# Enbridge and Pembina reset preferreds [ ENB-D and Pembina-C]



## zinfit (Mar 21, 2021)

I never looked a preferreds as an asset with provides outsized returns. I bought these stocks in July of 2020 . As I recall I bought these stocks in the $11 range. ENB is close to $19 and Pembina is close to $21. The dividends are still pretty close to 6% and are locked in for another 3 or 4 years. If the government 5 year rate should be increased these stocks should have more upside. I have done much better then expected and right now I see no reason to sell either.


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## Covariance (Oct 20, 2020)

Agreed. Bought some from others a little before that and made similar if not better returns. Basicly analyzed them the same way I would a high yield bond. Probability of default and expected loss if a default occurred. Typically with a preferred one sits behind the debt (bank loans, bonds and other liabilities) but before common shares. So in a worse case scenario if the company is worth more than the debt the prefs have a value (which can be estimated).


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## Jimmy (May 19, 2017)

You bought at a great time at historic low interest rates. You have to view these as having the risk of an equity. You can get the nice 50% upswings ( like if you bought any equity around that time) but these are awful to have when interest rates decline unexpectedly. I had some HPR in 2018 and it tanked 30% to the market bottom.

But then people piled in , it rose w the general market ( these are ~ .4% correlated to the TSX) and interest rates rose 1% and I am back to even. I think they should be ok for a few more years as rates rise.

I like the min rate resets and have some BAM.PF. J. They have a floor of 4% so they are immune to int rate changes but do move w the market. I am up about 8% in price as these have risen w the TSX.


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## zinfit (Mar 21, 2021)

I bought with the government 5 year rate at an all time low. Going forward I figure interest rates are going up and that will be bullish for the resets.The chances of drastic costs to the 5 year rate are very remote. I understand the pain that resets went through when these rates were being cut in a significant way. Inflation is a significant concern and the best tool for combating it' is raising interest rates.


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## agent99 (Sep 11, 2013)

I bought a slew of pfds in 2nd quarter of 2020. Just had a quick look at BMOIL site, that breaks the preferreds out.

A/C 1 +33.35% (+$15.8k)
A/C 2 +5.3% (+$2.2k)
A/C 3 +13.8% (+$13.2k)
A/C 4 +29.7% (+$2.9k)
A/C 5 +41.2% (+$25.5k)

Nice gains along with the 5 or 6% divvies. Some that are over $25 may be called and reduce those gains somewhat. (A couple have already)

Don't see that increasing fed rates will necessarily cause resets to gain. Each one is different and it will depend on the spread. If resulting rate is too high, they will be called. Min resets will be too. Once price is over $25, not much further upside. Most good ones are there already.

My pfds include some perpetuals. They will likely drop in price as interest rates increase. But they all yield over 5%, so they can either keep paying me the 5 or 6% on my original cost or call them at $25. Either way, I am happy


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## Jimmy (May 19, 2017)

agent99 said:


> I bought a slew of pfds in 2nd quarter of 2020. Just had a quick look at BMOIL site, that breaks the preferreds out.
> 
> A/C 1 +33.35% (+$15.8k)
> A/C 2 +5.3% (+$2.2k)
> ...


Hi Agent,

Wanted to add some rate resets PS but many are over $25 now including all the Min rr I like. Looking for best yields and under $25 and p2L or better. for ex see a lot of Enbridge. Are these ok? ie ENB.PR.D 17.85 6.25% (older Scotia report from Sept) . these should appreciate a little too w interest rates rising. pls advise Thanks


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## AltaRed (Jun 8, 2009)

They will rise with actual or perceived increases in the GoC 5 year bond yield, and particularly so as they approach the next reset date and a rising GoC 5yr bond yield. Buying as Agent99 and Zinfit did is the only situation where prefs (rate reset or perps) make real sense over common equities. I'll take the share price appreciation and dividend growth of ENB commons any day over their prefs.


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## like_to_retire (Oct 9, 2016)

AltaRed said:


> I'll take the share price appreciation and dividend growth of ENB commons any day over their prefs.


And that's basically the long and the short of it with respect to preferred shares. Full stop.

ltr


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## Jimmy (May 19, 2017)

AltaRed said:


> They will rise with actual or perceived increases in the GoC 5 year bond yield, and particularly so as they approach the next reset date and a rising GoC 5yr bond yield. Buying as Agent99 and Zinfit did is the only situation where prefs (rate reset or perps) make real sense over common equities. I'll take the share price appreciation and dividend growth of ENB commons any day over their prefs.


Thanks. But here I am using a small amount just for cash hedged to Emera to reduce interest rate risk. Agent99 does this as well. Other commons don't work as well and are more correlated to the market.


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## Eder (Feb 16, 2011)

I have about 20% of my investment account in preferred rate resets for years now.. Should be a good investment in rising rate environment. We'll see but the nice tax advantaged yields will prevent me from selling them.


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## AltaRed (Jun 8, 2009)

Jimmy said:


> Thanks. But here I am using a small amount just for cash hedged to Emera to reduce interest rate risk. Agent99 does this as well. Other commons don't work as well and are more correlated to the market.


Fair enough. It's not something I fret over since I can't see OECD countries being able to weather higher interest rates very well. The higher risk may be stagflation rather than interest rate risk. I am not really doing anything significant (if anything) as a counter to interest rate risk. Well, maybe keeping most of my cash reserve in HISAs.


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## Jimmy (May 19, 2017)

AltaRed said:


> Fair enough. It's not something I fret over since I can't see OECD countries being able to weather higher interest rates very well. The higher risk may be stagflation rather than interest rate risk. I am not really doing anything significant (if anything) as a counter to interest rate risk. Well, maybe keeping most of my cash reserve in HISAs.


It is really to earn something w some of my cash type holdings. I have about 10-15% in actual cash and then wanted to have another 10% in cash like assets. Alone rate reset PS have interest rate risk ( falling rates). Alone Emera has interest rate risk ( rising rates) . So looked at the combo and it never lost $ in any 3 yr rolling period in the past 10 yrs (when rate resets started) . I am holding for at least 3 yrs anyway.


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## agent99 (Sep 11, 2013)

Jimmy said:


> Hi Agent,
> 
> Wanted to add some rate resets PS but many are over $25 now including all the Min rr I like. Looking for best yields and under $25 and p2L or better. for ex see a lot of Enbridge. Are these ok? ie ENB.PR.D 17.85 6.25% (older Scotia report from Sept) . these should appreciate a little too w interest rates rising. pls advise Thanks


I have not looked at preferreds for quite a while because they had become less and less attractive. Besides, only time I have any cash, is when something else matures. This will start to happen next year when some corporate bonds mature so I have some interest in this subject.

I had a quick look at ENB.PR.D. It was at $18.84 on Oct 4th.
Current Yield 5.92%.
Resets at 2.35% + GOC5 rate (1.14% today). 3.49% at par.
Resets 2023 Mar1.
If you bought at today' price, the yield after reset on your cost would be 4.63% and it would stay like that until 2028. Other preferreds and fixed income may (or may not) offer higher yields by then. If they do, the share price will drop and you will take a loss if you sell, or you just hold and continue to collect the dividend (perhaps still better than other fixed income?).
That is the risk I see, and I personally wouldn't buy.

(Bear in mind - I am a rank amateur at this. Just lucky to buy in to pfds when I did.)

Enbridge stock closed at about $51.20 today. Dividend yield 6.52%.
I sold my Enbridge stock several years ago. Concerned about aging infrastructure. I had other pipelines like TRP. I know little about pipelines, but perhaps TRP is more gas oriented than Enbridge? Oil pipelines are not much in favour these days it seems!


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## agent99 (Sep 11, 2013)

Jimmy, I just noticed that I do have a couple of Enbridge pfds. I forget which series, but both are min resets. Bought at about $22 and now over $25. Just saying, not recommending!


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## Numbersman61 (Jan 26, 2015)

I have a variety of Enbridge preferreds. Last year, when values dropped, I sold a fair amount to create a capital loss. Replaced them with different classes of Enbridge preferred. The capital loss helped reduce a large capital gain on sale of condo in Phoenix.


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## Jimmy (May 19, 2017)

agent99 said:


> I have not looked at preferreds for quite a while because they had become less and less attractive. Besides, only time I have any cash, is when something else matures. This will start to happen next year when some corporate bonds mature so I have some interest in this subject.
> 
> I had a quick look at ENB.PR.D. It was at $18.84 on Oct 4th.
> Current Yield 5.92%.
> ...


That is great and much thanks for the help. I will have to look at more carefully. I didn't realise the spread was so low for the reset. The current yield of 5.92% is nice for now. Will scour the Scotia report for better reset spreads.


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## Numbersman61 (Jan 26, 2015)

agent99 said:


> Enbridge stock closed at about $51.20 today. Dividend yield 6.52%.
> I sold my Enbridge stock several years ago. Concerned about aging infrastructure. I had other pipelines like TRP. I know little about pipelines, but perhaps TRP is more gas oriented than Enbridge? Oil pipelines are not much in favour these days it seems!


You are a little behind the times. After the Spectra purchase, it became a major natural gas pipeline company. Here’s an extract from their webpage 
“We operate across North America, fueling the economy and people’s quality of life. We move about 25% of the crude oil produced in North America, we transport nearly 20% of the natural gas consumed in the U.S., and we operate North America’s third-largest natural gas utility by consumer count. Enbridge was an early investor in renewable energy, and we have a growing offshore wind portfolio.”


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## agent99 (Sep 11, 2013)

Numbersman61 said:


> You are a little behind the times. After the Spectra purchase, it became a major natural gas pipeline company. Here’s an extract from their webpage


Maybe - I did say that I knew little about pipelines! However, your quotation does not _compare _ gas vs oil contribution to Enbridge and TC earnings. 

I said that TC may be more _*gas oriented*_. I still think that IS true. Last I read, TC generated 50% of their earnings from gas pipelines compared with 30% for Enbridge. This after the Spectra purchase.
Am I behind the times?

I am quite happy to collect dividends from my Enbridge min reset preferreds, but I don't own the stock. Besides environmental concerns, analysts suggest their dividend may be more at risk because of debt load. I will just stay with TC.


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## AltaRed (Jun 8, 2009)

TC Energy is indeed primarily a gas oriented company (Keystone being the only large oil pipeline they operate) while Enbridge is probably still over 50% in oil. Spectra was their big bet into gas which in hindsight is probably a good thing.

That all said, TC Energy's Canadian mainline gas system is struggling due to reduced supplies to Eastern Canada and they are looking for options to use that infrastructure for other things (including the latest announcement on a partnership for hydrogen).

Both companies are diversifying which is a very good thing.


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## Jimmy (May 19, 2017)

agent99 said:


> Jimmy, I just noticed that I do have a couple of Enbridge pfds. I forget which series, but both are min resets. Bought at about $22 and now over $25. Just saying, not recommending!


Thanks. I want to get min resets but they are all over $25. I think the lowest is $25.75. Is there a lot of risk they will be called - not a great loss but 3%? Anyone please advise. I am waiting hoping they will fall to closer to $25.


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