Preferred Shares December 16, 2023

I’ve just updated most of the preferred shares on our list. With a good selection of both perpetual and rate resets.

I’m surprised that the perpetuals have not risen more in response the the sharply lower government bond yields this past week and recently. That in turn was due to indications that the central banks will lower interest rates next year. Hopefully the perpetuals will rise in the coming weeks if the market remains convinced that interest rates will decline in 2024.

The rate resets are harder to judge. As bond yields come down, their current yields look more attractive but that may be offset by the fact that their projected future reset yields have declined with lower interest rates. In this case a reset that is four to almost five years away from its next reset and which has a high yield might be a good bet.

It’s always possible that any one of these preferred shares will be redeemed at $25 (for resets that can only happen on the reset dates every five years). In most cases this would be a nice capital gain from current prices. But we can’t count on that. The Banks are somewhat more likely to redeem because as regulations change certain preferred shares are no longer as useful to them and so they sometimes redeem them – but it’s hard to know the possibility of that happening. It’s best to buy these for the yields and not count on any future redemption ever at $25.

It’s also best to diversify across a number of these rather than concentrate on one or two issues.

It’s hard to judge what rating to put on these and there is not much difference here between my (higher) Buy rating and my Strong Buy rating.


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