Canadian Western Bank Preferred Share Series 5 updated September 11, 2017

The report for the Canadian Western Bank rate reset preferred shares Series 5 is updated and rated Buy at $22.50 yielding 4.9%.

Given the the two recent Bank of Canada rate increases the projected dividend at the reset date of April 30, 2019 has increased and the projected yield (at the current price) is 5.0%. Accordingly, the share price has increased. Given expectations of further rate increases these shares could increase towards $25. But I would not expect the price to go past $25 since the bank can redeem them at $25 on April 30, 2019. If the yield at that time was above the yield the bank could issue new prefs at then they would likely be redeemed.

Like many rate reset pref shares issued around 2014 and prior, these fell from their initial price of $25 as interest rates unexpectedly fell which lowered the projected reset dividend. Over the past few years there have been occasions when these shares become quite attractive. Our highest rating was (higher) Buy at $16.61 on March 13, 2016. These shares were rated Buy at the start of 2017 at $19.05. They would not have been a good investment at our initial rating of Buy at $25.64 in July 2014. However, there were good opportunities to invest at good prices in the later months of 2015 and in all of 2016 and the start of 2017 as indicated from time to time in the daily comments and occasional updates of the report.

These shares are worth considering for the reasonably good yield of 4.9% combined with a potential for as much as an 11% capital gain over the next 20 months. There is also always the potential for a capital loss if interest rates fall (seems unlikely) or CWB runs into financial difficulties (unlikely but always possible).