TD Direct has just now (3:50 pm eastern) sent out an alert that NFI Group has a new issue of a 5 year convertible debenture at 5.0% as well as a stock issue. I have not yet seen if the reason is for an acquisition.This is the bus manufacturer, formerly New Flyer Industries.
Well there seems to be a lot of these convertible debentures coming out. I have bought a few lately and will not participate in this one. This one is convertible $33.15 and the stock price is now $25.69.
I would buy these for the interest income, not the conversion possibility. The conversion would just be icing on the cake. If I was very interested in the stock and thought it is very likely going to do well I’d buy the stock. In this case I have never looked at the company although I have often thought about it.
Without knowing a lot about it, I’m still pretty confident that the credit is good and it would pay the 5% for the five years and mature on schedule.
Given today’s low interest rates, these convertibles at 5 to 6% are probably a good choice for a portion of a portfolio. I’d favor a non-taxable portfolio for these such as an RESP, TFSA or RRSP / RIF. But only for a portion of the portfolio.
It’s tempting to think of this 5% as a good substitute for cash accounts earning very very little. But be careful. There is NO SUBSTITUTE FOR CASH (and cash equivalents like short-term guaranteed securities). Many of us learned the lesson years ago buying rate reset preferred as a substitute for cash and then those dropped drastically in price when interest rates unexpectedly fell. Convertibles tend to fall in price when the markets get ugly but they do also certainly tend to mature at par.
So again, these convertibles are worth considering but only for some portion of a portfolio. And I do like the idea of having at least several names for diversification.
P.S. Shortly after the close, TD Direct sent out notice for two more convertible debentures. If interested check the New Issues (IPO) section of your online broker account. Usually several big bank brokers will be selling the same new issues but they don’t all get involved with everyone so check what your particular broker has on offer and sign up for the new issue alerts if interested. I have no idea if the various non-bank discount brokers offer these new issues.