# Buying preffered individual shares



## gibor365 (Apr 1, 2011)

I’ve never bought preferred, so would like to ask you some stupid questions….
I went to TDW New Issues, and see that Power Financial Corporation First Preferred Shares, Series S is now closed. So, I understand that I cannot buy it any more?
How you can track price of this stock ? How do you know the ticker? Or you cannot redeem it at all? Oh , I found in description “The Preferred Shares are not redeemable prior to April 30, 2018″, so you cannot sell it?
They write “The initial dividend will be paid on April 30, 2013 and will be $0.20055 ” , but it will be only 3.2% yield… or dividend payments are different and only total = 4.8%?
There are no any Open preferred issues now, are they seldom?

What button “Place Expression of Interest” means? Is it like placing order?

This preferred stock gives you for 5 years much more than 5 years GIC. So, what is the risk to have preferred? POW goes bankrupt?


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## webber22 (Mar 6, 2011)

That issue is closed. It will most likely be called PWF.PR.S as per standard naming ( S series example). Settlement date is Feb 28th so the tsx will not trade it until then, they trade just like a stock.
"Not redeemable prior to April 30, 2018" means they can't be called back by Power Financial before then. You can download the prospectus linked in the tdw website for more info
Place expression of interest means you will be committed to buying the issues, it has to be open of course, click it to see the next screen. The amount you request isn't always what you get though.

You can check out the 2013 ScotiaMcleod Guide to Preferred Shares

Or James Hymas' introductions at http://www.prefletter.com/
There's a reason why James has such a long beard, he spends countless hours each day checking the preferreds, calculating, computing - he has no time to even shave his beard.
Gibor, is this the kind of person you want to become ??


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## HaroldCrump (Jun 10, 2009)

gibor said:


> I went to TDW New Issues, and see that Power Financial Corporation First Preferred Shares, Series S is now closed. So, I understand that I cannot buy it any more?


The IPO has closed (which TDW was probably a part of).
However, the preferred shares will soon start trading on the TSX, just like a stock.
Check the news releases or your brokerage New Issues list and see if you can find the listing date.
That is when you can buy it just like any other stock.

The difference between buying at the IPO vs. buying on the open market is that if you buy at the IPO (through the _Expression of Interest_, you will get it at the issue price.
However, when you buy at the market, you will pay the market price, which may be higher or lower than the initial issue price.



> How you can track price of this stock ?


It is listed just like any other stock.



> How do you know the ticker?


Usual naming convention is _Ticker.PR.Series_
As webber22 said above, this should be PWF.PR.S



> Or you cannot redeem it at all? Oh , I found in description “The Preferred Shares are not redeemable prior to April 30, 2018″, so you cannot sell it?


You can always sell back to the market.



> What button “Place Expression of Interest” means? Is it like placing order?


Not exactly.
It means you are commiting to buying a certain number of shares.
You may get all of them, some of them, or none - depending on the volume of the EOI.
Usually such high quality prefs. by the major banks and financia institutions get over subscribed, so you may only get a small % of shares you asked for.



> So, what is the risk to have preferred? POW goes bankrupt?


Yes, that would be the extreme situation.
However, companies can stop declaring dividends to prefs. (after stopping common dividends).
This does happen to companies in deep financial distress, but not bankrupt.
However, prefs. also carry an interest rate risk, similar to bonds.


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## Nemo2 (Mar 1, 2012)

Or pay for a copy of the Hymas newsletter where he provides a selection of prefs that he considers currently undervalued......it's worked for us.


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## gibor365 (Apr 1, 2011)

HaroldCrump said:


> Yes, that would be the extreme situation.
> However, companies can stop declaring dividends to prefs. (after stopping common dividends).
> This does happen to companies in deep financial distress, but not bankrupt.
> However, prefs. also carry an interest rate risk, similar to bonds.


So, if there is no extreme situation, in 2018 holder will get $25 /share back plus 4.8% yield annualy in dividends?
Sounds pretty good considering risk/reward, isn't it?
btw, can I drip dividends for preferred?


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## gibor365 (Apr 1, 2011)

Can anyone recommend book for dumies how to invest into preferred shares (except webber's link)? Just did a searxh for BCE preferred, found 16 stocks! Some of them increase dividends over time, some decrease.... completely confused


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## none (Jan 15, 2013)

I'd like someone's opinion as to how a preferred share ETF would fit in a couch potato.

I found this:http://canadiancouchpotato.com/2012/11/19/four-new-etfs-and-an-invitation/


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## HaroldCrump (Jun 10, 2009)

gibor said:


> So, if there is no extreme situation, in 2018 holder will get $25 /share back plus 4.8% yield annualy in dividends?


Well, _maybe_.
You have to read the prospectus for that.
A pref. is not like a bond where you receive a fixed amount of dividend every quarter.
Some of them are rate resets i.e. the dividend yield (based on original issue price) resets every 5 years based on some benchmark (usually the GoC 5 yr. yield) + a spread %.
So, your yield may change over time.

Also, check the conditions around redemption.
Under what condition and at what price will these be redeemed?
Are there any early redemption clauses?



> Sounds pretty good considering risk/reward, isn't it?


4.8% yield is not unusual for prefs.
But you do need to read the prospectus carefully and check all conditions.
Don't just buy the shares - pref. are much more complicated than common shares (a different kind of complexity).

I haven't checked this specific pref. but most _perpetual_ prefs. are a bad deal these days.
And those without rate resets are even worse.

Also, don't forget the interest rate risk.
If the 5 yr. bond yields go up between now and 2018, your pref. share _will_ lose value.
At this time, you are probably buying at a premium.



> btw, can I drip dividends for preferred?


You might be able to drip synthentically through your brokerage.
I don't believe companies allow direct DRIPs for prefs.
In either case, I wouldn't recommend dripping a pref. because the prices can swing wildly from quarter to quarter, depending on redemption probabilities and interest rate changes.


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## HaroldCrump (Jun 10, 2009)

gibor said:


> Just did a searxh for BCE preferred, found 16 stocks! Some of them increase dividends over time, some decrease.... completely confused


Those are probably rate reset ones.
Some prefs. are also perpetual i.e. will continue to trade and pay dividends (at changing yields) until they are redeemed.


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## Sampson (Apr 3, 2009)

I don't see any advantage to preferred shares at all (well, the majority of them). They suffer from both equity AND interest rate risk yet your return is limited since they will not benefit as 'cleanly' as a normal share or a bond.

The last crisis showed how quickly some companies cut BOTH dividends to common and preferred shares, and how they cut BOTH at the same time. 2009/10 was the time to pick up preferred shares, not now.

Unless of course you find one with more unconventional terms.


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## HaroldCrump (Jun 10, 2009)

^ agreed. In general I believe pref. shares have the worst of both worlds - bond like returns with equity like risks, and said the same a few times on the forum during previous discussions of pref. shares.

To make money in this space, you either have to follow Hymas' recommendations, or do similar research on your own, to find deeply undervalued or unusual pref. shares.

Otherwise, you are getting exactly what you pay for with the pref. shares - a specific yield and a specific redemption value, so might as well buy the bond.


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## Sampson (Apr 3, 2009)

There are pref. shares out there that actually do have advantages for the investor, but I don't think retail investors typical get access to these deals anyway.

Depending on the market climate, I could see a limited role for preferreds in a retiree's income portfolio, if yields from common shares are particularly low (i.e. overvalued market), but very limited, say 5-10% max, and that being a sub-allocation of the equity portion of the portfolio.


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## skiwest (Oct 24, 2011)

Just a unique situation I ran into when the company that I owned shares offered rights to existing shareholders to buy a convertable pref share. Did not offer through IPO. Whatever shares that were not excercised by rights would be bought by parent company. Well nobody , except for me and a hand full of people, bought the shares. So as there were less than 100 share holders it could not trade on exchange. It worked out well for me as it have a nice 8% div and is now trading at twice the conversion price.


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## gibor365 (Apr 1, 2011)

HaroldCrump;170877
To make money in this space said:


> Read a lot refference to Hymas' recommendations. Just wondering how much cost subscription and how it works? Does he tell you which pref worth buying on daily/weekly basic? Is he dealing with Canadain or US markets (or both)....
> Just wondering if ppl who followed his suggestion outperformed PFF or CPD?
> 
> Another question, I've read that pref is good for taxable accounts... I have only registered and TFSA, does it make sence to have it in them? I don't want to put a lot of money into pref, just small position to replace some bonds/GIC and Notes (that will be unlocked in March)


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## HaroldCrump (Jun 10, 2009)

gibor said:


> Just wondering how much cost subscription and how it works?


Check out his website - that should have the pricing, frequency, etc.
Some members here already subscribe to Hymas - kcowan, scomac, and a couple of others.
I don't, but only because I am not buying any prefs. at this time.



> Does he tell you which pref worth buying on daily/weekly basic? Is he dealing with Canadain or US markets (or both)....


Primarily Canadian, I believe.



> Just wondering if ppl who followed his suggestion outperformed PFF or CPD?


Hymas will beat CPD hands-down, no question.
Not even funny.
In fact, IMO, you can beat CPD on your own as well - if you are willing to buy several prefs. and diversify the risk.



> Another question, I've read that pref is good for taxable accounts... I have only registered and TFSA, does it make sence to have it in them? I don't want to put a lot of money into pref, just small position to replace some bonds/GIC and Notes (that will be unlocked in March)


Sure, you can buy prefs. in any type of account.
It makes sense in taxable accounts only if you are buying them in lieu of bonds.
In registered accounts, I don't see the need for prefs. when you can (often) get higher yield on the bonds and have lower risk, _unless_ you can find a pref. that has potential for significant capital gains.
If you can find such a pref. (either on your own or via Hymas' blog), then by all means buy them inside a registered account.


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## gibor365 (Apr 1, 2011)

Thanks HaroldCrump,
question to subscribers:
1. Are you happy with what you get?
2. Should you understand a lot about preferred or simple newbie can understand and follow guru's recommendation? 
P.S> If I subscribe, I just want to follow some of his picks, don't have time and knowledge to do too much research ...would it work?


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## kcowan (Jul 1, 2010)

I had studied prefblog for several quarter in advance of selling some property in Toronto and decided that Hymas earned his keep in his fund. So I plunked a bunch of equity there after getting the proceeds. It has lived up to my expectations and I was able to stop reading prefblog.


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## gibor365 (Apr 1, 2011)

kcowan said:


> I had studied prefblog for several quarter in advance of selling some property in Toronto and decided that Hymas earned his keep in his fund. So I plunked a bunch of equity there after getting the proceeds. It has lived up to my expectations and I was able to stop reading prefblog.


The question if I can just fllow his picks without reading "prefblog for several quarter "?!


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## andrewf (Mar 1, 2010)

Pref shares are complicated. If you don't understand or want to learn, I would stay away.

Hymas also manages a fund. You have to be accredited or invest $150k to invest.


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## gibor365 (Apr 1, 2011)

andrewf said:


> Pref shares are complicated. If you don't understand or want to learn, I would stay away.
> 
> Hymas also manages a fund. You have to be accredited or invest $150k to invest.


I realize that prefs are complicated, this is why I was thinking to use Hymas picks for small amounts and see how it's working.
$150K it's too much for 1 fund, I'd also to use such amount for 100% secure product, like 2% HISA I get in ING


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## Nemo2 (Mar 1, 2012)

gibor said:


> The question if I can just fllow his picks without reading "prefblog for several quarter "?!


We've bought a couple individual issues of the newsletter, at a cost of ~$33 including tax........our first purchase based on Hymas' recommendations (this one an anomaly that he had noticed which was selling for less than its peers) is the one we remember the best:

IAG.PR.A bought Dec 16/08 @ $12.55 and paying 9.6%......it's now @ $25.17 (up 100.56%) and paying 4.57%

Others have not seen quite that jump, (one I can think of up ~52% and still paying 4.96%, another up ~24% and now paying 4.94%), but if/when we're looking for some more prefs we wouldn't buy without paying the $33 and buying the letter of the month.


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## gibor365 (Apr 1, 2011)

Nemo2, this is what I actually wanted to do (buy one letter of the months and see).
Does he also recommends Sell specific prefs?
How deep your knowledge about prefs? Are you doing also own research?


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## Nemo2 (Mar 1, 2012)

gibor said:


> Nemo2, this is what I actually wanted to do (buy one letter of the months and see).
> Does he also recommends Sell specific prefs?
> How deep your knowledge about prefs? Are you doing also own research?


- You can buy individual letters which will be e-mailed to you.

- There are (I believe every month) recommended issues, (of course, given said month's situation, some months may have more than others), and the rationale for recommending them.

- Sells? Sorry, I can't recall...it's been a while since I purchased a newsletter.

- My knowledge of prefs: Low, but high enough to know that I don't know anywhere near, anywhere near enough to analyze them.........with my (lack of) ability, and given my unwillingness to attempt to reinvent the proverbial wheel, (and I'd probably end up with an oblong wheel if I tried), $33 is a small price to pay when I'm in the market to buy.


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## gibor365 (Apr 1, 2011)

Nemo, you mentioned some pref you bought as per newsletter recomendatiom, do you still hold them or sold?


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## Nemo2 (Mar 1, 2012)

gibor said:


> Nemo, you mentioned some pref you bought as per newsletter recomendatiom, do you still hold them or sold?


Haven't sold any prefs since buying them.


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## gibor365 (Apr 1, 2011)

Today 9.30am got email from TDW about new issue TransCanada Corp. - Rate Reset First Preferred Shares, Series 7 , dividend 4.00% per annum, payable quarterly for the Initial Fixed Rate Period 
At 8pm checked this issue and it already Closed! 
I just don't get why those preferred so popular? Yield is just a little better than 5years GIC....

btw, I understand that if you buy and hold this pref for 5 years , your $25 per share is guaranted. Is it correct?


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## andrewf (Mar 1, 2010)

Nope. The rate it pays is just reset. The reset helps to prevent you getting killed by rising rates.


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## HaroldCrump (Jun 10, 2009)

gibor said:


> I just don't get why those preferred so popular? Yield is just a little better than 5years GIC....


There are many reasons for conservative investors, and esp. institutions.
Tax advantaged income, preferred dividends, potential for capital gain (if bought at or below par), etc.
It's really hard for small retail investors to get a piece of the action through your brokerage, esp. for a major issuer like TRP, ENB, Banks, etc.
You can still buy after it starts trading on the exchange, if you really want to.



> btw, I understand that if you buy and hold this pref for 5 years , your $25 per share is guaranted. Is it correct?


Is 5 years the redemption date?
Check the prospectus - you might be looking at the reset date.
There is usually a redemption schedule, such as after X years, at $25, after Y years at $26 etc.


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## gibor365 (Apr 1, 2011)

OK, this is I want to understand… I read in prospectus that company can "redeem" stock in 5 years for $25, in 6 years for $26 and so on. usually (from past experience) after 5 years company “redeems” stock? So, if I buy it new issue now, and in 5 years this pref stock trades at $21, it doesn’t make sense to company to “redeem” it. Isn’t it?

I understand that buying pref for $25 with good chance that in 5 or 6 years company redeems and pays me back at least initial price (and I collect dividends for those years) -0 so this is like downside protection, but it there is no big chance that company redeems, I don't see really semse in buying it...
P.S. Sorry, for stupid questions, anyway if I gonna buy, I'll subscribe for letter disscussed, just want to understand if I need it at all


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## P_I (Dec 2, 2011)

gibor said:


> I just don't get why those preferred so popular? Yield is just a little better than 5years GIC....


With a preferred share, you are receiving dividend income vs. interest income from a GIC. If held in a taxable account, the dividend tax credit results in a higher effective yield. The typical assumption is the investor is at the top marginal rate, so a 1.3x conversion factor is applied to the preferred share yield. For more details, you might want to read Preferred shares - finiki, the Canadian financial Wiki.

When considering investing in preferred shares, remember that the redemption schedule is at the companies choice, NOT the investors. It is important to calculate the Yield-to-Worse (YTW) rather than just replying on the current yield.

One further point of consideration. Rate reset preferred shares are relatively new to the market, so the whole rate reset mechanism and investor behaviour associated with it hasn't been "market" tested. The early rate reset's generally have a much higher spread above the Government of Canada bond, many have a spread on reset greater than 400. The generally, but untested, assumption is given the large spread, these issues will be called when they reach their reset date (later in 2013 or early in 2014). 

After the initial introduction of these issues, the reset spread has been declining over the past few years and it is anyone's guess on what will happen on the reset date. Things may become clearer once the first batch of rate reset preferred shares reach their first reset date later this year (2013) or early in 2014. 

BTW, a commentary on the newest issue is available at New Issue: TRP FixedReset 4.00%+238 « PrefBlog


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