[FinancialJungle]

A "free lunch" play is to buy the preferreds (e.g. YPG.PR.B) instead of the trust units.

YPG.PR.B pays 9.8% and has a $25 retraction on 2017-6-30. After tax, this preferred pays more than the trust counterpart, plus preferreds have a higher claim on assets than the trust units. So, more lucrative and safer, that's your free lunch.

I picked mine up last year, but it's only up 11% since. Still very cheap. Also, 2017 is a good time frame to unload Yellow Pages anyway, because let's face it, Yellow Pages isn't a good long-term hold. I don't trust their business model enough to go long on their trust units.

 

[FrugalTrader]

Interesting play JG. What does the YLO.UN preferred distribution consist of? Is it purely dividend? Or is it similar to the equity distribution (ROC/cap gain/interest/div)?

 

[ethos1]

A "free lunch" play is to buy the preferreds (e.g. YPG.PR.B) instead of the trust units.

YPG.PR.G pays 9.8% and has a $25 retraction on 2017-6-30. After tax, this preferred pays more than the trust counterpart.

free lunch (I'd be so lucky) , YPG.PR.B (YPG-PB.TO) is a typical $25 preferred 5% coupon with the stock currently at $12.75 last close.

All the same this looks on the surface like one to have and hold JG

I wonder though why these preferreds are down by almost 50%

 

[FinancialJungle]

My understanding is that preferred shares pay pure dividends. Can anyone confirm?

No idea on the magnitude of the collapse. I just worry about eating my free lunch.

 

[Brad911]

YPG.PR.A & YPG.PR.B both pay 100% Canadian dividend tax credit eligible dividends for a taxable CDN investor (no ROC, interest, CG).

 

[dauphin]

What is a pure dividend? And why would you pay less tax on preferred shares? Sorry for my ignorance.

 

[FrugalTrader]

I'm a little out of the loop with regards to preferreds, what are some high yield, fairly safe preferreds on the market now?

Dauphin, here is some background on distributions:
Income trust distributions
Dividend Taxation

 

[FinancialJungle]

I'm a little out of the loop with regards to preferreds, what are some high yield, fairly safe preferreds on the market now?

The best time to buy preferreds was around last Christmas. I bought my first and the only tranche then, but the preferred market rebounded too quickly to accumulate enough positions. To see what I mean, take a look at the chart for BAM.PR.J. I snapped up a small position at $11.54 and sold it last week for an 85% gain. It's not just BAM. All the bank, utility, pipeline, insurance, grocery preferreds are higher.

I'm no expert in fixed income investing, so take it with a grain of salt. I feel the valuation for preferreds are not compelling anymore, except for Yellow Pages preferreds which are still attractive. I think scomac and brad follow preferreds more closely than I do, and I'd love to hear some ideas from these guys and others.

FWIW, I switched my attention to corporate bond ETFs, junk bonds to be specific. Maybe they're the next to bounce. I should also mention that this is just my semi-gambling money.

 

[tojo]

The best time to buy preferreds was around last Christmas. I bought my first and the only tranche then, but the preferred market rebounded too quickly to accumulate enough positions. To see what I mean, take a look at the chart for BAM.PR.J. I snapped up a small position at $11.54 and sold it last week for an 85% gain. It's not just BAM. All the bank, utility, pipeline, insurance, grocery preferreds are higher.

I'm no expert in fixed income investing, so take it with a grain of salt. I feel the valuation for preferreds are not compelling anymore, except for Yellow Pages preferreds which are still attractive. I think scomac and brad follow preferreds more closely than I do, and I'd love to hear some ideas from these guys and others.

FWIW, I switched my attention to corporate bond ETFs, junk bonds to be specific. Maybe they're the next to bounce. I should also mention that this is just my semi-gambling money.

I too took a small position in BAM.PR.J in December. Looking back, I wished I'd bought more, as at the time I calculated my yield on purchase was 11% and yield to retraction (March 2018) ~ 16.5%. This is an investment grade pref....why even take on equity risk if you can manage that kind of return on a fixed income-like product? My recent purchases in the last few months have been high quality / investment grade prefs. I've been burned too many times in the past with equity (ETFs, Mutual Funds, dividend growing stocks etc.) and by not having enough diversification into fixed income asset classes. You are right in that last Christmas was the best time to buy preferreds - when fear and tax loss selling created unbelievable buying opportunities. The good deals have more or less evaporated, but you can still buy high-grade perpetuals ~ 7% yield (SLF / POW / GWO). If you bought YPG.PR.B at the close Friday ($12.75) your yield at purchase would be 9.8% and yield to retraction ~16% - not too shabby, but keep in mind that YPG is a notch below investment grade. Safer than the trust units (YLO.UN - which I hold in my TFSA) but not as safe as the banks and lifecos prefs.

 

[FinancialJungle]

The good deals have more or less evaporated, but you can still buy high-grade perpetuals ~ 7% yield (SLF / POW / GWO).

Speaking of lifeco, I also bought SLF.PR.B in early March for $14.10 yielding 8.4%. It closed last Friday at $17.15 yielding 7.0%, which is still cheap historically.

Among all my preferreds, YPG.PR.B has gone up the least, or has the most upside potential left. In favouring diversification, I don't plan on adding more to this position.

Next I like to add utillity, George Weston and maybe bank preferreds to my collection if/when the price is right.

Hope you stick around, tojo, for brain picking.

 

[ethos1]

TSX: Brookfield

looking at what was posted above by tojo BAM.PR.J is currently yielding 6.3%, I guessed some missed the boat on that one

is there not other Brookfield preferreds still a bargain?

the list is

http://www.brookfield.com/investorcenter/stocksymbol/symbol.asp

BAM.PR.N-T for example is only $14.35 is currently yielding 8.3%

Does anyone have a link to the full list of of preferreds on the TSX?

 

[tojo]

looking at what was posted above by tojo BAM.PR.J is currently yielding 6.3%, I guessed some missed the boat on that one

is there not other Brookfield preferreds still a bargain?

the list is

http://www.brookfield.com/investorcenter/stocksymbol/symbol.asp

BAM.PR.N-T for example is only $14.35 is currently yielding 8.3%

Does anyone have a link to the full list of of preferreds on the TSX?

Don't compare BAM.PR.J to BAM.PR.N. N is a perpetual, which means that Brookfield is under no obligation to redeem your shares and you can theoretically hold them indefinitely (unless of course, you sell on the market). J is a RECTRACTABLE - meaning on the retraction date (March 31, 2018), you have the option to redeem your shares from Brookfield for $25/share. Retractable characteristics is very bond-like compared to perpetuals (that have no maturity date).

Diversification with prefs is not realized by holding different companies, but also by investing in the different classes of prefs e.g. perpetuals, retractables, splits, floaters, resets etc. The obvious tempation is to buy a basket of perpetuals from different companies - as they typically offer the highest yields. However, at the next significant interest rate upturn, you will be totally hammered by them .

 

[ethos1]

Don't compare BAM.PR.J to BAM.PR.N. N is a perpetual, which means that Brookfield is under no obligation to redeem your shares and you can theoretically hold them indefinitely (unless of course, you sell on the market). J is a RECTRACTABLE - meaning on the retraction date (March 31, 2018), you have the option to redeem your shares from Brookfield for $25/share. Retractable characteristics is very bond-like compared to perpetuals (that have no maturity date).

Diversification with prefs is not realized by holding different companies, but also by investing in the different classes of prefs e.g. perpetuals, retractables, splits, floaters, resets etc. The obvious tempation is to buy a basket of perpetuals from different companies - as they typically offer the highest yields. However, at the next significant interest rate upturn, you will be totally hammered by them .

thanks tojo, that certainly puts things into context with regard to the different type of preferreds

Anyone have a full list or a link to all of the rectracable preferreds listed on the TSX

 

[tojo]

looking at what was posted above by tojo BAM.PR.J is currently yielding 6.3%, I guessed some missed the boat on that one

is there not other Brookfield preferreds still a bargain?

the list is

http://www.brookfield.com/investorcenter/stocksymbol/symbol.asp

BAM.PR.N-T for example is only $14.35 is currently yielding 8.3%

Does anyone have a link to the full list of of preferreds on the TSX?

Try this Ethos: http://investdb.theglobeandmail.com...0903090029240002&pi_currency=&pi_param_1=1360 , not a full list but I believe these are the most liquid offerings.

 

[FrugalTrader]

How do you guys determine which preferred is "investment" grade? Via DBRS?

 

[Brad911]

I think scomac and brad follow preferreds more closely than I do, and I'd love to hear some ideas from these guys and others.

JG is right; buying preferreds in the Oct/Nov/Dec was the best timing looking back in retrospect. The preferred market works a little different than many investors are used to. Preferred's tend to be illiquid and this contributed to the mispricings in late 2008 where you could easily get a high quality preferred at a 7-10% eligible dividend.

Investors panicked - it's as simple as that. Because a certain series of preferreds might trade at a daily volume of 5500 shares people flooded the market with sell orders because they wanted to get out NOW! They didn't care what price they got out at, they just wanted out. This mass exodus caused a lot of preferreds to drop to ridiculous levels. When you considered that you could buy a CDN bank preferred for the same equivalent dividend, higher equity claim and safer dividend (common has to be cut before preferred can be cut) it was a no-brainer. Yeah the common share could appreciate higher, but you were putting your equity at higher risk.

I'm up 40% (not including the dividend) on a few of my preferreds and they were a lot safer bet than investing in the common equity at the time. At one point the spread between bids & asks could have been as much as $1.00, which when you think of it goes to show you just how insane the market was being.

I had been researching preferreds for about eight months when all hell broke loose and I was glad that I had taken the time to learn what I did. I have a 15% allocation to preferreds in my CDN portfolio (DivG) and that helps to level out volatility, add additional income and improve my ability to avoid dividend cuts.

How do you guys determine which preferred is "investment" grade? Via DBRS?

If you want to compare credit ratings from Moody's, S&P and DBRS you can access a PDF I made for one of my big fixed income posts this year here

If you go to the DBRS website you can search for the company you want to look up the rating on. We can use yellow pages as an example.

Type in "yellow pages" and you'll come to a search result screen that gives you three tabs: Issuers (2), Ratings (6) and Research (130).

If you click on Ratings (6) you'll see that they list all the equity, commercial paper, preferreds, debentures, etc.
For the YPG pref's they have them listed as (YPG Holdings Inc., Cumulative Preferred Shares, Pfd-3 (high), Confirmed 6 Nov 2008)

YPG pref's are rated as Pfd-3 (high) vs. say Pfd-1 for a company such as TD bank.

If you go to page 4 of this DBRS article there's a really good description of what all their preferred ratings mean.

Hope that helps MDJ.

 

[FrugalTrader]

Thanks for the helpful explanation Brad. This discussion now has my mind racing with new opportunities for my leveraged portfolio.

Now we should all hope for another downturn so that we can buy more preferreds at insanely low prices!

If you want to compare credit ratings from Moody's, S&P and DBRS you can access a PDF I made for one of my big fixed income posts this year here

If you go to the DBRS website you can search for the company you want to look up the rating on. We can use yellow pages as an example.

Type in "yellow pages" and you'll come to a search result screen that gives you three tabs: Issuers (2), Ratings (6) and Research (130).

If you click on Ratings (6) you'll see that they list all the equity, commercial paper, preferreds, debentures, etc.
For the YPG pref's they have them listed as (YPG Holdings Inc., Cumulative Preferred Shares, Pfd-3 (high), Confirmed 6 Nov 2008)

YPG pref's are rated as Pfd-3 (high) vs. say Pfd-1 for a company such as TD bank.

If you go to page 4 of this DBRS article there's a really good description of what all their preferred ratings mean.

Hope that helps MDJ.

 

[tojo]

I have a 15% allocation to preferreds in my CDN portfolio (DivG) and that helps to level out volatility, add additional income and improve my ability to avoid dividend cuts.

That's a smart play Brad...I have myself close to 25% of my non-rrsp portfolio in investment grade prefs ... all acquired from the recent panic sell-offs, and it's paid off handsomely from capital appreciation alone. I will now enjoy the nice secure dividend payments and lower volatility these shares will provide. For those who are considering getting into to somewhat complicate and confusing world of prefs, you are encouraged to tap into the knowledge and wisdom of Jame Hymas http://www.himivest.com/. By far the leading authority in the Canadian Pref market. Do your research and learn and perhaps act if you are comfortable with prefs as there are still opportunities out there.