Vital Factors to consider in Preferred Share investing

  • Very confusing to analyze
  • Limited information available with the exception of PrefBlog, some online brokerage sites
  • Individual issue credit ratings are lagging indicators
  • No real credit research available unless one uses the common stock research
  • Preferred shares are really a form of equity and are not fixed income
  • Dividends can be cut anytime
  • Cumulative dividend feature does not protect investors in case of bankruptcy
  • Preferred share market suffers from liquidity issues. Non taxable pension funds do not invest
  • Investors must be properly informed of differences between perpetuals, rate resets, retractables and floating rate preferreds
  • Never assume an issue will be called at the $25 issue price unless it is in the financial best interest of the company
  • For rate resets, investors must look at the current yield of comparable issues in addition to the expected rate reset yield of the issue in question
  • If the new reset rate is much lower than both its current yield  addition to other comparable new or existing issue current yields,  the probability of the issue being  called is very remote
  • When in doubt, contact the company’s investor relations department to confirm the features of the preferred
Posted in Blog Post.

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