Canadian Western Bank preferred share update June 4, 2017

The Canadian Western Bank rate reset preferred share on our list is updated and rated (lower) Buy at $21.16.

Similar to many other rate reset preferred shares that are trading well below their $25 issue price, the hope here has been that the yield on the 5 year government of Canada bond would rise which would push up the projected yield on these shares at the time of their rate reset.

In late 2016 that 5 year Canada yield did rise and these rate reset shares did well. But then that rate peaked in mid March at about 1.32% and has since fallen to about 0.92%.

It seems inexplicable that there is large amounts of money that institutions are willing to lock up at the low return of 0.92% for five years. And this despite the fact that the U.S. FED has raised interest rates three times in the past 18 months and appears set to continue to increase.

If the five year government rate does not rise by the CWB reset date in April 2019 then then this is not going to be a very good investment. (but not a terrible investment either). I would consider putting a small portion of my funds into these shares in lieu of holding cash in the hopes of getting a dollar or two of capital gain if the five year Canada bond does finally rise. If I held these I would likely continue to hold.

In taxable accounts these shares get the dividend tax credit. Many advisors might suggest NOT holding these in a non-taxable account. But I would prefer to hold in non-taxable accounts where I don’t have to worry about taxes and the extra reporting required if the shares are sold. If a person has ONLY non-taxable accounts then I would definitely disagree with any advice to not hold preferred shares in a non-taxable accounts.