By Guest Blogger Ryan Lewenza
In a recent blog post I was struck by one of the comments where the reader confessed their lack of understanding of preferred shares. This surprised me since preferreds are a common theme on this blog, just behind pillorying those who overextend themselves on inflated real estate and ripping on Mills with their skinny jeans, manicured beards, and overpriced craft beers. So this week we take a Preferreds for Dummies approach by examining the basics and key drivers of preferred shares.
What are preferreds?
Preferred shares are a hybrid security having attributes of both bonds and stocks. They resemble stocks in that they are classified as equity investments, trade on an exchange and pay dividends. At the same time they resemble bonds in that they pay a steady stream of income (quarterly dividends rather than semi-annual interest), and are impacted by the same factors that affect bonds. This includes changing interest rates, inflation, credit spreads etc.
There is a common debate over preferreds as to whether they should be classified as bonds or as equity. The main arguments for lumping them in with equity are that they are actually called preferred stock, and are behind bondholders with respect to their claim on cash flow and assets of a company. Meaning, if a company goes bankrupt, the bondholders are first addressed with often the preferred shareholders getting little to nothing in a reorganization or bankruptcy.
Despite this I still view and lump them in with bonds since their prices and returns are driven by the same factors that impact bond prices and it is rare for a Canadian preferred share issuer to go bankrupt with financials being one of the main issuers of preferred shares.
Preferred shares are usually issued at $25/share with their prices changing based on where interest rates, inflation, credit spreads etc. go over time. The main advantage of preferred shares and why you purchase them is that they pay attractive quarterly dividends to shareholders. And because they pay dividends rather than interest, you are able to claim the dividend tax credit, thus receiving a lot more on an after-tax basis.
Interest is taxed at your highest marginal tax rate while dividends are taxed at a much lower rate. For example, the iShares S&P/TSX Canada Preferred Share ETF (CPD-T) currently pays a dividend yield of 4.30%. For an Ontario resident earning $100,000 and the lower tax rate on dividends, this equates to an interest equivalent yield of 5.60% resulting in a multiplier of 1.32. So, whenever you are comparing the after-tax yield of preferred share to a bond yield you can multiply this by roughly 1.30% to get an apples-to-apples comparison. This preferential tax treatment of dividends is another attractive feature of preferred shares.
What are the types of preferred shares?
There are three main types of preferred shares – fixed resets, perpetuals, and floaters.
Fixed resets are a newer preferred share structure which was created in 2008 in response to declining prices of perpetual preferred shares as interest rates declined. Fixed or rate resets pay a fixed dividend for five years then are reset based on where interest rates stand after that time. If rates are higher on the reset date the dividend is reset at a higher rate and vice versa. Generally rate resets outperform in a rising rate environment.
Perpetuals, in contrast, pay a fixed dividend in perpetuity (or until the issuer redeems them). Perpetuals generally outperform in a declining rate environment.
Floaters pay a floating dividend that is based on the prime rate. These obviously do better in a rising rate environment.
What are the drivers of preferred shares?
Since 2003 the S&P/TSX Canadian Preferred Share Total Return Index has returned an annual average return of 3.8%. Many years ago when my waistline was slimmer and I didn’t have to use Just for Men shampoo, I used to be a preferred share analyst. So I have a pretty good handle of this asset class and I know that 2008 and 2015 were outlier years impacted by the Financial Crisis in 2008 and record low interest rates in 2015. Excluding those years, the average annual returns increase to 6.8%, and the median return over this period was 5.7% annually. I believe going forward the preferred share market could deliver returns closer to the median return and we are using a 5% return estimate over the long-run for client portfolios.
Canadian Preferred Share Annual Returns
Source: Bloomberg, Turner Investments
Now the key drivers of preferred shares and why some years they deliver capital gains like last year and losses like 2015 are changes in interest rates, credit spreads, and to a lesser extent, preferred share issuance.
Below I show the link between preferred share prices and interest rates. Specifically I chart the preferred share index with the Government of Canada 5-year bond yield. Generally as rates rise, preferred share prices rise and this is mainly due to the fact that rate resets, which represent 80% of the Canadian preferred share market, are closely linked to the GoC 5-year yield.
Canadian Preferred Shares and GoC 5-year Yield
Source: Bloomberg, Turner Investments
The second key driver is credit spreads, which represent the spread of corporate bond yields (or preferred share yields in this case) over the risk-free government bond yield. In a good economy credit spreads tighten, generally resulting in higher preferred share prices and spreads widen during a downturn with preferreds declining in price. Since the Financial Crisis credit spreads have tightened materially, which partly explains the recovery in preferred share prices since the 2008 low.
Outlook for preferreds
Last year was a great year for the Canadian preferred share market with double-digit total returns. We see further strength as interest rates normalize, however, we expect more moderate returns in the high-single digits over the next 1-2 years. We expect the Fed and Bank of Canada to continue on their gradual path of rate hikes, which should drive government bond yields higher. Economists expect the GoC 2- and 10-year bond yields to rise to 2.6% and 3%, respectively, by mid-2019. If correct, we should see the critical 5-year bond yield also rise, thus driving preferred shares higher. So we recommend investors continue to hold a good weight in these securities and we recommend the ETF.…Sorry, you have to pay us for that one!
Government Yields Are Forecasted to Rise Further
Source: Bloomberg, Turner Investments
Ryan Lewenza, CFA,CMT is a Partner and Portfolio Manager with Turner Investments, and a Senior Vice President, Private Client Group, of Raymond James Ltd.
114 comments ↓
Big fan & holder of preferred shares, thanks Ryan for the clear and thorough explanation.
Weekend Rewind.
This week in howmuch articles.
No instant classics this week, but one of them might help out a snowbird…
M43BC
The Biggest Banks for Your Buck in Every State.
https://howmuch.net/articles/largest-bank-in-every-state
This Map Shows the Cheapest Gas Station in Your State.
https://howmuch.net/articles/cheapest-gas-station-in-every-state
Here are the Most & Least Expensive States for Health Insurance.
https://howmuch.net/articles/health-insurance-rates-by-state
Preferreds are definitely worthy asses class.
They have their time as each asset class has its time.
But when to enter?
some considerations:
1. this article quotes TSX and absolute returns.
It dismisses currency depreciation (loonie lost 5 % against the Euro and USD this year alone, in just 2 months)
The ability of companies to derive ever increasing real profits that surpass inflation with indebted population is not guranteed.
2. With rates rising preferreds experience capital losses.
With people expecting the Fed now to increase rates and 10 years US bonds to hit 4- 4.5 % that could drive quite a loss.
CAD rates can stay lower but that will kill the currency.
3. The comparison with bonds is good, but keep in mind, when investors prefer holding burning coal vs. government bonds, everything looks better when compared to bonds .
So the question is what will be the realistic net return of preferreds in the next 10 years with real inflation 7-8 %, rates at 4 %?
Mark sais that is not possible.
It actually is quite possible in an environment of moderate stagflation, shrinking consumption and real contraction of economy.
Another informative review of investment terms and strategies.
Onward and upward goes the balanced an diversified portfolio…….
Skinny jeans, manicured beards and craft beers…that’s hilarious. Great post.
Hi Ryan, so are my bank stocks like Rbc, td and bmo preferred shares?
Thanks
Dumbass
Buy Morneau Shepell Inc. (MSI.TO) instead of preferreds?
Up 70 % since their minister came to power, yields 3.5 % in dividends.
He won’t give you national pharmacy program.
What will be in it for his company?
https://www.thestar.com/news/canada/2018/02/28/bill-morneau-downplays-a-universal-pharmacare-program.html
There’s not enough houses… in Final Fantasy. They suffer from FOMO, and people have gone out of their way to buy multiple houses.
“According to infuriated players on the forums, they got bought up so quickly that most didn’t have a chance to buy them.”
The housing market is even regulated by their “government” and their fixes don’t work.
Link: https://www.pcgamer.com/final-fantasy-14s-real-estate-crisis-continues/
Great article, Ryan. In Canada, in a taxable account, preferreds, are the way to go. Mainly because the vast majority of Canuckistan stocks go nowhere, so all you get is the dividend yield (if any), plus a bunch more risk.
I have a bunch (mainly CPD), just to supplement income – no worry, no fuss. Oh, bank stocks are good too, because many over-debted Canadians are owned by them, and will be for life, and they pay a good yield.
If this were a normal country, not a business unfriendly one, I’d invest more in Cdn stocks. But the anti-business left has poisoned people against investing in Canada. And the message has been clearly received by foreign investors as well. All the Libs can think of doing is taxing Canadians more, while they sprinkling this money to their favorite causes. Address business competiveness in light of the US moves? – too hard for those who feel budgets balance themselves.
So yes to Cdn preferreds (in taxables), at least until the Libs decide on increasing the tax rates on dividends. No to most Cdn company shares, because they go nowhere (unless they are really in international businesses, like BAM.A). There’s much more money to be made elsewhere, like the US, who are not nearly as much into self- abuse like we are.
its rarely discussed with pref’s that the dividend tax credit has been watered down over the past 30 years since 1987 the gross up has been over halved and the dtc as well, equating to a tightening of the tax differential between interest and dividends.
secondly, people use this interest rate equivalent in nominal terms never in a risk based return.
if the average return is 3.8% over the past 15 years is your framework, you can get a 2.5% current yield with 100% gic gty subject to the insurance limit,
so what are we really talking about in the end, 1.3% average annual return with a corresponding watered down tax advantage. of 1.32 using your average ontario resident, so 1.72 percent per year, of additional return over the long run on an after tax basis, but the risk of volatility is far greater than its worth, from plus 27 to minus 15% , wow thats quite a wide spread for a coupon clipping equivalent go back to sleep and wait for the next div payment date. I honestly dont think its worth it.
look at cibc ,current yield 4.6% paid quarterly with regular increases, i havent done the back regression but i suspect it has similar plus 27 to minus 15 per year as the average returns over the last 15 on the average pref. as an example.
so blue chip boring stocks is probably a risk adjusted return wth div advantages, liquidity, etc taking into consideration.
i dont really see a place for pref. high yield bonds are probably in the same camp.
Thanks for the article Ryan, are we going to get a analysis on the emerging markets and EAFE compared to canada etc in the near future, I know you said you were considering this?
Thanks.
M.
My bonds are falling! My bonds are falling! I’m hysterical!!!! I’m selling out all of my Canada Bonds to but Toronto real estate!
The reason preferreds are usually issued by issuers is to provide additional leverage for common shareholders, ie: its a lower cost of financing to the corporate balance sheet than equity.
So if preferreds are to return the median (ie: 5.7%) going forward, the implication is that the asset class which is being leveraged by the issuance of preferreds (and lesser forms of debt) must return significantly higher.
So what’s really the purpose of preferreds? Do they act inversely correlated to equities or to bonds? Do they outperform in bull markets? Just looking at those return numbers, neither seems to be the case, and a 13-year annualized return of 3.8% is solidly beneath that of both traditional fixed income as well as equity. After-tax, yes, a slightly different story, but even @ 28%, your typical bond fund probably outperformed.
Intuitively its not hard to understand loading a portfolio with asset classes which have some degree of weak or inverse correlation with each other and algorithmically rebalancing between the asset classes as one outperforms, and one lags (the theory being that cyclicality will eventually cause the laggards to be leaders, and vice versa). But I have a hard time wrapping my head around preferreds in such a context, other than being an easier “sell” perhaps for extremely risk averse and taxable “GIC refugees”.
Anyone care to correct me? Its not a rhetorical question, I seriously would like to understand the case for preferreds from a buyer’s perspective. The issuer’s perspective is pretty obvious as I’ve stated above.
#13 Mark on 03.03.18 at 2:47 pm
You are correct, withing the current market context.
Picking an asset that will yield negative real return (again inflation is not 1.5 %, but rather 7 % +) for the next 10 years while suffering capital losses with increasing rates is risky.
In other conditions it would make sense.
Companies issuing the preferreds have to lose for you to win. They would not do/issue it if they lose.
It will give your portfolio some nominal returns bit that’s it.
I would rather invest in emerging markets instead, at least their currencies seem to be more resilient than the loonie.
And the grow, not like TSX.
In order to get to an 18% overall weighting, I’ve had to squirrel away some ZPR rate reset preferred etfs in our TFSAs. Other than the obvious loss of a tax advantage, is there a downside to keeping ZPR or any other preferred etf in a TFSA?
The economic enslavement of Canadians is almost complete
Link: Deleted
Post that crap again and you are history. – Garth
The bottom line is:
It is very hard to make any reasonable case for investing in Canadian Securities (despite what all the CSC and CFA courses teach you) given the current financial conditions and policies framework, the current Canadian situation in a very dynamic world.
Anything beyond mining and agriculture does not make any sense. We are resource rich colony.
Build concentrated position in that.
You can print money, but you can’t print water.
– China’s acute water shortage imperils economic future
“So why is water scarcity not a central feature of studies of China’s economic outlook? Why is it not recognised as a constraint on economic growth and thereby China’s power? After all, in 2005 the Minister of Water Resources declared a need “to fight for every drop of water or die, that is the challenge facing China”, while former premier Wen Jiabao said that water shortages threatened “the very survival of the Chinese nation”.”
On the other hand, there’s lots of water in Siberia.
https://www.ft.com/content/3ee05452-1801-11e8-9376-4a6390addb44?desktop=true&segmentId=d8d3e364-5197-20eb-17cf-2437841d178a&utm_source=newsletter&utm_medium=email&utm_campaign=newsletter_axioschina&stream=top-stories#myft:notification:instant-email:content
Preferreds become less and less compelling the more I hear people explain them!
All the down side risk volatility of stocks, as exemplified repeatedly in charts.
Pretty much the upside benefit of bonds, with a small boost. More volatile, and low long term returns for the risk.
Its not that convincing. The charts here show that!!
“#13 Mark on 03.03.18 at 2:47 pm
You are correct, withing the current market context.”
I’m starting to see why Garth pledged to “restrict your posting” yesterday. Seriously…. In a 7% inflation world, the bond market would have imploded a long time ago.
I seriously would like to know the case for and role of preferreds in a portfolio, since they neither outperform nor exhibit weak or negative correlation to equities nor even coupon bonds. Your post didn’t purport to respond to such at all.
It is very hard to make any reasonable case for investing in Canadian Securities
Plenty of a case. A solidly performing economy, one of the best in the G-7. Relatively low levels of government debt. A highly educated and productive workforce. Lower levels of systemic financialism, particularly in the corporate sector. The ability to double or triple our population due to no meaningful constraints on land or resources. A corporate tax rate environment that is extremely competitive. Low cost natural resources that can be used as feedstocks to other industrial processes. Disproportionate corporate dominance of the world’s precious metals sector. A highly respected legal system. A very stable political system. I could go on and on. If anything, these factors should cause Canada’s stock market to trade at a superior, not an inferior P/E multiple.
Investment in Canada is vigorous. The only ‘problem’ is that its mostly concentrated in RE, not in the non-RE economy. The abnormally low P/E ratios of the TSX allows people to buy stocks quite inexpensively, which is traditionally a precursor to outsized returns as the tide turns.
“we recommend the ETF.…Sorry, you have to pay us for that one!”
Fair enough.
What about a “related” but “different” question: if the Canadian Preferred Shares Market is mainly rate resets, how can a Canadian investor get exposure to Perpetuals (say in a downturn market)?
Thanks.
Income is a good enough reason for prefs. Not that they’re without risk, but averaging in over time helps.
Some of us due to a life condition known as senectus are looking for a portfolio return based on yield.
ZPR & CPD help get the job done.
Pink Snow falling in Coquitlam.
These guys could only take a couple of percent off as they are pretty much down to break even after expenses, due to the fact they paid 1.17 in June 2016.
The assessment falls in between buy and ask and so we will see how this one shakes out.
Maybe no trip to Dansey Land this year…
M43BC
1585 Dansey Avenue, Coquitlam
Oct 4:$1,299,800
Mar 2: $1,278,000
Change: – 21800.00 -2%
https://www.zolo.ca/coquitlam-real-estate/1585-dansey-avenue
https://www.bcassessment.ca/Property/Info/QTAwMDAzWEU2UQ==
$$$$$$$$$$$$$$$$$$$$$$$$$$$$
Feel free to make a donation.
Flop For Fox Fund…
http://www.terryfox.org/get-involved/ways-to-give/
Dumbass “Hi Ryan, so are my bank stocks like Rbc, td and bmo preferred shares?”
Your common shares of Royal, TD and BMO are different from the prefs. Each bank has a number of different preferred shares with different dividend rates, redemption dates etc. With your common shares you benefit from fairly consistent dividend increases which does not apply to the prefs. – Ryan Lewenza
Mark “Thanks for the article Ryan, are we going to get a analysis on the emerging markets and EAFE compared to canada etc in the near future, I know you said you were considering this?”
Yes I’ll cover this topic over the next month. – Ryan Lewenza
No need for preferred shares in portfolio. They behave just like equity, with less return. Good like playing the interest rate guessing game too.
Also don’t think these are safer then common stock, just ask everyone who held yellow pages preferred when they went bankrupt. Nobody got squat except a rememinder that preferred shares are pretty much useless.
Thanks Ryan for a great article. Dare I say even better and more in depth than Garth’s explanations in previous blog posts.
I would also add that, from what I have seen having watched the horror show that was CPD in 2015, preferred’s seem to follow the price of oil also.
MF
#16 dakkie on 03.03.18 at 3:11 pm
The economic enslavement of Canadians is almost complete
Link: Deleted
Post that crap again and you are history. – Garth
——————————
That link/I googled it is not crap.
It explains why people withdraw from their RRSPs instead of contributing to it.
Some people here imply that it is just plain stupidity while the reality is that it is the debt and inflation that forces over extended people to spend their savings at times when economy ‘booms’.
I think that time to be politically correct on this has longed passes/like in 2009.
GT, I think we need some more out of the box/alternative opinions here. It won’t hurt for sure.
It could be refreshing.
We are tired and bored of the endless – do this, do that
don;t rock the boat, follow traditional logic old nonsense.
You blog, your call.
back to ya.
You are wrong. The link was to a video with profane language. If you are unhappy here, leave. – Garth
Pink Snow falling in Surrey.
This one by definition is only a Possible Pinkie as they are still chasing a double digit gain,but they seem to have comfortably insulated themselves from the outside world in their own earwax and belly button fluff.
Picked up for 1.36 in April 2016 ‘the current assessment comes in at a lowly 1.06 for a 48 build,meaning effectively it would have to go half a million dollars over assessment.
Just because they paid 400k over the assessment of the time ,they expect to find someone to follow, but the tissue didn’t have as much blood on it before Horgan’s Heroes delivered a blow to the beak of homeowners.
I would be surprised if they get out of it with a Pink Draw, but this is why we do it to see just how much crazy glue is left in the tube…
M43BC
5964 140 Street, Surrey
Oct 12:$1,558,888
Mar 2: $1,548,888
Change: – 10000.00 -1%
https://www.zolo.ca/surrey-real-estate/5964-140-street
https://www.bcassessment.ca/Property/Info/QTAwMDA3NzZXTA==
$$$$$$$$$$$$$$$$$$$$$$$$$$$$
Feel free to make a donation.
Flop For Fox Fund…
http://www.terryfox.org/get-involved/ways-to-give/
Hi Ryan: Thanks for your great post.
Wife and I are in the process of completing our ETF portfolio (migrating from TD E-Series funds). We currently hold 65% stocks, 18% preferred and have 17% sitting in cash waiting to be invested. I was looking at bond ETF prices with durations of 3 and 6 yrs and they all seem to be dropping quite a bit lately. Given the declared bond “bear market” and rising rates, does it make any sense to hold bonds amid lousy yields and dropping prices? Our preferreds have been very stable so far and I am contemplating the benefits of holding bonds in this environment. Maybe bump up the preferreds?
In terms of bond ETFs, could you maybe comment on ZMU and XCB?
Thanks a lot.
You are wrong. The link was to a video with profane language. If you are unhappy here, leave. – Garth
————————————-
I agree with the observation on the language.
I am also clearly aware of your limited options in this case, considering the court of public opinion in Canada
and the overwhelming pressure for political correctness.
I learned long time ago to pay attention to the message, not the form/the language.
I learned it from a Wall street professional in the # 1 firm of its kind in the world that charged for my services end clients 5 digits a day.
To wrap it up: you have my deepest respect and no offense taken on my part for deleting any of my posts.
Cheers.
It has nothing to do with political correctness, but everything to do with my own standards. – Garth
#20 Mark on 03.03.18 at 3:27 pm
Mark, my friend, it is OK.
You learnt your lessons/as thought by MSM, now you can go and have a drink. hard work, you deserve it.
complements.
Re: “Sorry, you have to pay us for that one!”
I hear Blackrock’s DXP is a good one.
Thanks for the very informative post Ryan! I see from earlier in this thread that you are planning a similar post regarding emerging markets – which is great. Have you also considered a similar post explaining REIT ETFs?
Thank you Ryan, the information noted will help. Any thoughts from those on holding enbridge perf. for the long haul. I figured it’s pretty much recession proof??
Work until you die.
https://ca.yahoo.com/finance/photos/10-best-encore-jobs-retirees-slideshow-wp-194604955/
Here ,this howmuch article has a crust on it but it might hold a few people over until InfLewenza does his Emerging Markets piece…
M43BC
“This World Map Shows the Economic Growth Over the Coming Decade.
Experts have predicted that India may be the fastest growing global economy in the next decade. The Center for International Development at Harvard University (CID) is using a newly updated measure of economic complexity to forecast an annual growth rate of 6.98% for India over the next decade. The CID believes that the countries with the greatest potential for growth are located mainly in South Asia and East Africa.
We created the following scaled map to show the forecasted growth rates. The countries are scaled according to their predicted growth rate. Thus, India appears larger than the United States with a predicted growth rate of only 2.58%.
As can be seen from the map, India appears larger on the map than its neighbor China to the north. The CID believes that India will have the highest growth rate because of gains in productive capabilities. These gains have allowed the country to diversify exports into more complex products such as pharmaceuticals, vehicles and electronics. Historically, gains in economic complexity have resulted in higher incomes.
There are a number of countries in East Africa that are projected to grow at least 5.5% annually. Five countries in the region appear on the top ten of the CID list including Uganda, Tanzania, Kenya, Malawi and Madagascar. In addition, there are countries in both the Middle East and South America that appear poised to take off. Jordan and Israel have projected annual growth rates in excess of 4%. Guatemala has a projected growth rate of 5.22%, while Honduras and Mexico are both over 4%.
At the same time, economic growth is anticipated to slow in advanced economies. The U.S. is anticipated to only grow 2.58%. The U.K. is forecasted at a slightly higher 3.22%. Germany, one of the leading economies in Europe, is forecasted with an annual growth rate of only 0.35%. The CID also notes that economies based on commodity output face slower growth rates as commodity prices continue to remain under pressure.
The CID uses economic complexity as their indicator for economic growth after a decade of research. This research has found countries that diversify their production knowledge beyond what is expected see faster income growth. This is a much more accurate indicator of future growth as compared with the popular World Economic Forum Global Competitiveness Index. For example, the CID says that Greece has been an outlier for having a higher income level than would be expected for its level of economic complexity. The country has struggled with average negative annual growth over the past decade.
The CID says that looking at economic complexity may help policymakers. By finding ways to bring new production and product capability into a country, it could help to strengthen growth in the future. The key is getting the new knowledge to come into the area which depends in part on immigration policy, as well as education policy.”
https://howmuch.net/articles/atlas-of-economic-growth
Kbean “Given the declared bond “bear market” and rising rates, does it make any sense to hold bonds amid lousy yields and dropping prices? Our preferreds have been very stable so far and I am contemplating the benefits of holding bonds in this environment. Maybe bump up the preferreds? In terms of bond ETFs, could you maybe comment on ZMU and XCB?”
Yes it still makes sense to hold bonds since they will reduce volatility in portfolios. Also rates are going higher but they won’t go too high. ZMU and XCB are good corporate bond ETFs. – Ryan Lewenza
Interesting analysis. Take out the 2 worst performing years over a 10 year period and come up with a median return. Are you sure you didn’t use to be a realtor?
I’ve never considered preferreds and this was a good summary; thanks.
Still, I don’t see why I’d commit my funds in preferreds in order to get a (smallish) dividend, when I could get similar yields without sacrificing better upside profile in other investments.
There’s one US ETF I’ve been accumulating for instance, which pays 2.85% yield AND has a very good chance of appreciating in value by 50-100% over the next 12-24 months). It has 25 holdings with $1.5B in assets and it trades with the symbol ____……..Sorry, you’ll have to pay me for this information! :-)
TCC
https://www.msn.com/en-ca/news/world/canada-lent-a-family-dollar41-million-to-buy-a-luxury-jet-now-the-jet-is-missing/ar-BBJNndZ?li=AAadgLE&ocid=spartanntp
————————————————————————-
Smoking man
I think we found the UFO that was buzzing around in West coast area .
Awesome post, Ryan! Thanks for the great information!
#39 BS on 03.03.18 at 5:19 pm
Interesting analysis. Take out the 2 worst performing years over a 10 year period and come up with a median return. Are you sure you didn’t use to be a realtor?
—————————-
Hahaha.
Be careful, I actually like Ryan.
He is the best you can get, the closest to honesty and integrity in this place and this is meant as a huge complement.
Thanks for your post, Ryan. I appreciate all the data in it. Preferred shares, such an interesting subject because they are such a mixed bag.
I personally have a 2/3rds weight to intermediate duration broad bond ETFs and 1/3 to preferreds for the non-equity portion of my portfolio. My main motivation is to hedge against a rising interest rate environment. When rates go up in Canada, my bonds go down, all my foreign equities go down due to a rise in the CDN$ triggered by rising interest rates, and CDN equities don’t benefit either as a rising cost of money makes corporate financing more expensive. I want at least one portion of my portfolio to be negatively correlated with the rest of the portfolio should interest rates continue to creep up.
That being said, I think there is quite a reasonable argument against preferred shares, and that is due to their volatility and close correlation with the overall Canadian common equity market.
I’ve got a spreadsheet tracking the last 12 years of price and income returns for the TSX Composite Index, S&P Preferred Share Index and FTSE TMX Canada Universe Bond Index. You quote the same S&P Preferred Share Index total return figures above.
All figures 2006-2017 (12 Year Average)
=S&P Preferred Share Index=
Price Return only: -2.1%
Income Return only: 5.2%
Total Return: 3.1%
Total Return Volatility: 11.5%
TR Worst Years: -16.9% in 2008, -15.0% in 2015
=S&P TSX Composite Index=
Price Return only: 4.5%
Income Return only: 3.0%
Total Return: 7.6%
Total Return Volatility: 16.7%
TR Worst Years: -33% in 2008, -8.7% in 2011, -8.3% in 2015
=FTSE TMX Canada Universe Bond Index=
Price Return only: 0.6%
Income Return only: 3.8%
Total Return: 4.4%
Total Return Volatility: 2.8%
TR Worst Years: -1.2% in 2013 (and all other 11 years had a positive TR)
Looking at the data, I can’t call preferred shares part of the “safe” portion of a portfolio, not with their volatility and capability to return far worse years on occasion than bods. Preferreds act more like bonds in terms of income return but more like equities in terms of price return. Many years preferred equity will do fine but in the bad years, they follow common equity and really hurt a portfolio’s total return.
Over the 12 years above:
Correlation between preferred and equities total return
0.78 = strongly correlated
Correlation between equity and bonds total return
-0.30 = weakly non-correlated
So, holding preferreds increases your overall portfolio risk with the benefit of somewhat improved returns likely but also at the cost of greater downside. I would consider at 60/40 portfolio where the 40% is half bonds and half preferreds to actually be a 70/30 portfolio in terms of risk, volatility and reward. So, then why not just have 70% equities and 30% bonds and be done with it?
There are also other ways to hedge against the possibility of a rising interest rate environment like switching to holding shorter-duration bonds, a GIC ladder, etc.
Mixed feelings about preferreds, for sure. They have done well for me the last two years but I watch them warily.
Tim
Watch the stock market take another big leg down Monday Morning. Trump is now threatening Europe that if they even as so much respond to his self-imposed steel & aluminum tariffs, he’s going to hit all European cars with a big duty/tariff.
I think the phrase I’ve been hearing around this blog in regards to another bubble market goes something like this: “this won’t end well”.
http://money.cnn.com/2018/03/03/news/economy/trump-tariffs-cars-trade-war-europe/index.html
I’ve held cpd for years, but one thing that worries me perhaps you can comment on..
Are rate reset preferreds not callable after nine years? I got clobbered on the way down but am I going to get to enjoy the ride back? Or does the universe return to pre 2008 structure with primarily perpetual and floating? Do the issuers have too much power in this market?
BC realtor Steve Saretzky latest YOUTUBE video
—-B.C. detached sales are at LOWEST in 27 years
—-As of Feb 2018…55,000(TOTAL UNITS) are under construction (was 40,000 at time of 2008 crash)
You decide….
Poor Audi, Range Rover, BMW, Mercedes…
First it’s realtors in Canada giving back their keys and now those Yanks are going to have to go back to their F150’s.
Sheez, what was I thinking – new F150’s are going to get more expensive too. I guess used cars are going to be in hot demand for a while.
Some of the big Steel and Aluminum exporters to the US are Canada, Japan, South Korea, Europe, Mexico.
Trumps going to hit all these carexporting markets with a new car tax if these countries respond to his metal tariffs.
Domestic car prices will rise in the US. Pipelines will cost more.
Buy stock in carbon fibre moped manufacturers.
Reynolds531 “I’ve held cpd for years, but one thing that worries me perhaps you can comment on..
Are rate reset preferreds not callable after nine years? I got clobbered on the way down but am I going to get to enjoy the ride back? Or does the universe return to pre 2008 structure with primarily perpetual and floating? Do the issuers have too much power in this market?
Yes fixed resets are callable at $25 and some will be called over time. The problem with CPD and why it may not go back to what you paid for it is that it tracks an index so older discounted prefs are replaced with new ones at $25. Therefore even if the GoC 5 year increases significantly from here, CPD may not return to the levels seen years ago. – Ryan Lewenza
I prefer to not invest in Canada at this point in time.
Did anyone catch T2s comments on the steel and alum terrifs.
In case you missed it. Here it is.
Canada is doomed.
Billionaire real estate mogul vs 2 bit actor.
If this was a Vegas bet. Who would chose to come out as a winner.
https://youtu.be/DFIZnPJQRHs
I don’t profess any in-depth knowledge, but it seems like every time preferreds lose their appeal the game changes. Stuck with perpetuals when interest rates are rising? Buy rate resets. Stuck with rate resets when rates dropping? Buy rate resets with a floor. Now the banks need to issue NVCC’s, and who knows how that will end.
I just saw a Wealth Simpleton ad and the actress wasn’t the brightest, but she was easy on the eyes. Garth, have you given any thought to gender diversity in your workplace ?
#7 shake down from the wrong side. An oddity that makes no sense. You grease the wheels on the way up, not at the top. Toppers hide stuff, delay and feather their nests. No one greases at the top.
Over $600 MILLION…???
…….is what Turdeau and Co. have budgetted for G7 meeting in a few months.
That would buy a lot of saris etc. ….or at least compensation for at least 60 convicted terrorists.
Very good explanation Ryan, although I have done ok, it is sure scary trying to predict what the heck is going on out there, there seems to be no logic as to what is happening in the world of commerce.
Hi Ryan.
Thank you for this and past post. I listened to Garth say preferreds, preferreds…I did not understand. His persistence finally made me understand. That and the small correction. Since Thursday past, I now have preferreds. I get it now. Ryan’s post is great! More on my story later… Garth’s persistence. Ha Ha.
The only bet on Crapto currencies I’ll make: on the retail middleman and loansharking.
Got 10k face value of MOGO convertable debentures. Sold 1/2 on way up, added more at bottom. Ready for next trip.
#yieldhound – seeking alpha with zero hedge.
https://www.mogo.ca/mogo-crypto
“#44 Tim on 03.03.18 at 5:43 pm “
Thanks for putting some numbers to it. I somewhat came to the same conclusion, which is why I, like you, seem to really struggle to determine what, if any role preferreds should play in a portfolio. But until now, I didn’t have numbers, just a ‘gut feeling’.
To me, they seem more like “equities with training wheels”, which can be sold by investment dealers to Canadians who overwhelmingly are addicted to fixed income investments like GICs. This group of investors, you really can’t ‘sell’ them equities as “the stock market” is “evil” (the boomers received a lot of their ‘advice’ from those who went through the Great Depression which was blamed on “the stock market”!), but they’re looking for something with presumably higher return than bonds and GICs. Of course preferreds are of almost no interest to non-taxable institutional investors such as pension funds, endowments, foreigners, etc., so basically the only audience for preferreds is Canadian retail investors.
Re. overpriced beers…now this would be worth it.
Air mail delivery:
https://www.instagram.com/p/BfcH7N-BxvU
Great article Ryan – thanks. I think though that given the complexities of Preferreds, that an actively managed ETF works better and mitigates some risk. For me, the low cost HPR etf works well.
@Reynolds531
I don’t think there is anything special about nine years, but the callable issue is an important point. There is huge diversity in the terms under which preferred shares are issued and companies often have the right to call the shares in if credit conditions have moved against them, change the 5 year bond premium amount at their option at certain dates, etc. (all according to the terms of the debenture, of course).
It’s a more opaque market than either common equities or bonds (and a much smaller market as well). I like the Horizons HPR ETF for preferreds over CPD or ZPR as I think this is a market segment where active management can add material extra value.
#21 Yanniel
I previously used XPF which is a mixture of North American preferred shared. Most of US ones behaved like perpetual at least as long as I was using it. I am not anymore. I switched to ZPR which is rate reset a couple of years ago.
To Ryan. Thanks. I love these kind of deeper delves into a financial asset class type topic. One to consider. I have nibbled at swap based ETFs to convert dividends to capital gains only. Horizon offers the only ones in Canada and they seem to have some interesting properties in light of the new passive income rules on small business since capital gains only count to the cap at the inclusion rate and when realized. I have previously nibbled in my wife’s taxable account. Since they are relatively new, small, and have a unique structure I do also wonder about the risks. Would you consider offering thoughts or a post on that at some point? Not looking for advice – you should be paid for that – just your general opinions. All blog dogs also.
Cheers
-LD
Ryan, thanks.
I’m not so much concerned about cpd returning to some number as I am that as conditions change the terms of available securities will shift…and always in favor of the issuers. Cpd and all funds are changing animals I get that. My concern is as pointed above that active management is being used in this case….by issuers…..to limit their cost of capital….and my return.
Is this a reasonable thing to think? What issuer is going to NOT call a security he can reissue later at more favourable terms. Whether buying an index, individual preferreds, or an actively managed fund I worry the game is rigged on preferreds.
Tim, the special think about nine years is that is date at which most can be called. (To my understanding).
Thanks Ryan, excellent piece.
I agree with your position that preferred shares should be categorized as fixed income.
In today’s G&M on page B15, Warren Mackenzie suggests otherwise – that preferred’s should be classified as equity. Lots of opinions out there on this issue. I guess if you want to be super conservative you would do as Warren suggests, but as before I agree with you.
———————————————————-
http://www.globeandmail.com
WHAT THE EXPERT SAYS
“Lena is an active, very capable woman,” Mr. MacKenzie says. She ran a successful consulting business before she retired in her early 70s.
“She is very hands-on when it comes to her investments and she has built up an investment portfolio of about $1.7-million,” the planner says. But with 95 per cent of her portfolio in equities (65 per cent in common stock and about 30 per cent in preferreds), “she is definitely not in a goals-based portfolio,” Mr. MacKenzie says. Lena is taking more risk than necessary to achieve her goals. “
#25 JUNGLE
Wrong. Every investor eventually needs preferreds.
If you decide to own Canadian bank shares, as one example, then invest in both commons and preferreds.
In some environments, like right now, this protects you from too much downside from the common shares, as preferreds are generally less volatile most of time.
The last month or so has proven that in spades with rate hike speculation. Now we face trade war possibilities.
Throughout the last few weeks, our common shares have been “attacked” fairly badly, but the preferreds fluctuated little.
Both sets of shares hand out very nice dividends regardless.
I don’t know how much of one’s portfolio should contain bank shares, but the older you get the more you have the better you’ll feel!
Next, how will markets react on Monday with the Trumpster now rampant on the rest of us packing a fistful of “trade War” threats?
As far as equities alone are concerned, price moves will depend on the types of stocks one holds. Defense indusry stocks should do well. Financials will be another story. Too much macroeconomics.
Time NOW for St. Garth of Good Investor Governance to give us the definitive low-down, and to recap advice already given in the last week or so.
Put it all together.
Dangerous waters and storms ahead.
#39 BS on 03.03.18 at 5:19 pm
“…Excluding those years, the average annual returns increase to 6.8%…”
—
” […] Are you sure you didn’t use to be a realtor?”
—
The point is that those years are not representative of what returns are likely to be in the near term, so why include them in the math?
He is in no way suggesting you will get that return over a longer term.
Having said that, I personally would have favoured just using the median statistic over the whole period since the median is not sensitive to outliers.
#63 Loonie Doctor on 03.03.18 at 7:39 pm
I have previously nibbled in my wife’s taxable account. Since they are relatively new, small, and have a unique structure I do also wonder about the risks. Not looking for advice – you should be paid for that – just your general opinions. All blog dogs also.
Cheers
-LD
*************
How in the hell did that post get past the censor???
lol, Anita
A photo of myself and T2
my brush with GREATNESS!
https://2.bp.blogspot.com/-wEVGbtsEGNM/WpnaiNTf4WI/AAAAAAAC080/znhOvfJu7Y4qeoCqhvBUYb9b9m_1-dwuwCLcBGAs/s1600/CANADA%2B%25284%2529.jpg
#49 Post on 03.03.18 at 6:10 pm
Sheez, what was I thinking – new F150’s are going to get more expensive too. I guess used cars are going to be in hot demand for a while.
***********
Why buy used? Ford is retooling the Pinto plant, Chevy has oodles of Vegas priced to go, and Chrysler has just dusted off some new-old-stock Crickets. Get em while they last!
Re: #45 Post on 03.03.18 at 5:50 pm
In theory tariffs drives up the value of the local currency. In this case the U.S. dollar. As the U.S. dollar rises in value stocks fall. Not to mention stocks are beyond belief overvalued in America presently. CNN or MarketWatch doesn’t come out and blatantly tell you this so I’m telling you for them.
@#70 Happy Housing Crash and Burn
Ahahahahaha.
Was that a security pass in your shorts or were your just glad to see T2?
What’s with the Leaf’s change of costume tonight?
They are playing Washington, but whose idea was it to dress up like convicts. Damn you to hell Gary Bettman!
Is there a Full Moon tonight?
I hold preferred shares and preferred share etfs in my response, tfsa and taxable accounts.
I beleive this is a great way to diversify and garner some income .
The ets I hold are CPD and ZPR for Canadian and PFF for US .
The rate reset Canadian Preferred shares that I hold have a higher marginal dividend when compared to their common share issues of the same company .
Examples include : TD paying 3.59% current yield on common and TD.PF.G at 5.21%
RY common at 3.78% while RY.PR.R is 5.18%.
These are both rate reset that will only increase yield as interest rates increase.
Rate reset preferred shares are more common in Canada vs the US, where perpetual issues are more common. Anyone here, including Ryan or Garth know any good US rate reset preferreds ?
No point to prefs now. They are all trading near $25 so upside is limited as they will just get called by issuer. Terrible recommendation by Garth & Co.
#69 Anita
Hilarious. I missed that! I did catch a typo with “paid”. The L and the P are just so close on my iPad keyboard…
I like preferred shares but I have a 5.5% yield threshold so finding ones on sale that are not too risky is challenging. I passed on the Element Fleet Mgt ones when they went on sale because I already had some. The potential capital gains were not enough to make me bite – a decision I lightly regret. I am patient. Something else will come along that I want – rightly or wrongly.
Is Trump bluffing about NAFTA? He wants more than a bone thrown his way and I do not think Canada cannot afford to accede to his perceived trade injustices. In my mind, Trump wants NAFTA dead. Canada will be hurt, particularly Ontario and BC will be whimpering. Alberta has already taken its thrashing and Quebec will mainly suffer from less transfer payments.
The US will suffer also but they have a much larger base to spread the pain. For example, I own shares in a few Canadian forestry companies. You would think the softwood tariffs should put them out of business but no. The US currently needs the lumber and they are willing to pay the tariffs. So, the softwood purchasers pass the tariff cost to their consumers while the US government collects the tariffs. Essentially, the US has created an indirect consumer tax. And guess what? My forestry companies have the majority of their operations in the US and are benefiting from higher lumber prices. In my view, the US does not have the resources to meet their internal demand. Yes Canada will lose sales to the US and related jobs but it is not only doom and gloom. Besides, there is more than MAGA in the world.
I was wrong in a previous post where I inferred Calgary had unfunded pension liabilities. I checked the plans and they are nearly fully funded. I noticed the term “local authorities”. It gives you an idea of what our public servants think of themselves. As a primary taxpayer that feeds the public servants I am reminded of my favourite George Patton WW2 quote “Take that god damn hill or I will find someone that can!” Is Trump channelling spirits like the inferior Anglo-Saxon PM Mackenzie King did? I get a kick that King was born in Berlin, ON.
76 paracho
All due respect but that’s what we’re saying. Those RR issues might well be called and replaced with lower spread issues as rates rise.
And if you gotta ask for tickers here…. that’s not good analysis on your part.
Peter Schiff on the economy
https://www.youtube.com/watch?v=WD2zcyfwdJ4
Thanks Ryan. Great article – very informative!
#78 Loonie Doctor on 03.03.18 at 9:03 pm
#69 Anita
Hilarious. I missed that! I did catch a typo with “paid”. The L and the P are just so close on my iPad keyboard…
***********
What I wouldn’t do to have your problems. You can afford an iPad, while the rest of us just have to make do with our bloody Playstation 3’s!!
Thanks for your insight regarding preferred shares, Ryan. I have held preferred share ETFs before but I was not satisfied with the overall returns. They behaved more like equities than bond proxies with the added burden of MERs and poor market performance. Currently, I hold a number of individual preferred shares in a number of portfolios. I treat them as if they are a component of the fixed portion of the portfolios. One of the Prefered Bank Shares I hold, pays me a nice quarterly distribution that is used to buy common Bank Shares. The common Bank shares pay me dividends; truly a win-win. When I construct a portfolio I consider the prefered portion as if it is 50% fixed/50% equity. Likewise, when I invest in REITs I consider that component 25% fixed/75% equity. Using this weighing seems to be working out for me. I use Bond ETFs for the balance of the fixed portion of the portfolios. I have keep them mainly short term Bond ETFs. I try to balance the portfolios with 60/40 or 70/30 depending on the market conditions. I leave the International/Global component of my investments in the hands of Professional Money Managers.
I’m stuck. I have a work-related RRSP contribution to allow for my bi-weekly contributions to be invested through Manulife. I have them being invested in funds. This sucks. Any advice as to how and when-(threshold $$ amt. or strategy) to change this? My return so far is 10%. Santa’s helpers only, not criticizers, please.
Canadian preferreds sort of are like bonds inverse of interest rates plus are like common stock of their issuers. Follow any CAD perf ETF and their common, very correlated. All the negatives of bonds and equites.
US preferreds are completely different and are really considered fixed income and function more like bonds. CDN preferreds are very risky not unlike buying common stock of issuers, higher payout, plus rate risk thrown in.
The entire maple preferred market is basically only fellow retail beavers investing, nobody else cares to invest in our small pref market.
Not to say not worth owning, just be acutely aware of what you’re buying.
Also Smokey please feel free to enlighten us on the technique/stamina/girth of the California taxman vs trudope/whine.
You should consider moving up here to Montana. No state taxes, pro-trump media and open carry. You’d fit right in with us other deplorable here.
#70-HHC-You’re shorts are too big lol
The next Federal Elections will most likely bring in a majority NDP with Jagmeet Singh at the helm.The millennial’s now have a majority of votes as a demographic and they have been protected from personal and physical risk all through out the school system. With a potential financial drag on the Canadian Economy coming due to higher interest rates and trade barriers ( Pres Trump) , Jagmeet will use class un fairness as his political wedge. He will use the premise that wealth distribution is unfair and he will tilt the scales back . He will say it is not their fault ,but the systems .( some truth to that). He will again protect the millennial’s from personal risk. They will listen and vote accordingly Jagmeet will take taxation to a much higher level. ( Something I would support is going to a cash less society, to reduce/remove the underground economy) I think the maneuvers J Trudeau are using now ( trips to India , dressing up India style etc) are targeted to reach the undecided millennial voters. Neither Jagmeet nor a more left Justin will be able to solve the economics however. That is accomplished by creating wealth ,( business friendly environments, the development of Canada’s strengths like resources, immigration etc), not by redistribution. ( Ask Venezuelans how that is working out) .But it will get his party in power, and that is really his only concern. I may be full of crap ( at least the wife thinks so occasionally), but I think I will be close ( unfortunately).
Trade wars lead to currency wars.
https://www.reuters.com/article/us-usa-trade-treasuries-analysis/dumping-u-s-debt-a-possible-weapon-in-global-trade-war-idUSKCN1GE2ZS
Looks like the world will start dumping treasuries in response to Trumps tariffs.
Garth, king dollar is about to get knee capped, is it time to invest a bit of the portfolio in gold?
Ryan,
Can you briefly speak about the benefits/drawbacks of active Preferred Share etfs (DXP & HPR) against others like ZPR and CPD?
Obviously the active etfs cost more and seem to be performing better, but is the extra fee for having an active approach to preferreds advisable in your view?
I’m currently holding DXP as my preferred etf option.
Greetings Ryan:
Are you aware if there are preferred share ETFs covering the Australian market?
Thanks,
Steve-O
#73 AND # 75 AntiGravityMethane…
..at least we know where their frontal lobe antennae are focussed..
…..scary stuff
Thrught is what you choose to believe
https://m.youtube.com/watch?v=NVcSNnqRD0c
#81 Pete on 03.03.18 at 10:08 pm
Peter Schiff on the economy
—–
Without watching, I’m going to guess that he is his usual bubbly and positive self, and sees lots of room for growth and good times.
Monetary inflation in Canada:
https://tradingeconomics.com/canada/money-supply-m2
M2 increased by 100 % in 9 years from 2008 to 2017 (from 800 to 1600 billion), which amounts to 8 % compound money supply increase.
This is what the real inflation is.
CPI is not inflation, it measures consumers behavior, not prices of goods.
So when I see preferreds or bonds yielding north of 10 % annually (for a small 2 % real returns), I will pay attention to that.
As for retirees and savers: They lost 7 % annually since 2008 from their pensions and savings.
No wonder people withdraw from their RRSPs to merely survive.
BOC are either incompetents or lairs, maybe both, wild bill is taking care of his business, ready to tax more the middle class and the poor when needed and T2 is happy, there always will be some money for fancy organic cotton socks.
In the meantime what we perceive as GDP growth is probably an inflationary contraction to the tune of 4-5 % annually lately.
The Lord of Hogtown’s latest installment of a brief glimpse of time explores Canada’s ascendancy in the world. Conrad Black begins his essay with the sensible claim that mere affability with a Sikh terrorist is no reason to topple Trudeau’s government. He then jumps back in time to Champlain, and the origin of Canada 400 years ago (it seems like yesterday). He ascribes the relatively higher ascent of the Nordic countries to their superior intellect, but also includes Eire in the mix. A typo surely?
Apparently, the real problem is Trudeau’s affability with the Indians back home, whose alleged injustices are tantamount to luxuries to a man who has endured, nay enjoyed, the cold American steel of the slammer. He suggests we need something on grand scale to unite us, something grander than his own wedding nuptials.
To circumvent a bipartisan committee’s cross-Canada checkup on an inflated per diem, might I suggest a twelve foot high ribbon of birch ply extending the length of the 49th parallel. Both a tribute to our voyageurs, and a bulwark against the enemy geographically and intellectually below even us.
http://nationalpost.com/opinion/conrad-black-canadians-crave-an-identity-not-this-fluffy-nonsense-from-trudeau
Steve French “Greetings Ryan:Are you aware if there are preferred share ETFs covering the Australian market?”
I just did a quick google search and nothing came up. But I wouldn’t be surprised if there was one. More importantly why would you want this exposure? If it’s dividends you want why not go with CPD or PFF in the US. – Ryan Lewenza
Rex Murphy’s seething jealousy for the handsomest leader of the free world is barely restrained in the latest scribbling by the Prince of Placentia Bay (his never made it back to shore). His overuse of the word “odd” (n=9) is understandable, being the first word to pass his prominent pinnae. His reference to Rudyard Kipling no doubt stems from a suppressed childhood memory of his father’s drunken lament, “If”.
Although he asserts that Trudeau’s tour of India was “officially intertwined” with a would-be assassin, he can’t bring himself to utter the elephantine truth; that it was a mistake. Of course, this costume calamity would not have occurred if Harper were on tour. If there was even a whisper of “assassin”, he would still be in the changing room with his RCMP rent boy.**
http://nationalpost.com/opinion/rex-murphy-perhaps-justin-trudeaus-india-trip-could-have-been-salvaged-with-some-elephants
**
https://www.theglobeandmail.com/news/investigations/rcmp-contract-policing-investigation/article38085153/
The Limited Sage “Ryan, Can you briefly speak about the benefits/drawbacks of active Preferred Share etfs (DXP & HPR) against others like ZPR and CPD?”
CPD and ZPR track a preferred share index so they are always selling old issues (often at discounted prices) for new ones issued at $25. This is a negative feature of these pref ETFs since your limiting the price upside and future recovery of beaten down fixed resets. DXP doesn’t track an index so it’s not forced to do this. – Ryan Lewenza
Donny Danger “No point to prefs now. They are all trading near $25 so upside is limited as they will just get called by issuer. Terrible recommendation by Garth & Co.”
You can’t win them all! I think you missed the point about the attractiveness of the 4-5% dividend yields. Compare that to 2-3% for GICs and high quality bonds. Also there are lots of fixed resets trading around $20 so your incorrect about the potential upside. – Ryan Lewenza
“Speaking on ABC’s “This Week” on Sunday, Commerce Secretary Wilbur Ross said that Trump has spoken to world leaders about his planned tariff hikes on steel and aluminum and is not considering any exemptions to the measure.”
Here come the Trade Wars. Trump is doing exactly what he was elected to do and that is to look after the interests of the U.S. As I’ve said many time before …….. Canada only has the standard of living it has because of what the U.S. allows it to have! We are not that important and we need America more than America needs us. Canadians will find out just how much as the month and years continue to unfold.
#121 Jabberwalkie on 03.02.18 at 9:22 pm
“…..By now, everyone should know that when the Prime Minister says something, he is making a joke, and that he is not good at making jokes. Just today the Prime Minister reiterated that our government serves the middle class and all those who are working so hard to join it….”
Perfect.
For any remaining double-digit IQ voters out there who labor under the illusion that the divisive “middle class concern” crap is AT ALL real, think again. Privilege, wealth and power don’t give a mote of regard for the “middle class” – it’s ALL about the next election.
That gold-embroidered, silk poser wardrobe ($$$), complete with traveling chef ($$$), mangled state dinner guest list followed by fubar-supreme justification (an unbelievable insult to India), smiley-face prayer pose and dances like Elaine Benes at the office party vacay was yet another complete joke and is net NEGATIVE for Canada’s trade with yet another (economically HUGE) country PO’d with Soxy.
Soxy did not rock it and is now a cetacean global laughing stock. You can’t make this stuff up.
The deeds are far more a joke than the words are – it’s begun to reek of slapstick.
Canada is paying incalculably for this endless and wasteful soap opera on the hill. Think about that as you complete your tax returns.
Soxy will likely be remembered as……..the first PM of Canada who TRULY did fall down the political stairs.
https://www.youtube.com/watch?v=lRnwK01n904
No joke.
Gifted amateur economists have predicted a huge runup in the price of gold, due in part to the declining US dollar. Canadian gold miners are expected to remain unprofitable in order to continue enjoy the tax-free status on their opaque, but profitable foreign assets.
Wheaton Precious Metals (formerly Silver Wheaton), hopes to convince the CRA that they should be exempt from the rules, citing Icelandic case law ” The Plunderer’s Guide to Income Abroad”.
https://www.theglobeandmail.com/globe-investor/gold-and-silver-streaming-model-hits-a-bump/article38126626/?cmpid=rss
” With your common shares you benefit from fairly consistent dividend increases which does not apply to the prefs”…and when there is limited increases there is always an enormous buying op.
None of the big 4 or 5 Candian chartereds have ever cut or suspended their common share dividends but they have had periods like ’08-’12 where there were no dividend increases at all and the share prices tumbled but this situation pushed the yield wayyyyy up from the average 3.5% the banks try to maintain and provided an incredible buying op for anyone with a mediumto long term horizon and the knowledge that none of the banks were going to reduce their divs.
Past/future performance rules aside, when there’s 150 years of past performance of never reducing dividends then it’s all but a dead nuts certainty there won’t be a reduction unless we experience something far worse than the 2008 meltdown.
“I don’t know how much of one’s portfolio should contain bank shares, but the older you get the more you have the better you’ll feel!’….Soooooooooo true.
One thing about Canadian bank common shares that rarely gets mentioned is their habit of splitting after trading over $100 for a while. This habit of splitting can (and in my case has) resulted in enormous profits over 20+ years from just being patient and dripping the divs.
Isn’t it the case that dividends subtract from money that would otherwise be spent on R&D or otherwise reinvested in the company, which in the long term is reflected in its valuation? For long term investors, it seems that dividend-paying stocks are a zero sum game. My momma taught me that chasing yield is folly.
TREB stats tomorrow. Going to show very few sales, and very few listings. Price direction uncertain, until we see data tomorrow.
Garth and media will compare Feb 2017 to Feb 2018, which as we know will show pre-correction prices vs post-correction prices. Reminder: We had a very sharp price drop of (- $186,646 ) from May 17 thru August, 17 followed by less volatility.
More recent prices look like this:
August 17 (low) – $731,622
December 17 – $735,888
January 18 – $736,783
February 18 – ???
I only compare data the same way realtors do. You crowed last spring. This spring you eat some. – Garth
Regarding
” #90. Fuzzy Camel on 03.03.18 at 11:39 pm
Trade wars lead to currency wars.
https://www.reuters.com/article/us-usa-trade-treasuries-analysis/dumping-u-s-debt-a-possible-weapon-in-global-trade-war-idUSKCN1GE2ZS
Looks like the world will start dumping treasuries in response to Trumps tariffs.
Garth, king dollar is about to get knee capped, is it time to invest a bit of the portfolio in gold? ”
—————————/)(\——————–
Just wondering, if coming US Trade tariffs pretty much ends Canadian resource industries , one by one , wouldn’t this do same to Canadian Currency?
In addition, investment might end, investment in treasuries, Gov bonds, foreign dollars coming in?
Then it might positively effect Gold ( fear money hiding) , and the Stock market ( think ETFS ) in positive ways.
Regards Ladies and Gents,
@#97 Empire Penguin
You must be elated at the news.
1.5 million penguins “discovered” on Danger Island in the Antarctic.
and how did researchers discover this “lost colony”?
Penguin poop.
Massive amounts of poop on the snow …. over so large of an area ……it was visible from space.
Who knew satellites could be put to such use.
Anywho.
Congrats on the find.
https://www.google.ca/url?url=https://mashable.com/2018/03/03/penguin-supercolony-found-in-antarctica/&rct=j&frm=1&q=&esrc=s&sa=U&ved=0ahUKEwjDtqm4p9PZAhUQ5WMKHYFJBuEQqQIIGzAC&usg=AOvVaw1yP8DCurl1DQ252T082V4l
Having fun with Trudeau…
https://www.zerohedge.com/news/2018-03-04/watch-canadas-trudeau-explains-trade-us
#107 ex-Van on 03.04.18 at 11:59 am
Isn’t it the case that dividends subtract from money that would otherwise be spent on R&D or otherwise reinvested in the company, which in the long term is reflected in its valuation? For long term investors, it seems that dividend-paying stocks are a zero sum game. My momma taught me that chasing yield is folly.
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My momma never read the Atlantic to me at bedtime, so I never learned about “shareholder value maximization” or SVM, until later in life. She was always going on and on about the depression.
https://www.theatlantic.com/politics/archive/2015/02/kill-stock-buyback-to-save-the-american-economy/385259/
Thank you for the info Ryan – very much appreciated!
LOL..”preferred”… juicy investing by siding the tax man :)
..where’s the investing ? especially when parity bets are going bust ?
(that is when bonds and stocks go down together) :)