Markets were mostly up moderately on Wednesday as the S&P 500 rose 0.2% and Toronto rose 0.35%.
Shopify surged another 8.3%. And Amazon was up 2.4%.
But many of the stocks on our list were down somewhat.
AutoCanada was down 5.7%. This morning Desrosiers reported that automotive shipments in Q3 were quite weak. It was not at all clear to me how that related to AutoCanada’s prospects. But presumably the various shutdowns and restrictions on retail operations are having a negative impact. AutoCanada has had an extremely strong recovery from its lows and so this decline is perhaps not surprising.
Boston Pizza Royalties has just announced a special 20 cent per unit distribution payable January 29. Their regular distribution is 6.5 cents. They had indicated about two months ago that there would likely be a special distribution in December. This is a one-time thing and is being done because they need to distribute all profits in order to remain non-taxable as an entity. They has suspended distributions for about six months and this is where the cash is coming from. This is absolutely a one-time thing. I thought they might not do it given the shutdowns must be once again taking a toll on their royalty income coming in.
An announcement about the redemption of a rate reset preferred share from Enbridge caught my eye.
A subsidiary of Enbridge (Westcoast Energy) will redeem its 5.25% minimum rate reset shares. These shares have generally traded at moderately higher than $25. That’s because the 5.25% minimum reset makes them much safer and more attractive than most rate reset preferred shares many of which trade well under $25 because interest rates fell and they will reset at low rates. I’d like to think that Enbridge / Westcoast is redeeming these because they consider 5.25% to be too high. If the required market yield on rate resets is falling due to lower interest rates then that is supportive of the price for all rate resets. But there may be other reasons that Westcoast no longer wants or needs these preferred shares on their balance sheet. Westcoast can likely issue debt at significantly lower rates than 5.25%. Also Westcoast has a higher retained earnings level now than it did at the start of 2020. If the credit rating of the Westcoast debt has increased then these preferred shares may not be “needed”. Preferred shares add equity that can improve the credit rating on debt issuances.
In any case minimum rate, rate reset preferred shares can be attractive. I mentioned on December 3 below that Brookfield Infrastructure has a 5.5% minimum rate reset limited partnership unit (BIP.PR.A) that is trading not much over 25. I don’t like the tax complexity of this one and would buy it in a non taxable account.