# Enbridge Inc. Preferred Share (ENB.PR.F) Dividend Rate Reset Higher



## InvestingForMe (Sep 6, 2012)

Enbridge Inc. has announced the new dividend rate for the Series F Preferred Share (ENB.PR.F) will be increased to 4.689% for the period June 1, 2018 to June 1, 2023. That's up from the share's original annual rate of 4.00%.

If the share's are held in a taxable account, the 4.689% dividend rate is the equivalent to an interest rate of 6.27% in B.C.

Press Release: May 2, 2018


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## dubmac (Jan 9, 2011)

this is good info. thanks.
I'm shopping for a Pref share issue in my wife's taxable account. One like or MFC.PR.Q - which is also around 4.7%


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## AltaRed (Jun 8, 2009)

dubmac said:


> this is good info. thanks.
> I'm shopping for a Pref share issue in my wife's taxable account. One like or MFC.PR.Q - which is also around 4.7%


Par yield (which I assume you are referring to, i.e. the coupon rate) is only one factor. What really matters is YTM, (or if you prefer yield to next reset date). A pref paying 6% on par ($25) may be no good to you if you have to pay $30 for that share (actual yield to you of 5%). It may be better to buy a 4% on par value and purchase that pref for $15 (actual yield to you of 6.67%). Further that former pref paying a high par yield may well be called by the issuer at $25 at the next reset date. Prefs are a tricky business. Go to the master at Prefblog.com for answers.


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## Jaberwock (Aug 22, 2012)

Rate reset preferred shares were my best investment last year, some are up over 40%. The reset rate is usually based on the 5yr GOC bond plus a mark-up. As interest rates rise, the reset rate goes up. If you choose a share that is trading below its $25 nominal price, that rising interest rate effect is multiplied when the rate resets, and you don't have to worry about the shares being recalled at lower than your cost if your cost is less than $25.

The easy money has been made, but you can still pick up some shares which are paying around 5% (on current price) which will rise to more than 6% on reset, and will rise even more if GOC bond rates continue to rise.

Example - ENB.PR.N price $20.16, yield 4.96%, resets Nov 30th and will yield 6% after reset if the GOC 5yr bond stays at 2.16%.

You lose if bond rates fall, but is a good way to hedge against rising rates. If you have other investments that are rate sensitive, such as utilities, you can offset your risk.


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## agent99 (Sep 11, 2013)

AltaRed said:


> Par yield (which I assume you are referring to, i.e. the coupon rate) is only one factor.


Par yield is 4% at present. Closed at $19.75 today, so current yield is something like 5.06%? After June 1st, current yield will depend on when and for how much the shares were bought. 

Enbridge pfds seem depressed - market must not like the ?? Too many rusty pipes? No new pipelines able to be built?


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## AltaRed (Jun 8, 2009)

I think the prefs are what James Hymas would call 'scrap' http://prefblog.com/?p=36619 based on the Moody's downgrade last Fall http://prefblog.com/?p=35911 They clearly are not of the same quality as many others due to their balance sheet issues.


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## doctrine (Sep 30, 2011)

The ENB prefs would be a good investment. ENB has balance sheet issues, but prefs have to be paid before their $4B+ in annual common share dividends. That is a lot of cash for a relatively small amount of priority pref share dividends.


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## agent99 (Sep 11, 2013)

doctrine said:


> The ENB prefs would be a good investment. ENB has balance sheet issues, but prefs have to be paid before their $4B+ in annual common share dividends. That is a lot of cash for a relatively small amount of priority pref share dividends.


The dividends may be relatively safe, but if you want to get out at some point, the share price could become even more depressed.


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## AltaRed (Jun 8, 2009)

agent99 said:


> The dividends may be relatively safe, but if you want to get out at some point, the share price could become even more depressed.


I agree. The market price of a lot of prefs collapsed during the financial crisis. Credit quality does matter and I've seen the price of ENB prefs erode over time (ENB is one of the largest, if not the largest issuer, of prefs in Canada). I've decided to take relatively small losses on 2 issues of ENB prefs in the last few years rather than try to patiently wait another few years for hopefully a turnaround in credit quality (post Line 3 replacement).


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## dubmac (Jan 9, 2011)

so...given this narrative on the quality of an issuer of pref shares, does one consider pref share ETF's to mitigate/spread to risk and pay a small fee - like ZPR or HPR (yields around 3.6-3.9%), or find a company whose balance sheet is heathier..like a bank. I have seen IGM, Weston Pref shares - IGM.PR.B or WN.PR.D could also be considered. But I do not know how to evaluate whether they are any better than ENB.

(5 yr GIC's are earning arounf 3.25% - so yer not getting much improvement with aded risk if you go ETF route!)


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## like_to_retire (Oct 9, 2016)

dubmac said:


> so...given this narrative on the quality of an issuer of pref shares, does one consider pref share ETF's to mitigate/spread to risk and pay a small fee - like ZPR or HPR (yields around 3.6-3.9%), or find a company whose balance sheet is heathier..like a bank. I have seen IGM, Weston Pref shares - IGM.PR.B or WN.PR.D could also be considered. But I do not know how to evaluate whether they are any better than ENB.
> 
> (5 yr GIC's are earning around 3.25% - so yer not getting much improvement with aded risk if you go ETF route!)


But remember that preferred shares pay dividends that are tax advantaged, so multiply the yield times 1.3 to get an interest equivalent. So 3.9% dividend is about the same as 5.07% interest equivalent. Pref shares are normally only purchased in a taxable account. Also remember this multiplier is dumbed down if you're in clawback territory since dividends are grossed up.

ltr


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## AltaRed (Jun 8, 2009)

dubmac said:


> so...given this narrative on the quality of an issuer of pref shares, does one consider pref share ETF's to mitigate/spread to risk and pay a small fee - like ZPR or HPR (yields around 3.6-3.9%), or find a company whose balance sheet is heathier..like a bank.


Before buying any pref, look up DBRS and/or Moody's credit ratings (and trends). Pref market pricing (and hence yield) is heavily influenced by credit quality just like bonds are. There are some surprising examples of 'marginal' investment grade, or below investment grade, prefs out there.

Added: Also look whether they are cumulative, or non-cumulative, prefs. The non-cumulative kind can stop paying dividends and there is no obligation to catch up. Prefs might be ahead of common equity in the seniority ladder but by the time a company is in trouble, prefs will become dust just as fast as common equity will. My WAG is because there are few pref owners relative to bond and common equity holders and in any wind up, pref holders are few in number to be noticed and are run over.


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## dubmac (Jan 9, 2011)

OK...so, given this let me do a comparison.

Here is the information, including the rating on, ENB.PR.N
Here is the information on MFC.PR.Q
Here is IGM.PR.B
Is one "Better"* than the other? If so, how and why?

* better = more, reliable and secure income in the form of taxable dividends in a non-reg account.


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## AltaRed (Jun 8, 2009)

Dnnno. Have you used the pref calculator linked under the 'Yield, Yield to Worst' heading here http://www.finiki.org/wiki/Preferred_shares#Yield.2C_yield-to-worst to first calculate your YTW and current yield? Then make a decision on credit rating thereafter. Based on credit rating alone, I'd pick the insurers from your examples, and I'd never pay par or above par for any issue no matter how good the current yield might be. If the GoC5 bond yield every hits 2.75-3% range, a lot of issues by a lot of issuers will be called at reset date to avoid expensive 'debt'. 

Note: Some low spread insurer prefs may be at a bit of a premium because none of the current issues are NVCC compliant and IF the regulator decides someday that insurers need to fall under the same NVCC rules as banks did starting with issues circa 2013, insurers will have to call their non-compliant issues at par on reset date and potentially re-issue new ones that are NVCC compliant. If that is the case, current 'low spread' issues may see a substantial capital gain and thus some of that speculation may already be baked into their prices. No one knows if the regulator has the balls to force insurers to fall under the same rules as banks. 

I own mostly low spread insured insurer issues in my non-reg account for this potential 'windfall' but I may be in senility before that actually happens. I don't own anything in the Moody BBB category or lower. Prefs are my pseudo-fixed income component in my taxable account. 

Search Prefblog for all kinds of information on NVCC.


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## Numbersman61 (Jan 26, 2015)

It depends on your risk profile. I own a fair amount of ENB preferreds some of which will reset in 2019. The company is in the process of disposing of a number of midstream assets which will result in a satisfactory balance sheet. I expect a rating change when dispositions are completed.


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