There is plenty of discussion going on throughout the site on various Canadian securities so this post is for creation of a “Canadian Discussion” page.
This was requested by a reader and it is easy to do so we can do it quickly.
Hopefully this will be a page for those with Canadian interest will meet up.
Is there something going on with the Manulife preferreds today? I own the M and the N series and they are up big like 10% on strong volume.
LI, Looks like a few issues:
four of their resets have jumped, one close to reset prob not a call target with an under 2% probable reset,
three around 4% yield to reset and one at 4.8 to reset,
all below par,
low volume, close to xdiv.
maybe someone sees the value of IG resets here?
PLEASE do NOT tell anyone else! Everything else in in stratosphere. Consider the garbage that has been coming to the US exchanges.
Thanks for your comments. Was wondering if they announced a call or something but another IG life insurance reset I own SLF-I is also up big. However, FTS-G an IG utility is doing nothing today.
“ maybe someone sees the value of IG resets here?”
Not me. I’ve been a seller not a buyer here.
LI, Just logged on and clicked thru my watchlist of resets.
Seems like there are other impulses up on some IGs regardless of yields.
I’ll pare back if needed if there is absurdity, but the question is always, “Compared to What?” (By the way, that is a great song if you are looking for a YouTube jazz flashback: ‘Gotta Make it Real, Compared to What?’ I like Mayall’s version, I think the other is Les McCann?)
Anyway, I am looking out a decade and have cash to allocate. I think the light has now found these resets and no telling what the chasers can do now.
I have access to the futures market, so the alternative for me is adding to something like WFC-L/BAC-L and hedging out the rate risk by shorting the 10 year.
Manulife came out with huge earnings yesterday and also issued A- rated LRCNs. LCRN’s are debt that goes away in a financial crisis. The effect of both is to strengthen the MFC preferred.
Rates have also been inching up.
SLF is a similar company so I’m thinking it went up in sympathy.
Bob – yes both companies reported excellent 4th quarter results with common shares up over 1% on large volume today when overall TSX down 0.35%. (Manulife $48B market cap vs Sunlife $36B) . Both CEO’s provided optimistic forecasts for 2021
Resurrecting an old discussion – EBBNF v EBGEF Can anybody explain why not only is EBBNF trading higher than EBGEF right now (19.50 v 19.05), it’s also bid higher as well (19.50 v 18.26)? Assuming I’ve got my facts straight, EBBNF currently has a 4.96% coupon and it resets 9/1/22 at 5 yr US Treas + 3.15. EBGEF has a lower + 5 yr US Treas reset rate of + 2.82 BUT it’s current coupon is 5.3753% AND its current 5.3753% stays in place a year and a half longer than EBBNF. So presently, EBBNF has a current yield of 6.36% v EBGEF, 7.05% and EBGEF is locked in until 3/1/24 while EBBNF, were it to adjust today, would go DOWN from 4.96% to 3.63% coupon a year and 1/2 before EBGEF even changes. How does that make EBBNF worth more than EBGEF???? The only possible rationale I can come up with is the marketplace might be valuing the higher reset rate over Treas that EBBNF has v EBGEF, 3.15% v 2.82%. But if the rally that all these issues has had it based on an accurate belief that we could be entering an era of rising interest rates, wouldn’t that .33% differential be expected to easily be absorbed by the fact that EBBNF resets 1 1/2 years earlier than EBGEF??? That’s my premise anyway – who wants to take the other side?
I agree. For me EBGEF is the better choice.
EBGEF wins.
BEPC –
Brookfield Renewable Announces Secondary Public Offering
February 08, 2021
BROOKFIELD, News, Feb. 08, 2021 (GLOBE NEWSWIRE) — Brookfield Renewable Partners L.P. (the “Partnership”) (NYSE: BEP; TSX: BEP.UN), Brookfield Renewable Corporation (“BEPC” and together with the Partnership, “Brookfield Renewable”) (NYSE/TSX: BEPC) and Brookfield Asset Management Inc. (“Brookfield Asset Management”) (NYSE: BAM; TSX: BAM.A) announced today the commencement of a proposed secondary public offering of 15,000,000 class A exchangeable subordinate voting shares (the “Exchangeable Shares”) of BEPC by subsidiaries of Brookfield Asset Management (the “Selling Shareholders”). The Selling Shareholders expect to grant the underwriters a 30-day option to purchase up to 2,250,000 additional Exchangeable Shares. Brookfield Renewable is not selling any Exchangeable Shares in the offering and will not receive any of the proceeds from the offering. The offering is subject to market and other conditions, and there can be no assurance as to whether or when the offering may be completed.
Each Exchangeable Share is structured with the intention of providing an economic return equivalent to one non-voting limited partnership unit (a “Unit”) of the Partnership (subject to adjustment to reflect certain capital events). Each Exchangeable Share will be exchangeable at the option of the holder for one Unit (subject to adjustment to reflect certain capital events) or its cash equivalent (the form of payment to be determined at the election of Brookfield Renewable).
Barclays, J.P. Morgan, Morgan Stanley, and Scotiabank are acting as joint book-running managers for the offering.
The offering will be made only by means of a prospectus.
Never ceases to amaze me the convoluted deals that BAM puts together with all their subs – but I continue to hold a number of them and just let it ride for the long term
TBH. If investors keep holding BEPC even when it trades at a premium to BEP of 25-30 pct. they are asking for it…It’s not in the interest of BAM to have such a big price difference between 2 share classes, that are economically identical.
There is one difference, Peter. BEPC can be exchanged 1:1 for BEP but not the other way.
Still, no reason for the big difference. Some, perhaps is the K-1 discount that BEP (as a partnership) generates, but a 20% difference?
Buy BEP and put in in your Roth (or standard IRA if you haven’t figured out how to do conversions). No withholding, no tax, no UBTI.
In today’s Globe & Mail — Brookfield looking at IPO spin out for $20B – BAM is definitely the CDN leader in financial engineering.
Canada’s Brookfield Asset Management Inc. is aiming to take Clarios public that could value the car battery maker at $20 billion, Bloomberg News reported on Wednesday, citing people familiar with the matter.
Brookfield bought Glendale, Wisconsin-based Clarios from Johnson Controls International Plc, a maker of digital solutions for buildings, for $13.2 billion in 2019.
The Canadian firm is considering an IPO for Clarios later this year, according to a report
No final decision has been made and Brookfield could opt to keep the business, Bloomberg reported.
Brookfield and Clarios did not immediately respond to Reuters requests for comment.
Now tonight just announced BIP is making a hostile bid for CDN pipeline company Inter Pipeline which has been struggling trying to build a new petrochemical plant near Edmonton. BIP is trying to lowball taking advantage of IPL current weakness. BAM classic strategy
AHHHH…again…..just when the steadfast management has just entered the light. In this case f BIP!
Money men do not build anything, they raid like Vikings just when the crops are coming in.
The management at IPL or IPPLF has done a magnificient job, just to become a target? These guys are ROCK STEADY. Keep the present management.
I know IPL was looking for a minor partner at Heartland, so encourage them to do just that.
Here is IPL’s contact info, call and email to REBUFF BIP and support their shareholders: DO THIS!
https://www.interpipeline.com/contact.cfm
Unlike The US, they will probably contact you back, even by phone.
AZP all over again. Nothing left for us bums when the strippers show up.
CB,
So many things related in the world, have to see what is happening. Batteries can be a dirty low margin business.
A year ago the market fell out of the battery business. People cut way back on driving so no demand for new batteries, hence no demand for Pb so price for it fell below cost of what the “battery Breakers” needed to get above cost of recycling for the Pb and getting rid of non-recycle material. So no demand low price. Now people are driving more and finding out they need to replace their battery so great time to be selling batteries and good time to get rid of a low margin business.
Typical Brookfield. Buy good assets that aren’t loved at the time, or aren’t well managed, or the seller is distressed or otherwise motivated. Then, wait until it’s loved, fix the management issues, recapitalize, and sell off part at a considerable profit.
It’s a simple formula but few actually do it. And it isn’t destructive of value like what all the hedge fund people do. BAM isn’t an asset stripper. But they do make money for their shareholders.
BAM started with 2 guys, some name recognition, and about $10 million in capital.
Agree Bob. Spread should not be zero – maybe 5-10 pct. at most. As I’m danish (and pay high taxes no matter what), I’m really not an expert of all the K1 issues etc., but in general I believe 3 things are driving this:
1. ETF’s – BIPC/BEPC are included in more indices, resulting in more ETF-buying. Free float in specially BIPC is low relative to BIP.
2. Retail investors. Sorry, but a lot of inexperienced investors have entered the market and a making “strange” investment decisions. Including putting way to much focus on tax issues etc.
3. Momentum. If something goes up in a strange line, it attracts more “investors” for the ride.
I was lucky to put on long BEP&BIP vs. short BIPC/BEPC trades at the start of 2021 (BIP/BIPC @45 pct). Could have gone either way as there are obviously very few grown ups around. But this time I was lucky. Have now closed BEP/BEPC but still holding BIP/BIPC hoping that BAM will sell some of their shares. Only good thing you can say about these markets are, that there are opportunities out there, where you have a decent chance of making money – Without taking too much outright market risk.
Complex they are but to my eye they are complex with a purpose. Creating the two classes of “stock” with BEP/C and BIP/C was brilliant. BAM pay a lot of attention to taxes and to shareholder preferences. They deliberately don’t accrue UBTI because of the problem that creates for qualified accounts.
Many U.S. MLPs and LPs should study what BAM did but I suspect most will not.
One more reason for BEP to trade rich relative to BEPC that I didn’t mention in another post has to do with institutional investors and index funds. Most cannot or will not include partnerships, so they have to go for the corporate entities. BEPC is likely to always trade at a premium to BEP but the spread should bot be 20-30%.
Hadn’t seen this post when i replied to your other, but yep. Only mistake they made was that they underestimated the interest for BIPC to begin with. But BAM still holds quite a few BIPC’s. Would be a no-brainer to sell them and buy back BIP. At least to my knowledge – nothing keeps them from doing that.
Thoughts on Canadian preferred as of Feb 6 …..
I am not a buyer. Prices on min rates, fixed and resets remain at or near 52-week highs and in many cases all time highs. Yields in some cases remain attractive viewed in isolation from price risk but the price risk to the downside is considerable. So, overall, I don’t like the risk-reward proposition.
Neither am I a seller. For me, it’s a buy and hold portfolio and except for some tax selling I have sold nothing and what I did sell was simultaneously swapped out for other issues. Exposure remained unchanged.
Currency: since the March meltdown, the CA$ has appreciated almost 14% against the US$. Readers may recall me saying in the past that currency risk is also known as currency diversification. The last 11 months have shown why this is the case.
Hang tight would be my advice. There will be better buying opportunities for preferred ahead. Canada is doing a terrible job on COVID vaccine and the possibility of another market meltdown is there. Much higher possibility than the U.S. Even the Trudeau loving Globe & Mail has made an issue of the problem:
https://docs.google.com/document/d/1362A35mRQD9_X6NmEgoyPeI7tBIApHpijNHU-ABE9PQ/edit?usp=sharing
The fellow depicted is PM Trudeau.
And don’t forget common shares. Relative to preferred, I would go for the common for most Canadian companies. Especially such dividend stalwarts as ENB, BEP, BIP, the banks, the insurance companies, PPL, etc.
always enjoy reading your insights Bob and concur with your comments on Trudeau’s lack of direction. Luckily CDN are more accepting of wearing masks and limiting social contacts (haven’t seen our grandkids face to face who are only 25 mins away for 8 weeks due to Ontario lockdown). CDN companies in a number of industries have the benefit of being an oligopoly which leads to almost guaranteed profitability. In addition to your excellent choices would add TFII (trucking) and some forestry companies with strong housing markets in both US and CDN.
Bob-in-DE, I read an old post of yours indicating that BEP was going to be issuing a security that would not have a K-1. Was it ever issued? I can’t seem to find anything on it. Thanks
Alan – Are you thinking of BEPC? Same mirror imaging happening with BIP and BIPC.. Both C’s trade at premiums to the Ps because of the structure, but recently, the premium has been narrowing…..
Alan – short answer is BEPC. Economically equivalent to BEP but it’s a corporation so no K-1. But compare the prices. BEPC sells at a much higher price than BEP.
If you are a US person I would suggest you buy BEP and hold in a qualified account, ideally a Roth. No withholding, no tax, no UBTI, just lots of income/growth. The K-1 doesn’t matter. It’s a forever hold.
If it’s for a non-qualified account, and you totally hate K-1s, and don’t mind the higher price, buy BEPC. No K-1 but you have 15% withheld, which you can claim as a credit against US tax.
Thanks very much Bob and 2WR. I appreciate the feedback.
LWSCF, Sienna Senior Living, took a hit possibly because of Covid-19.
I’v held this security for several years but since I live outside of Canada
I do not have the latest information.
Has anyone on this forum researched or own this security?
Thanks
Jackson – CDN nursing homes have been ground zero for Covid 19 deaths and there has been a huge outcry against for profit nursing homes not adequately protecting the residents. The whole sector has taken a big hit and Sienna would be part of this group. There will be much higher operating costs for PPE and already some class action lawsuits being started by families. A sector I would be cautious on .
I want to express my gratitude to Yuriy for his sharing here and the free tools he has shared. Also, the Canadian Club (pun intended), who know whom they are, that has lent support. Straight, no chaser.
Ul-TIM-ately, our tireless Instigator of Research here at III for the format and framework to interact freely…with individual responsibility and respect.
It has made all the difference for me in the thread of my just having turned 63. I have made a point to go back and show my appreciation to a few who were, perhaps unwittingly, important mentors to me along the way. I hope to send out a few good ripples too.
JA
Thanks Joel–nice comment.
My Initial opinion of buyout at Atlantic Power: NAY.
Private money chasing established, contracted green energy projects is entirely in vogue, now that the problems have been resolved and current management has effected a good stabilization with cashflow improving the current balance sheet. I reported this here back about two months ago.
Now the silver spoon rich boys want to play TakeOver of real assets with their access to paper and equity conversions, below par but a slight permium…That’s not good enough for their bragging rights and payola.
Sure it’s legal, the Board needs to vote NAY.
Contact management:
Investor Relations Contact:
(617) 977-2700
info@atlanticpower.com
The docs are old, merged prospectus and I have not read them yet, but NOTHING will be left for us plebeians soon. The management is doing the WRONG thing. This is Yield RALLY why the rates are allowing assets to be massively privatized…except the equity and the secondhand debt marked at super premiums left for the lower tranches. The common men have no defense left, but are supposed to make it on their own? BS
Didn’t pass my due diligence, it’s just me and everyone has a different risk profile, maybe 20 years ago I would have bitten.
Joel – there is talk on another CDN site I follow about a possible counter offer for Atlantic. It noted some interesting trading going on right now which could signal a higher offer coming. I sold one pref but still holding the common and other prefs . Stay tuned !
Good to hear. I called and emailed. The AZP Board had just pulled out of the tunnel and into the light with good old pragmatic management over the last few years. I own no common though. The reset shot up to the $22 target of course.
Re: My Study of Splits:
I suppose this is a good place to mention this regarding my deep dive into Split Shares without a lot of explanation on the underlying mechanisms by the issuers (prospectus exam).
If I had to make a play, it seems that the sector is the first view. I am a value and reversion kind of guy and have been bullish on oil, so I chose to dive into OSP Brompton’s offering for a study. By the way, I found two gems in the portfolio: Gibson and Parkland that I did not know about!
After it was all over and I had a good grasp of what the management could put the holder through (and that is important, like re-allocating the income stream!), I came to understand it as a possible tool for owning BOTH, equal number and paired, the common and preferred AFTER a deep value of crash scenario of a POOL of targeted sector assets. No matter how the management reallocates, you win and let them manage the call selling in Canada on a large number of stocks. A fairly conservative approach to great companies.(Basic rationale).
In OPS case it was a combined pricing I have been monitoring of OSP at $0.76 paying 0% and OSP.PR.A at $6.76 paying 9.5% = $7.52 or 8% yield on combined pair.
Current combined now = $1.57 + 6.99 = $8.56 to yield = 6.7% with a $1.04 sh term cap gain = 13.8%.
I took a small position like this because I have found that it makes me really want to study and get the numbers correct. I am overweight and like oilys and CN Oil. I am doing this from memory now, but these are fresh numbers. So more work and seems to be best tactic in a bottoming or crash environment if only their bank/lifeco: LBS/LBS.PR.A pair would crash!
Not all of the story here. Points to ponder. JA
Thanks for sharing your research, Joel. Went and looked at the OSP chart. Any idea why the spike from $0.50 to $1.95?
Bur and Buck,
Possibly the CVE merger marking a bottom/confidence?
Deep value on the good pool of assets where a small volume can create a spike? The largest volume day recently was only about 50,000 shares or $50,000 – $100,000.
The tough, persistent management of these companies? I would not want to play poker with this crew. I get the feeling that the culture outside of our Cowboy Wall Street has already guided some sensible, generational pragmatism into the management of these companies. To them , it’s a very long term game. My Dad used to ask me, “who ya hanging out with these days?”
PS: Wall Street was apparently named for a fence that was erected for the driving of herds into the city…for slaughter.
Joel – doing some weekend reading and came across an interesting play if you really like Enbridge as a pipeline company. There is a new “split share” vehicle which just came out in November with a common and preferred option (as per usual with CDN split shares). The common is ENS (ENSRF for US trades I believe) -it is yielding little over 13% and will give a leveraged return to ENB. The preferred shares may only trade on TSX (ENS.Pr.A yielding about 5.75%) . I cannot comment on risk etc but only put this out for higher risk investors with a bullish view on ENB in 2021.
Joel -you have definitely done some great number crunching ! I have common in both Gibson & Parkland and road the CDN oil sector down and did some dollar cost averaging when at the low point. Took some big hits on oil sector convertible debentures (a lesson learned on my part) when I thought they would be less volatile. Good luck!
Well, It’s happening, as I suggested it might.
Pembina, aka PPL, has announced its intention to redeem 2 min rate issues when they become redeemable, which is soon. The issues are PPL.PR.K and PPL.PR.M. These are issues that investors love, because of the min rate feature, and companies want to be rid of, for the same reason. Both issues have 5.75% min rates. 5.75% minimum coupon from a strong company!
Back in March/April, when these issues were trading at 14 and change I offered the thought that min rates could be redeemed notwithstanding the fact that most were trading (at the time) well below redemption price. sadly, it’s happening. Hell, Rida should be working for me!
PPL has 3 other min rate issues outstanding but all have lower min rates and in any event can’t be called for another 2+/- years.
I’m afraid the ship has already sailed on the min rates. With the exception of 4 BPO issues there is no meat left to pick off the bone. BPO is a spec buy in my mind. It’s Brookfield, almost all trophy properties, but highly leveraged and lots of exposure to offices and retail. Is the 6%+ yield worth the risk? Maybe. But they were much nicer at 10%+ earlier in the year.
My hands are in my pockets.
Luckily I’ve got one of the later PPL issues, the “G” series. I bought most of my Canadian issues in the 2nd quarter of 2020 and they’ve had an amazing run-up in value, making it difficult to actually purchase more when they’re at 12-month highs. If you ignore that factor, there are still yields over 6% on investment grade companies. I really bought these as a long-term income producing investment, not for capital gains, so am hoping your overall prediction does not prove out.
Bob for what it’s worth you may want to take a look at Aimia pref’s (AIM.pr.A and C ) both are yielding over 8% and Aimia has been a turn around company since Mittleman brothers took over the helm. There is info too on SA under symbol GAPFF. Higher risk but if you have a DB pension like I do I’m comfortable looking at situations like this
CB,
Do AIM.PR.A or AIM.PR.C trade over the counter?
Greg those are the ticker symbols on the TSX sorry don’t know the US version symbol if there is one.
No. The common is GAPFF.
CB – since most readers here are U.S. I have chosen not to follow (or discuss) anything unrated, rated lower than BB (sole exception Altagas), or split shares. Aimia is an “interesting” company to be sure.
Gotcha Bob – makes sense re: unrated securities. Also although I’m a retired boomer I believe my risk appetite is higher than most readers.
I’ve been following the discussion here for a while and check in on Prefblog now and then.
Are there literally never going to be new Canadian Rate Resets ever again? It sure seems that the banks and larger, higher quality issuers of the past have now abandoned them.
New issue Canadian resets ……
In present market conditions you are almost certainly not going to see any min rate resets and odds of new straight resets are low. Last min rate issued was March, 2019 and last reset was May, 2019.
Resets and especially min rates came out when it was hard to raise capital and the issuers had to throw in an extra to sell it. Not the case any more and issuers now have other, lower cost options, especially the financials.
Grab them when they are well priced (which is not now).
U.S. issues that have adopted the 5-year reset model have done so without either a min rate or the option to convert to a floating rate. Thus they are far less attractive than Canadian issues, which have one or both of these features.
Above discussion excludes low rated issues, split shares (don’t ever buy spit shares) and a few issuers I don’t follow.
Bob, what do you mean above by ‘split shares’?
Bur I can comment from my experience as CDN investor.
Split shares are a creation by investment firm where they buy a pool of companies and then offer the pool as either a common share basket or preferred share basket. (so similar to an ETF with an ongoing management fee) Most CDN financial reviews I’ve read warn against the common share version but if you are looking for income they view the pref version as an alternative to pref ETF’s.
I’ve had two of the pref version for a number of years and both are still paying over 6% – LFE.pr. B (Cdn insurance co.) and PIC.pr.A ( Cdn banks). They took a big hit in March but are now back to near 52 week highs like a lot of other prefs. Just my two cents worth of info
Thanks CB
Bur – for more info on split shares I’ve attached below is a description of the PIC.pr.a stock screen in my brokerage account. PIC.a is the common shares and the dividend is based on capital gains growth over time whereas the PIC.pr.A version I hold is the dividend stripped off the common shares. So basically you’d buy the regular PIC.a if you thought CDN banks were going to go up in value but for steady income I opted for the PIC.pr.A. They expire after 5 yrs but when this happened the company just rolled them over for another 5 yr term.
Premium Income Corporation is a split share company. The Fund’s investment objectives are to provide preferred shareholders with cumulative preferential quarterly cash distributions of $0.215625 per share; provide Class A shareholders with quarterly cash distributions of $0.20319 per share, and return the original issue price to holders of both preferred shares and Class A shares upon windup of the Fund. It invests approximately 75% of its net asset value (NAV) in common shares of the Bank of Montreal, The Bank of Nova Scotia, Canadian Imperial Bank of Commerce, Royal Bank of Canada and The Toronto-Dominion Bank (collectively, the Banks) and may also invest up to 25% of its NAV in common shares of National Bank of Canada. In addition, the Fund may purchase public investment funds, including exchange-traded funds and other Strathbridge Asset Management Inc. (Strathbridge) funds that provide exposure to such common shares. Strathbridge is the investment manager of the Fund.
CB and re: splits in general: (PLEASE! read the prospectus. The large print giveth…)
– Use call writing
– Have a convoluted retraction which provides the holder little value, but it sounds great
– Management can change contract and divy formula at time of reset
– Pref can end up (and some currently DO) paying the fees of the fund
– Is good, or better, when the underlying is doing well
– More details too.
Joel completely agree with you they are very convoluted investments and I didn’t mean to imply I was recommending them (rather just providing some background info). As a DIY investor I try to read up on investments from various sources and this site is EXCELLENT! The CDN pref market is very small with limited options – I read in some CDN finance newsletters about split shares and they were generally not recommended – there was some support for the pref version but as you noted those too have risks. I only touched the split shares pref version (a small holding) based on CDN banks and insurance companies for peace of mind. As you say do your own due diligence to ensure it fits your comfort level
Bob, one just never knows. You were concerned a month or two ago they were not a good buy then, and I just cashed almost 20% on Enbbf for a short hold flip. Its getting harder though isnt it.
Grid – the “advice” has to be generalized given the audience and the number of issues and issuers involved. Those with experience in the Canadian marketplace can and should make their own calls.
But to generalize again, there just isn’t much room for Canadian preferred as a group to move higher. Most are near 52-week highs, if not all time highs. Lots of room to the downside. To most, I say wait.
If you are brave the best long term play right now is BPO. BAM is buying up the minority and shares, in time, should trade at comparable yield to BAM. Right now, they are well above. Arguably, free money.
Short term trades can be good if you stay glued to the trade screen but really require IBKR to get the execution needed for such trades. Itra-day volatility can be high and bid-ask can be wide, even on high volume issues, which is just what you want in a day trading environment.
Im just playing with you Bob….I always appreciate your comments. Even though they dont help much because we already think in a similar manner! Though I agree with you here its from a slightly different angle. To me the problem isnt they are near 52 week highs. As in years past they have been significantly higher than past 52 weeks.
The problem to me is they are currently in “no mans land”. The 5 yr Tbill trades off the short end of yield curve not the long end. This is an asymmetric advantage given to the issuer, as these are perpetual issuances. If Govt is determined to keep a lid on short end, the 5 year wont move nearly like the 10 or 30 can. One can see that occurring already with the different price movements of 5,10, and 30 in recent weeks (widening spread).
Start extrapolating a 5 yr reset date in 2021 or 2022 with even a 1% five year, and the reset yield is not that exciting in relative terms for the issues I track anyways.
you are so right Bob and thanks for mentioning BPO prefs earlier this year. My R and I version are up about 14% since Nov 30th after BAM announced bid for BPY. If border ever opens up I will treat you to a “double double” at one of our 3 Tim Hortons in our small town in SW Ont.
I would agree with you Bob. I sold my BPO.A on the announcement, but have not sold others ‘preference share’ that have good gains, but I do have a few open sell limits if I can get some plum-reachers; otherwise I am willing to hold and gather coupon rate. I have open buy limits as well and just wait. Shhh, we’re hunting pwee-ferds!
I have done a good deep dive into the Splits and see the basic game is to peg the common and the preferred together. The contractual terms for retraction seems appealing but are “rigged” to the management’s terms. One should not bite on these until they have done a large study of the prospectus. There is more to know as the rigging, as I call it above, is a complex variation as a sailboat to a clipper ship. There is only one scenario I could imagine holding these myself, that is narrow and a judgement call to be made on an individual basis.
Mr Yuriy,
I see that you added a credit rating on INE recently. Nice.
Along that same line of debt and caution, I might add that that there may be reason for a mental rating on Brookfield Office/Properties as well as their four other American listed securities. The perceived “trouble” that surrounds REITs in general right now IS reflected in the discounts given to the prices in BPO/BPY’s prefs, but there may be more than that, even with their incredible parent and international spread.
ZERO COUPON PREFERREDS? or Fun with Prefs:
Yep, take a look at BPO and BAM’s floaters at 70% of Prime x $25 par. Prime equals zero and is SUPPOSEDLY set by inter-bank loans? All speculation on interest rates. The instruments are getting volume and have climbed approx 25% this year with no yield. Someone is playing the fish.
Can prime go negative? How would THAT look.
Fun, fun times scratching in the chicken yard this morning.
Correction I see now that Prime in Canadia = 2.45%, so 70% of that does offer a yield of 1.7%. I must have been up too early as the computers had deferred to 0% before the posting of the most recent rate at market open. I wondered how that was possible,,,well more coffee first.
Almost choked when I read the first one :-)…. own both BAM and PWF. Carry ok compared to what you can get for IG elsewhere and leverage to higher rates icing on the cake….
“Prime” is an administered rate (bank set). My chart says the lowest ever prime was 2.25%. Time was banks made many loans and issued paper based on prime but not any more. Very few prime adjustable prefs left, most of them Canadian. Rates and therefore prices on prime adjustable are more stable than those based on Canadas (treasuries), which is their appeal.
Some of the adjustment provisions are a bit wacky, meaning they aren’t as simple as x% of prime. Some have mins and maxes while others involve management discretion. Pays to know what the terms are. SEDAR is the place to go to for the prospectuses.
low prime of 2.25% was April 2009 highest ever was 21.25% in July 1981 (my second yr out of university working for a CDN bank with a 20% car loan and that was “staff rate”
My kids think I’m making it up when I tell them my first mortgage was 14.5%.
I see this morning Brookfield parent (BAM) is looking to take Brookfield property (BPY or BPY.un) private with appx 14% premium on common and likely redemption of pref’s at $25 (if I read news release properly). Common holders will have option of cash, shares in BAM or shares in a new pref.
WOW – big jump in the BPO pref’s today along with BPY after the BAM take over announcement
Interesting. So BAM is offering to buy the 40% of BPY they don’t own for $5.9B, and in turn BPY is going to buy the 66% of GGP they don’t own for $15.3B (https://innovativeincomeinvestor.com/reit-chat/#comment-44804). A few billion here, a few billion there…
BAM does not do things on a small scale. They clearly feel they will have better opportunity to clean things up and move the puck down the ice without minority shareholders. Benefits will accrue more to BAM than to minorities.
One reason I say you always have to own some of the mother ship. At the end of the day it’s where all the money ends up.
I contacted Ally.com about buying Canadian preferred stock in my account. Their reply: “OTC stocks with 5 letter stock symbols ending in ‘F’ are charged a $50 foreign settlement fee in addition to the normal commission rate.” Just thought you might like to know. Will stick with TDA.
I have an Ally account and that is an improvement from when I inquired a few years ago. They wouldnt allow any 5 ticker F ending purchase,ha. Ally has its warts, but it allows me quicker access to any new issues than TD or Vanguard in my experiences. Plus as long as its not a foreign issue, they will let you buy any obscure illiquid. The only fly in ointment is you have to break purchases into sub $10k increment buys or you have to call in for an override buy from rep to do it.
RE: $50 fee and Ally
They are reading what’s on the screen. In practice, some buys will attract the $50 fee and others won’t. It has to do with the source of the shares.
Vanguard at least warns you before the purchase that there will be a fee.
Happy Boxing Day Boys and Girls, eh!
Seems like the resets have rich markup resets in general. Too bad they are pegged near par right now since they could be strong call candidate five years from now. The strong reset rate might be a real pressure if the 5GofC rate really moves over that time span. I like embedded influences, esp with the guarantee floor. These could hang near par for a CD-like profile.
Look like long term holds esp if bot in the last couple of years way below par! Opportunity temporarily lost. I did not have them on my radar at that point as I was still trying to wrap my mind around the other permutations of ‘Grandmother-Land’ Markets.
I hope Santa was good to everyone! Out of curiosity I just looked at the 6 month performance of an ETF for Cdn Pref shares (CPD on TSX) as of Nov 30 the 6 month performance was 20.89% (1 yr 5.59%)
CB – the folks should also watch ZPR, which tracks only the resets. I use it as a tracker but always buy individual issues. Individual issues give you more ability to fine tune the strategy and you don’t have to pay the 50 basis points for the ETF.
ZPR is up about 60% from the March low. I don’t believe it’s tradable in the U.S.
Above comment was regarding min rate resets.
Min rates and calls …..
Earlier this year it seemed inconceivable that any min rates would be called. But as prices rebounded, calls became a real possibility.
So far, of those that came up for call, 2 were called and 3 survived. ALA.PR.I (TGAPF) and W.PR.K are going away and BAM.PF.H, BIP.PR.B and CU.PR.I (CDUTF) will survive another 5 years.
Next on the bubble is BEP.PR.G (BRENF), of which I own a boatload. Last date for a call announcement is January 7. It’s trading right around redemption price and has a 5.5% minimum rate on it. No tax of any kind if held in a qualified account.
The entire universe of min rate issues is only about 3 dozen in number and they all will be subject to call over the next few years. I expect more will bite the dust.
Bob,
I’m long BRENF as well. As Brookfield has recently let other mins survive, maybe BRENF will live long and continue to prosper.
Thanks for letting us know the date for the news.
Greg – Brookfield’s decision making on the finance side is quite centralized so there is reason to think BRENF will live on.
To all interested? been looking for an opportunity to discuss “brookfield” further. In November I asks some questions about BIP & BIP-C a good exchange with several of you commenting, an article from early in the year detailing transactions and various options was posted. The 2 mentioned assets “now” trade at a 46% price difference but “exchange” in one direction only, what a disparity, any further ideas or thoughts?
I will chip in after more thought but clearly the price divergence in BIP and BIPC is stunning. This is B-school case study material.
Haven’t seen any comments in our Cdn business papers about why the divergence. I’m just glad I sold off some BIP to buy BIPC when I got the shares in spin off. Better to be lucky than smart sometimes!
thanks Buck, since your canadian was your motivation for your original move canadian tax law or roll of the dice? I’m awaiting Bob’s “chip”, if it’s a US perspective. I got the share also in the Special Div. am setting tight as of now, would prefer to have the “C” also, but not now @ at a 46% premium. Somebodies profiting with a form of arbitrage.
Mike my understanding was BIPC would be more advantageous for US investors and basically neutral for CDN investors. So thinking the fact US investors would prefer BIPC I should increase my weighting in that stock as the demand would be higher. I still hold both but certainly BIPC way ahead now.
“buck” got it , we both did good, you just did better up north! know what to do on a pullback. Happy New year.
It has to be (at least partly) due to passive flows. ETF’s buying one and not the other. I have seen a lot of crazy stuff in the last year and this one is up there. Thanks for mentioning it – I have started to try and arb it (long BIP, short BIPC)…no one knows how crazy it can get, but I have room to add…
Looks like BRENF (or BEP.PR.G) will continue to live and thrive at 5.5%
https://bep.brookfield.com/press-releases/2021/01-05-2021-234428199
On the buy list for the next downdraft. 7 more min rates for up for call or no call in 2021.
Dick and Grid, I too have read up on the tax treaty with Canada (and also Singapore!). It is law.
My wife and I both have recent interactions, over and over since before Thxgiving, with TD back of the house operations that make me wonder how many nice and polite, but very junior newbies we have to go over and over things until the are trained. Both issues are still not resolved. Seems Senior Compliance is working overtime to keep their jobs by creating munutia.
It took three business days to get SESCF set up until it ran away, now I have a distant buy limit somewhere down there. I see Grid’s earlier buy ticks at somewhere besides TD.
This week I was surprised to see my last two EBBNF and ALTGF OTCs hit a sell limit within three days of each other at my TD account. Everything has been migrated over to IBKR now. I am anticipating the Schwab merger and just keep an eye on one account now. I had already bought the ENB same series and a different ALA series over there, now I am clear.
Joel, I had earlier a few in Vanguard then they shut it down. After that it was all TD. I remember Enbridge and Fortis being ok in tax free. But Emera, Canadian Utilities, and Altagas had it withheld. One guy complained about a half dozen times and got Emera resolved, but subsequently I just sold out.
I just have a slug of ENB Series J now in taxable.
It is better for me now to have it there as I always owe money anyways so it will knock the payment down a bit.
Singapore?
https://www.irs.gov/businesses/international-businesses/united-states-income-tax-treaties-a-to-z
J, Sorry for the inserted comment above, info not complete as I was going from memory from a CPA site I read on occasion. Luckily, alot of this detail, accounting and filing is falling off for me after this year!
Sing and US have a ‘Totalization Agreement’ that is a balancer and holds some filing exclusions, BUT for wage earners. Accuracy IS imp. If there is more, your IRS link should be relied upon. JA
There’s been a lot of talk around withholding tax on Canadian prefs held in IRAs. After several conversations with Schwab, I have learned that they will not withhold on BKFAF/BAM.PR.B if held in a retirement account. They told me it is because the security is DTC eligible. I own these shares myself and they did not withhold on the last dividend I received.
I bought some additional shares today at $7.30 which gives me a yield of around 4.65%. These float off of the Candian prime rate so I liked these as a hedge against rising interest rates down the line.
How generous of Schwab to say they will adhere to the U.S.-Canada Tax Treaty! Makes me want to reach out and say Hi to Chuck.
I’ve had more than a few bruising conversations with brokerages on tax treatment of certain issues held in qualified accounts. I’ve won the arguments but at some cost in time and trouble. Asking is easier for sure but not always effective.
For the information of others, Canadian preferred held in a qualified U.S. brokerage account should never have tax withheld. It’s a matter of tax law; it’s not at the discretion of the brokerage, or the paying agent, or the transfer agent, or anyone else.
Schwab also does not withhold on SLFSF (SLF.PR.B) held in an IRA. The dividend hit my account last night with no withholding.
1) HSE/CVE merger clears all regulatory hurdles today.
2) INE downgraded on weight of debt service.
3) AZP achieving success on broad buyback of prefs and commons at market.
ENB common is probably a better buy than the prefs. right now.
Definitely a better trading/flipping vehicle after the reset run ups.
I might add: deep value ENB a great cash covered put sell here 2.2% on cash cover by mid-Jan expiration or, if exercised; ENB bot at $32 with (8% annual) 2% div paid mid-Feb.
Considered conservative methodology.
Joel, I’m long ENB, but wouldn’t mind adding to the position, so this is an interesting idea. I don’t see any $32 puts (via E*Trade) but I do see $32.50. Are you suggesting selling cash-covered 15Jan2021 $32.50’s?
Bur, Yes, imputed from the info I gave, that is correct. This ENB set up is exactly what I look for and wait for this sort of set up or just keep watching a few established, good volume, deeper value income stocks that I might be interested in anyway. PRU has been decent too lately. This is the best part of American Capital Markets, the rest is probably best when used as buy and hold. (I just heard multiple jeers from across SA-land!)
Once the flow of this thinking gets established, just like looking at prefs, then throwing a bit of twisting, like resets, floats and such. Not too difficult and easy with these fancy, elektornik brokerage accounts!
There is a good primer here:
https://www.lynalden.com/treasury-bonds-risks/
I like this young lady and it gives me a positive spin on the very competent generation behind us.
Scroll down and on the right column, Experienced Investors: Covered Call and Selling Puts.
Bur, Just an add on after I thought about what I wrote here. Will go to Common Stock Area next time: There alot here!
Here HOW I watch and wait (in general) using ENB as a topic:
First just watch:
-I have seen the industry in which ENB is in, Oil, make the first ‘wave up off a gross bottom. Now I see interest in these deep value and a rotation.
-Now that the first wave has run up and I can see the survivors and div commitments thru the down cycle, etc. Things like capital raises and inv grade. (EPD a candidate, but options not as rich)
– 1 option contract = 100 shares/ a round lot.
– Now sell (you get paid cash premium) cash covered puts if I am interested in owning that stock anyway and will be patient with a new position. Collecting the div helps, esp if it is decent and has proven persistent.
– If exercised, then I pay cash to own the shares and wait for the div. My Rule: Wait until first div to make any more decision; the first decision has been made, go with it.
– If not exercised collect the premium and sell puts again, or just by stock. It can run away from you, but often that is FINE.
– Here’s what takes a bit of mind-warp. Once you own actual shares in 100 lots, you can sell calls (you collect cash again). Now you have been paid three times.
– If the ex-div date goes by, you get the cash div of record. It does NOT go to the option Buyer unless exercised.
– If the call is in the money, your shares can be pulled to cover the call AT ANY TIME that the contract is active. This is AMER Options. Euro options can only be called on expiration date. This has happened to me when the share price really zooms up with sold calls into the money OR is a tactic used for the Buyer to exercise (call) and capture the div. and cap gains.
– Sounds confusing, but write out all info on a sheet and see how the divs and option contract dates overlap, or not. Some scenarios are better odds plays. Especially, write out the Sell to Open and Buy to Close relationship. Pretty easy. You can use this to capture value as a short term cap gain instead of waiting for a terminal date on the contract. I have bought back contracts for a few cents a share when the stock runs away from the contract strike price.
– Lastly and a bit more esoteric: An ETF can have options and they are often bought to capture big hidden gains within the fund that may be getting ready to get paid out, espec in Dec, end of year. Think: a tech fund this year that may have a big Cap Gain embedded in the price. Of course an American Option can be called on the ex-div date!
Best to You in your studies! JA
Thanks for taking the time to post all this info Joel.
Joel,
That’s a nice link.
This year’s most regularly profitable trade for me has been selling put options in my IRA, and I do it a little differently than Ms Alden suggests.
I do a bullish short term (~4 weeks) bullish put vertical with the higher strike ~8% below the current market price. In option math it typically yields 12-15% per month. The option math uses the net premium in the numerator and the net of the strike prices less the premium in the denominator.
I have been getting assigned the underlying stock about 10% of the time. Using this method, frees up cash in the account as the margin required is equal to the net of the strike prices and not the full price of the stock.
GG, Nice, will do on paper. That way I visualize it. Always learning any new method until I really get it, esp now with lockdown time! The closeness to strike price is a personal “acquired taste” (read: greed tolerance) for an individual. You still have to buy a put too, an expense.
I remember my breakthrough was when I learned to effectively enter: Net Debit/Net Credit orders. It just takes time and play.
The method above, is conservative and a good ‘primer’ way to start to enhance income, esp since all elements are income, with div collection in view and on a stock you might just buy outright and just hold naked.
IRAs are being offered some limited Margin too now. It used to not be allowed for UBIT or some such in a trust (all IRAs). Of course there are some costs with margin too. I’m a skinflint.
I am adverse to using margin for very long, except to place low buy limits on more positions than I have cash for, just in case some wonder-sale hits. The other problem is in a preferred heavy portfolio, prefs are ‘usually’ not , or barely, margin-able, I think because of perceived bad liquidity, so avail.margin is limited.
The wonders of mind-play! JA
If possible, I suggest using the Think Or Swim Platform from TD Ameritrade for your options activity. The Analyze function is great and they provide real time Level 2 quotes on stocks AND options. My screen for the options highlights: number of open options orders (by strike and date), probability in/out of the money, bid and ask and most recent price. It’s Very helpful.
My typical OTM monthly covered call has a likelihood of being in the money of 10-12% and the bullish put spreads have a likelihood of ~15-20% being assigned.
I’ve been writing covered calls on high dividend stocks (LUMN, MO) and writing bullish put spreads on stocks with great charts but pricey valuations (NXPI, REAL).
GG, Thanks for the lively chat. I already did some look up some info on combo. strategies and I’ll look into TOS since I have not done that before, or really understood the ‘greeks’. I’m sure I have the experience to go there now. and make good decisions.
I’ll report back at some point on Common Stock Category before Tim directs me over there. Hope something here is useful to others! JA
Joel, I have given that thought. I bought an ENB reset less than a month ago and its already up 15%. But its in taxable, and I already owe so much short capital gains, Im just trying to hang on to Jan before selling out and not adding to what I owe Uncle Sam this year.
Mr Yuriy,
I do not see any of the three IAF prefs on your sheets: B flat fixed, I &G both 5reset.
I see them active on TSX though.
Was there some merger from old Industrial Ins to iA Financial you know about, new symbols? JA
Hi Joel,
sorry for the late response, really I missed this company. Now it’s added.
And thank you for the tip!
Btw, here are these spreadsheets:
Fixed https://docs.google.com/spreadsheets/d/1nJTjD1H3PKvqcuntO7hL3rwI2p5-7AIBa5bplxKky-U/edit?usp=sharing
Reset https://docs.google.com/spreadsheets/d/1UB3TVsCo_bPDD4tkYu88tQxEO1KrybbY429PoObEYS0/edit?usp=sharing
Floating https://docs.google.com/spreadsheets/d/11vDz_swj2Z8-VQjl7nKgnlSRURz3k8Y8YLqCDMwC-II/edit?usp=sharing
You da mahn! After my recent traumatic wipeout of my watchlists; these resources have been used daily!
Bob-in-DE or others, what do you think the likelihood is that CDUTF or CUTLF is called now that they are trading at or above par? Thanks
Zero on CDUTF. Company had to announce the call at least 30 days in advance and the window has closed. One chance every 5 years.
CULTF is continuously callable on 30 day’s notice. Right now it’s callable at 26, so it’s not going to happen. The stripped price is well below that so you have no call risk in the sense of capital losses.
Thanks Bob!
What I’m doing with Canadian preferred now ……
In short, waiting. Min rates are up almost 60% from March lows and resets a bit more than 60%. That’s in Canadian $ terms. In US$ terms the gains have been greater, because of exchange rate movements.
In April, near the lows, I sold my positions in those issues that had dropped the most and bought back similar exposure by buying different, same-issuer preferreds. Keep the exposure, capture the capital loss. I am now able to sell off vastly overpriced U.S. preferred without capital gain liability. This is a good strategy anytime you have substantial losses on issues and the ability to buy back in without triggering the wash sale rule.
I am not a seller now but neither am I a buyer. Timing is very important with Canadian preferred and the timing is not right now. Better to hold cash and wait for the next market decline. In the meantime, the cash flows like crazy. I do not DRIP.
Bob, I dont disagree with your assessment at all as usual. But ironically you can extrapolate your same thoughts even to US perpetuals from low March points. SR-A for example is up 72% from lows and SJIJ is up almost 90% from March lows. Amazing one can say that about quality utility preferreds and baby bonds isnt it over less than a years time.
Yeah, I’ve sold those 2 and many others bought in that swoon.
But I’m not waiting in cash for another one. Someone told us all how to fund one in case there’s a repeat. 😉
Camroc, Im already locked and loaded. Hopefully we arent trying to trample over each other at the same time trying to get out the same door, ha!
I have sell orders in on perhaps 2 dozen pref and baby bond issues, including SR-A at 28.50.
One went this morning at a negative YTFC (first call) and the other was a rotation out of AGM-F to AGM-E.
NLY-D is going as is TGAPF so the cash piles up.
I did mean to mention, I started toeing back in. Only on a relative value basis to market certainly not absolute value. Bought some ENBBF at $14.69 a week or two ago. First CAD position for me since selling off Fortis 4.9% fixed after it went over par a while back.
Obviously, you have some downside price risk on Enbridge but the 8% yield is nice.
The fear of midstreams is overdone. COVID and some regulatory/legal decisions certainly separated the men from the boys.
Humor me Bob and play the game we both know….If you had to choose one, would rather ENBBF or ENBA at their respective prices? Such a dichotmy in relative pricing isnt it.
ENBA was at 28 earlier in the year for a YTC of almost nothing, not that Enbridge would call it. Folks don’t seem to appreciate that in less than 3 years the coupon is going to be cut almost in half. It may be a good buy after it goes floating and the price drops to 15.
RE: ENBA – How unusual is the increasing LIBOR + provision in ENBA? Not that I’m advocating for it, but I’ve not seen a provision like ENBA has where the reset rate as amount of points over LIBOR increases fractionally every 5 years. Do other CDN resets have that provision that you know of? I’ve never owned ENBA but have watched it in comparison to EBGEF that I do own, trying to figure out why it seemed to be so high relative to the preferreds. That was the only reason I could think of as as maybe an added plus… Subord note vs preferred shouldn’t make that much difference.
2wr – it’s not a common provision. The Canadian resets keep the same spread throughout; it does not increase.
Sub note vs preferred means very little in credit terms.
The relative pricing is just a market inefficiency. ENBA is easily tradeable; the ENB US$ denominated preferred take a bit of knowledge and work and you may get hit with the pesky foreign trading fee. Clearly, the preferreds are a much better deal than the sub note.
I trade the ENB prefs at IBKR. Much easier to trade TSX than OTC and no foreign fee.
2WR, A few have these features. Im sure you read long ago and forgot, NI-B has a modest step up feature way out in the hinterlands unrelated to my needs now.
Grid – Are you calling me forgetful????? What’s your name again? I’ve fogotten….. yeah, you’re right…. I did read it in NI-B and I did forget…Hey I even forgot about the put provision on BRG-A and C until someone brought it back to attention here, and I own that one… Then again, maybe NI-B’s price reconfirms the theory that the market does assign a positive value to the unusual structure because NI-B was another one that always seemed to trade too high in the secondary. I always attributed that more to the US markets just getting used to resets vs Canada where they knew more from experience how to value them but maybe the structure is reflected in price..
2wr – you are right about Canadians and resets. Canada went through the reset crash some years ago and understand how far prices can fall. American have not yet. When U.S. issues go to floating or reset at 200-300 basis points lower than present prices will go down. I promise.
Look at the two STT issues or NI-B as examples. Sky high prices and huge downward adjustments in store.
Anyone holding U.S. F2F or resets should be keeping track of the float rate or the reset rate and doing a delta with current coupon. To generalize, I advocate dumping issues with big downward adjustments baked in and plan to buy them back after they go to float or reset.
I have a friend who keeps harping on that theme. Besides LIBOR going away which might be a nightmare unto itself…there’s the float date year. With predictions of maybe, just maybe, a return to inflation perhaps that’s why there’s been a bid behind some of these?
So Bob In Del what’s your take on YTC w batches of 2023,….2025-6….. and some at 2028 or longer. The longest dated calls seem to be trading poorly. And shorter floats are lower ytc I try not to take specifically about any issue so I’m just asking ‘in general’
IYP – take STT-D as the example. At present price this 5.90% coupon issue has a stripped yld of 5.24% (not bad but means nothing) and a TYFC of 1.96% in 3.29 years. I’m not really interested in a 1.96% yield for a 3.29 year hold. I can do better.
But it may be worse if it doesn’t get called. That 5.90% coupon drops to 3.34% at current LIBOR. And, the price drops. So you now have a 3.34% coupon trading well below redemption price.
To generalize, when I look at YTC the longer the time to first call the more the number matters. If it’s 2% YTC in 1 years it’s a 2% 1-year CD. Maybe OK. But if it’s 4 years and 2% YTC it’s a 2% 4-year CD. Not OK.
To generalize again, the more the delta between current coupon the the coupon at float or reset, the bigger the problem. If the delta is large I am out. Happy to buy back in after the price has dropped to reflect the new, lower, coupon.
Canadian resets are a perfect example. GWO.PR.N is a IG preferred that sold originally for $25 with a 3.65% coupon. It reset to 2.18% 5 years after issue. It now sells for $10.35. Let some other guy take the capital loss.
Bob, It might be time for me to sell already as Enbbf is up almost 11% since I bought about 2 weeks ago.
thanks for your input Bob. Liked your comment on SA about the “State of Ontario” LOL
Very few of my comments get through the SA censors. I doubt they understood the comment.
Say, I was looking for a Christmas present for some kids. Have you seen this?
https://www.amazon.com/Mr-Dress-Up-Justin-Trudeau-Colouring/dp/1696145295/ref=sr_1_2?dchild=1&keywords=mr+dressup+coloring+book+trudeau&qid=1606781377&sr=8-2
LOL too funny . Mr Dress Up was a famous CDN kids show back in 70’s thru to 90’s with Ernie Coombs (an American but he enjoyed Canada and was like our Fred Rogers). Justin unfortunately can’t hold a candle to his father even though at times I didn’t agree with Pierre.
Of course there will come a pullback at one point. And prefs have gone up a lot, BUT if you look at valuation (yield/credit risk) I believe that canadian prefs. are the cheapest “fixed income” asset class worldwide. Take a look a US HY, take a look at Europe – everything FI. Take a look at the riskfree arb you can do in BEP/BIP – us vs. Canada listing
Investing in EIT you can lock in 4,5 pct. for 3-5 years in a High IG issue – no perp risk. Point me to a similar opportunity globally.
In Europe people where waiting for better entry points when ECB went to zero and then negative. Just saying rates on bonds/prefs can go a lot lower than everyone thinks. Except for some new PVS and some of the CU-I I too stopped bying when everything started popping a month ago, but I find extremely difficult to build a case of why you should sell…but again if everything falls canadian prefs will of course join…
Peter – I suspect you are right about yields on Canadian prefs. The average stripped yield on the 35 min rates I follow is 5.59% and on the 138 reset issues is 6.15% (although this would be lower if they all reset tomorrow). Considering the credit ratings, this has U.S. preferred beat to Hell.
Still, I would urge anyone thinking about them to be sure they understand how much downside price risk is there. Be sure you can stomach 30-40% price declines without selling in a panic.
Personally, I will not buy now. I have a large position in Can prefs, all of which I held through the March decline. (The selling I did do was to capture tax losses; I bought back the same exposure by switching issues.) I’d be happy to buy more after a major draw down, which is the plan.
If one were going to be a buyer today I’d be looking at the BPO min rate issues and resets that reset in 6-18 months, on the theory that if rates move up these issues have the most upside price potential.
I look at Canadian pref much as I do CEFs, meaning entry point is very important to return. You know they go on sale periodically, so why not wait for the sale?
PS – from the time of your post you are either a very early riser or (I’m guessing) in Europe. Am I close?
Back home again. Never would have figured I would travel most of the last three months with all this stuff in our society going on. Back to the computer screen:
I think I worded my question regarding HSE/CVE prefs poorly a couple of weeks ago while typing on a pad. I’ll try to simplify:
1) A “do-nothing” action on the recent proxy will be counted as a “vote along side HSE management”.
2) Has anyone been able to figure out if the management has stated in the very lengthy proxy that they support a transition into CVE preferreds?
Thanks! JA
Regarding the Management of HSE position regarding the HSE/CVE prefs.: Looks like HSE Management wants shareholders to vote YES on conversion to CVE.
SO NOT voting the proxy WILL vote FOR the conversion along side Management, NOT a subsidiary.
To wit:
“Husky will also seek the approval of at least two-thirds of the votes cast by holders of outstanding Husky preferred shares voting together as a single class. If Husky preferred shareholder approval is obtained, each Husky preferred share will be exchanged for one Cenovus preferred share with substantially the same commercial terms and conditions as the Husky preferred shares. The transaction is not conditional on Husky preferred shareholder approval and, if not obtained, the Husky preferred shares will remain outstanding in a subsidiary of the combined company.
AltaGas Series I (TGAPF or ALA.PR.I) is being called on 12/31.
https://www.altagas.ca/newsroom/news-releases/altagas-announces-intention-redeem-all-outstanding-series-i-preferred-shares
RE: ALA.PR.I
Readers may recall my raising the possibility if not the probability of companies calling the min rate resets notwithstanding that they were trading below redemption amount, in some cases much less.
This issue has a 52-week low of 12.00 and was trading at 23 and change before the announcement. Even so, it’s gone.
The min rate resets have the best structural character, from an investors perspective, of any preferreds I know of. Wish U.S. companies would adopt the structure but fat chance of that.
another one of mine bites the dust – now where to put the proceeds is the question. May look and see if any prefs may get sold during tax loss season presenting a buying op
Just received a HSE proxy vote (regarding prefs) by email that says it will be voted with management’s recommendation IF there is one. There had been discussion here about allowing CVE to re-name the prefs and drop HSE special holding pool.
Has anyone perused the 408 page document to see if management has made a recommendation?
The voting deadline is 12-11-2020.
I do not want to take for granted that they will vote for me to go to CVE symbol. nor do I want to take for granted that the YES vote counts for conversion into CVE prefs.
I am in a very poor location to research right now or would try to post the answer myself. The Control-F pulled up over 1,800 finds for “preferred”.
Searching the mind trust.
RE: HSE
It’s not just a change of ticker, it’s about reissuing as a CVE issue. Big difference.
You do not want to end up in a special holding pool. I got the same proxy and will vote for the reissue.
For those interested in Canadian preferred I posted something in Broker/Brokerage section about my experience at IBKR.
Re: Canadian preferred issues
It would be helpful to me ( and probably others ) if anyone would offer guidance to a site that lists the the Canadian preferred symbols conversion to the U.S. / OTC 5 character symbol. Many of the comments leave this information out.
Thanks, Howard
BAM is doing a very interesting thing. They are in essence cloning themselves and dividending out the cloned stock to existing shareholders of BAM. Although not announced I’m relatively sure the cloned entity will be a Bermudian partnership. BAM is a Canadian corporation.
The new issue will be economically equivalent to BAM, have the same payout, will be exchangeable into and out of with BAM and will be listed on both the TSX and NYSE.
This move is all about the shareholders, both existing and would-be. Depending on what country you live in, your personal tax situation, and the kind of account in which it’s held, you may be better off holding either the Canadian corporation or the Bermudian partnership. And Brookfield will give you the choice. If you opt for the partnership, yes you will get a K-1 and no, it won’t generate UBTI in any meaningful quantity.
A registration statement will be filed with the SEC when the details are worked out.
Bob to me BAM is one of the most innovative companies in Canada for financial engineering – own the common of parent and some subsidiaries along with some PREFs .
Canuck & Bob, My Brookfield saga continues, First off I consider the original Bip I bought almost 10 years ago, one of my best moves in my Roth ira. Along the way I sold some and got my original money out.. I tried to buy some back this year and Edward Jones no longer allowed purchase in a Roth? Brookfield website specifically say it ok for us investors. At about the same time they gave a special dividend of 15 shares of the new BIP-C, this has always traded at a premium to the partnership. I bought a little BAM as a “compromise” now this cloning? Don’t get me wrong all this is positive, but my wife, my advisor, and certainly Edward Jones, doesn’t have a clue whats going on, “probably 4 different ticker”, any ideas guys? thanks mike
Move the account out of Edward Jones. Seriously. No reason a broker should not allow SEC registered, US exchange listed issues.
For a Roth, the corporate entities should be fine. There should be no withholding tax because of the US-Canada Tax Treaty.
thanks bob , not the first time I’ve got that advice. I straighten Jones out on the with withholding issues long ago, now their hangup has become UBTI and K1’s, I even got shot down when I tried to buy the “new preferred”recently. This new development will really get their a** in the air. thanks Mike
Mike – I know there are brokerages that balk at UBTI because they (not the beneficial owner) are responsible for filing the return and paying the tax (using your money) but most will do it. Moving brokerages is a very easy process unless you hold a bunch of weird stuff.
Is your brother in law the account exec or something? 🙂
Bob-in-DE , the advisor is not my brother in law, I’d force him to go to bat for me. this guy has to no avail. Jones no longer sends me copies of the k-1’s. I now pay close attention to the $1000 limit by visiting MLP websites tax information. I haven’t come close to $1m since I unloaded another MLP several years ago. I think I know the rules better than Jones’ and it pi* *es them off. thanks again Mike
it’s interesting the quirks in cross border trading. As a CDN I have purchased some of the recommendations from Tim and others on this board in my “registered” accounts (self directed accounts thru CIBC) where the bulk of our $$ is only to be told by my bank investment rep a few days later they don’t qualify to be held by a CDN investor and they have to be sold off. Luckily they have all been up as opposed to down when sold.
U.S. domiciles run into the same issue. When it’s happened to me I have refused to consent to a sale and in most cases the brokerages backed off.
Check out an account at IBKR Canada. Unless what you’re talking about are U.S. OTC issues you may be able to buy them there.
MIKE — I found an article (Globe & Mail) from back in April which covered some questions about BIP.un and BIPC transaction. Hope this helps with some of your questions.
Digging deeper into the Brookfield Infrastructure unit split
JOHN HEINZL
SPECIAL TO THE GLOBE AND MAIL
PUBLISHED APRIL 17, 2020
UPDATED APRIL 17, 2020
PUBLISHED APRIL 17, 2020
This article was published more than 6 months ago. Some information in it may no longer be current.
BOOKMARK
1) I read your column last week about Brookfield Infrastructure Partners LP’s BIP-UN-T unit split to create Brookfield Infrastructure Corp. (BIPC). Can you explain the tax consequences?
First, a quick recap: Effective March 31, BIP.UN unitholders received one share of BIPC for every nine units of BIP.UN held. BIP.UN investors – who will continue to own the same number of BIP.UN units as before, in addition to the new BIPC shares – will also receive a small amount of cash in lieu of any fractional BIPC shares to which they are entitled.
The unit split, or special distribution, is not taxable. However, for BIP.UN investors who hold their units in a non-registered account, the adjusted cost base (ACB) of their BIP.UN units should be reduced by an amount equivalent to the fair market value of the new BIPC shares and any cash received. The ACB must be reduced in order to properly calculate the capital gain for tax purposes when the units are sold. Investors who hold BIP.UN in a registered account will not face capital gains tax, so their ACB is irrelevant.
2) I hold my BIP.UN units and BIPC shares in a non-registered account. How do I figure out the fair market value of the new BIPC shares and, hence, the amount by which I need to reduce the ACB of my BIP.UN units?
This is where the confusion starts. Different brokers are providing different numbers to their clients. I’ve seen “book value” or “average cost” figures for the new BIPC shares as low as $44.71 and as high as $51.77, based on e-mails from readers.
According to Melissa Low, senior vice-president of investor relations with Brookfield Infrastructure Partners, investors can use the “volume-weighted average price” (VWAP) for BIPC over its first five trading days on the Toronto Stock Exchange through April 6. The VWAP – which is the total dollar value traded divided by the total number of shares traded – works out to $50.12 per share for BIPC over this period, Ms. Low said in an e-mail.
So, if you owned, say, 100 BIP.UN units and received 11 shares of BIPC in the unit split, you would reduce the ACB of your BIP.UN units by $551.32 (11 times $50.12) and the cash received in lieu of a partial share. The company is using the same five-day VWAP formula to calculate the cash portion.
One other thing to note: The ACB per share of your new BIPC shares would also be $50.12. You would use this number to calculate your capital gain – or capital loss – when you eventually sell your BIPC shares or exchange them for BIP.UN units.
3) I don’t want to exchange my BIPC shares for BIP.UN units. I would prefer to convert my BIP.UN units into shares of BIPC. How can I do that?
For now, you can only exchange shares of BIPC for units of BIP.UN – not the other way around (the company is looking into whether it could facilitate such exchanges but has offered no details). If you would prefer to own only BIPC, you would need to sell your BIP.UN units and purchase BIPC shares. This would entail two trading commissions and, if you’re investing in a non-registered account, could trigger capital gains tax on the sale of your BIP.UN units.
That said, BIPC does have certain advantages over BIP.UN in a non-registered account. BIPC will pay dividends that qualify for the dividend tax credit (DTC), and the dividends will not be subject to U.S. withholding tax. BIP.UN’s distributions, on the other hand, do not qualify for the DTC and may be subject to withholding tax. But the amount subject to withholding tax is typically small – in the first quarter it was just 2 US cents.
“While we don’t expect there to be significant U.S. withholding tax, it can vary quarter-by-quarter and has the potential to be higher with the recent acquisitions of some new U.S. businesses,” Ms. Low said. Under the Canada-U.S. tax treaty, you can avoid withholding tax by holding BIP.UN in a registered retirement account. However, withholding tax still applies in a tax-free savings account, she said.
4) I’m wary of holding BIPC because the new corporation only owns a small subset of the partnership’s global infrastructure assets. Is this a concern?
It’s true that BIPC directly owns only natural gas transmission assets in Brazil and regulated utility operations in the United Kingdom. However, the fact that BIPC shares are exchangeable into BIP.UN units and both will pay the same dividend/distribution means BIPC investors are getting access, albeit indirectly, to the complete global portfolio of infrastructure assets including railways, ports, toll roads, pipelines, communications towers and data centres. It also means that BIP.UN units and BIPC shares should track each other closely in price, which has been the case so far.
“In order to effectuate the stock split, we were required to transfer assets to BIPC since it’s a separate reporting issuer/listed entity,” Ms. Low said.
“The assets we chose to transfer (being the gas transmission system in Brazil and regulated distribution operations in the U.K.) were selected as they were relatively easy to transfer considering regulatory, legal, financial and tax implications,” she said.
“So while BIP LP and BIPC do hold different assets, investors should be indifferent as BIP LP and BIPC should be considered one entity, which collectively share the same assets, returns and management.”
Full disclosure: The author owns BIP.UN and BIPC personally and in his model Yield Hog Dividend Growth Portfolio. View it online at tgam.ca/dividendportfolio.
Bob & Buck, Thanks for all the info, now I don’t feel like “the lone ranger”. Where else but here, could I get this kind of feed back. thanks again, and also Tim, for providing this forum. Mike
CB – for some reason I’m seeing you write up of BIP/C only just now.
To emphasize for the readers, the essential difference between the two is that BIP is a Bermudian partnership while BIPC is a Canadian corporation. Bermuda doesn’t withhold income taxes (they don’t even have an income tax) while Canada withholds 15% on dividends going to the U.S.
For an American domicile the best way to play this is to hold BIPC in a qualified account. The 15% withholding doesn’t apply and you have no K-1, which you will get in the case of BIP. I put a lot of BIPC in various Roth account when it issued and it’s on my shopping list for the next crash. To me, it’s one of those companies you get in on at a good price and plan to hold forever.
Have you any thought about the price divergence between BIP and BIPC? BIP is at 51 and BIPC at 68. If the difference is solely a K-1 issue it should start people thinking.
I know you publish on the Globe & Mail website. I subscribe but most here don’t (I may be the only one besides you). If people want to read your work can they get it some place other than G&M?
Looks like the site: https://canadianpreferredshares.ca/ went into a limited data for free mode. The more robust info is now premium and reasonable for $48 annually. There were elements that had me spoiled like the blended rate if reset at different GOC 5 year rates in the future. Still great resource.
Only Canadian timber company I track is WFT.TO (West Fraser Timber).
For Acadian Timber top line sales to be less q-ov-q and y-ov-y makes me wonder given random length lumber has nearly doubled. WFT is reporting doubling of Adjusted EBITDA margin.
Once you figure this out then I would invest.
Another company more comparable Rayonier Inc. (RYN) top line revenue up 42.5 from same period last year.
RYN is a REIT so you need to compare AFFO. PE can not be used.
Would think beyond yield with ADN and see if any near term catalysts are coming as I can not believe top line is not moving with lumber price rocketing.