| Canadian Western Bank Preferred Shares Series 5 (CWB.PR.B) | |
| Author(s)’ disclosure of share ownership: | Author(s) hold shares |
| Last updated: | 07-Apr-24 |
| Share Price At Date of Last Update: | $21.81 |
| Yield: | 7.3% |
| Currency: | $ Canadian |
| Generic Rating (This rating does not consider the circumstances of any individual investor and is therefore not specific advice for any individual): | Buy at $21.83 |
| SUMMARY AND RATING: These Canadian Western Bank rate reset Preferred shares (CWB.PR.B on Toronto) were issued ten years ago and will soon reset for the second time. They were originally issued at a price of $25.00 by prospectus dated February 3, 2014 paying 4.4% on a $25.00 amount ($1.10 per year). For more detail consult the prospectus on sedar.com. The dividend resets every five years (starting April 30, 2019) and is set at the yield on the five-year Canada Bond 30 days prior to the reset plus 276 basis points. Therefore, on April 30, 2024 they will reset to pay 6.371% of $25 or $1.59275 per year. On April 5, 2024, they closed at $21.81 to yield 7.3% per year. If held in a taxable account, they are eligible for the dividend tax credit. The dividend is non-cumulative (In the unlikely event that they skip a dividend due to financial difficulty, you will never get that dividend). The dividend on the next reset sate, april 30, 2029 is very difficult to predict but could be significantly lower than the current dividend. CWB cannot redeem these shares before April 30, 2029, but on that date (and on each future 5 year anniversary) can redeem at $25.00. That feature likely caps the upside on these shares at no more than $26 to $27. These preferred shares are subject to a market value decline if Canadian Western Bank’s outlook worsens and there is some potential for dividends to be skipped or for the Bank to go bankrupt with no recovery of this investment. However we suspect that the possibility of such a bankruptcy scenario is quite remote. The Bank can convert these preferred shares into common shares in the event of a triggering event whereby the bank’s financial viability is in doubt. We consider the chances of that ever happening to be very remote. These preferred shares are rated Pfd-3 by DBRS on a scale of 1 to 5, where 1 is the strongest and their outlook is stable. Due to the rate reset feature, these shares are not as risky as perpetual preferred shares in terms of the risk of an interest rate increase. In fact, higher rates at the reset date would be beneficial in terms of yield although that benefit might be largely offset by a higher market required yield. However, investors have learned that rate reset shares can be risky in terms of interest rate decreases. Since the nest reset is five years away, lower rinterest rates are likely to result on a capital gain on thise shares. We now rate these shares a Buy based on the 7.3% yield and some possibility of a capital gain. There has been no recent insider trading in these shares. Overall, these shares are rated Buy at $21.81. | |
| INSIDER TRADING / INSIDER HOLDING: (Updated April 7, 2024) There has been no insider trading reported for at least the past two years. There is also very little insider holding. Only five insiders own these shares and the amounts amount range from 1000 to 8000 shares (average is about 3000 or $75k at $25). | |
| Symbol and Exchange: | CWB.PR.B, Toronto |
| Basis and Limitations of Analysis: The following applies to all the companies rated. Conclusions are based largely on achieved earnings, balance sheet strength, achieved earnings per share growth trend and industry attractiveness. We undertake a relatively detailed analysis of the published financial statements including growth per share trends and our general view of the industry attractiveness and the company’s growth prospects. Despite this diligence our analysis is subject to limitations including the following examples. We have not met with management or discussed the long term earnings growth prospects with management. We have not reviewed all press releases. We typically have no special expertise or knowledge of the industry. | |
| DISCLAIMER: All stock ratings presented are “generic” in nature and do not take into account the unique circumstances and risk tolerance and risk capacity of any individual. The information presented is not a recommendation for any individual to buy or sell any security. The authors are not registered investment advisors and the information presented is not to be considered investment advice to any individual. The reader should consult a registered investment advisor or registered dealer prior to making any investment decision. For ease of writing style the newsletter and articles are often written in the first person. But, legally speaking, all information and opinions are provided by InvestorsFriend Inc. and not by the authors as individuals. The author(s) of this report may have a position, as disclosed in each report. The authors’ positions may subsequently change without notice. | |
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