yield from all issuers. We see the P2(L) and above perpetuals yielding upto 5.9%, so despite the retractability of these, there’s not much enthusiasm there.

9. jiHymas says:

   May 5, 2022 at 11:05 am

   Any thoughts on the split-prefs for yeild ? some are at/over 5% with Lots of equity backing….

   FFN.PR.A has been mentioned as one of the high-yielders in a recent comment.

   The quote on 2022-5-4 on this issue was 9.74-75, for a yield of 6.94-89% to maturity.

   This is a good yield! I think that one of the reasons for such a dramatic rate is that the NAVPU dropped to 14.58 at April month-end (a massive drop to below 15.00 was easily foreseeable from the mid-month value and subsequent index performance); certainly not a critical weakness, but below the 15.00 level at which investors need to start paying strict attention to credit quality.

   The 15.00 level is also the trigger point for stopping distributions to Capital Unit Holders. This will have a positive effect on credit quality mostly because a very significant cash drag on the company will be suspended, but also a technical effect on the FFN.PR.A trading price, I suspect, because it will be harder to sell Capital Units in good size without the attraction of a massive dividend. FFN has been an enthusiastic user of the At-the-Market (“ATM”) issuance mechanism, which allows newly issued shares of extant issues to be sold directly on the Exchange by the issuer, as long as it is in conformance with certain rules (mostly an ‘uptick’ rule). I strongly suspect that massive issuance in fiscal 2021 has weighed down the preferred shares, as the driving force in such issuance has been investors’ insatiable desire to pay a fat premium for the Capital Units.

   So … SplitShare Preferreds? Many will fit nicely into many investors’ portfolios. And that’s all you’ll get from me unless you pay me to evaluate your portfolio objectives! And if you follow the example of one stockbroker I know, who very patiently and carefully explained to me that the portfolio objective was ‘to make money’, I will make you wear a dunce cap and sit in the corner.