# RY.PR.H - sell or hold



## westcoast (Jan 28, 2013)

The redemption price for this Royal Bank preferred is $26.00 commencing May 24, 2013. The redemption price declines by $0.25 every May 24, until May 24, 2017; redeemable at $25.00 thereafter. The next dividend is February 22 (the date of record has already passed) and for my 1500 shares that means a $529 dividend. My cost is $25.65 which means I currently have a $1500 Capital gain. Current yield 5.3%

In the last 6 months the share price has declined from approximately above $27 dollars to the current price.

I am thinking of selling now to capture the gain and the dividend.

I am hoping a board member has more experience with preferreds than I and can advise what happens to prices when a redemption feature is attached. Can I expect the share price to decline?

My concerned is that if I hold on to the stock and it declines to the redemption price of $26 I will have lost in the share price the value of the latest dividend.

FYI: If I do sell I will be looking to replace with another Canadian bank preferred.

I hope the above scenario/question makes sense. 

All advice appreciated. 

Thanks

Westcoast


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## HaroldCrump (Jun 10, 2009)

westcoast said:


> In the last 6 months the share price has declined from approximately above $27 dollars to the current price.
> I am hoping a board member has more experience with preferreds than I and can advise what happens to prices when a redemption feature is attached. Can I expect the share price to decline?


Yes, from this point on, the price will start trending towards the final redemption price.
The dividend payments are fixed, and the final redemption date is fixed.

Is there any adjustable rate dividend? Or is this a fixed rate pref?
That would be the only variable.

RY credit rating probably won't change much, so we can eliminate that variable.



> My concerned is that if I hold on to the stock and it declines to the redemption price of $26 I will have lost in the share price the value of the latest dividend.


Yes, you can sell now and lock in both the capital gains as well as the due dividend.
All else being equal, the bid price will gradually decline, until it reaches the $25 final redemption price.

You can evaluate this as if you were buying a bond at a premium to par value i.e. compare your future dividend payments vs. the capital loss you will experience once it is redeemed.


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## InvestingForMe (Sep 6, 2012)

We agree with HaroldCrump's view of the preferred - in the long run, the share's market price will typically be constrained by the redemption schedule. From the prospectus, the share's dividend is fixed.

Sometimes making a decision to sell is easier if you can identify the investment you wish to purchase to replace it. Sometimes knowing where you are going is one half of the same decision. Have you identified any potential investment candidates? You mentioned another bank preferred?

Also there is no guarantee the shares will be redeemed. We have seen the banks redeem preferred shares (paying a lower annual dividend), at a time when another share (paying a higher annual dividend), was not redeemed.

If you own more than the one preferred share, you might consider looking at each preferred share's characteristics - Perpetual, Rate-Reset, Floating-Rate, etc. and try to ensure they are diversified no matter which direction interest rates head.

Regards


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## P_I (Dec 2, 2011)

Some key points on preferred shares. Per the prospectus, the redemption schedule "gives the issuer the right, but not the obligation, to redeem the shareholder’s holdings for cash at
some specified time and price in the future." (source Perpetual Hockey Sticks by James Hymas). I'd strongly recommend that the OP read the linked document, as it addresses the concerns raised. Another key consideration is to calculate the yield-to-worst based on the redemption schedule defined in the prospectus. See Preferred shares - finiki, the Canadian financial Wiki for more details and links to spreadsheets that can be used to calculate yield to worst. 

For those that are not aware, IMHO James Hymas is likely the most knowledgable source of information on Canadian preferred shares. If you invest, or plan to invest in preferred shares, he has two websites that are well worth visiting, www.prefinfo.com (detailed information on most publicly traded preferred shares in Canada) and www.prefblog.com, his running commentary on all things related to Canadian preferred shares. He also contributes articles to MoneySense. 

RY.PR.H was last mentioned January 3, 2013 « PrefBlog and shows a yield-to-worst of -1.00% based on a bid price of $26.80, if that helps the OP with the decision.


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