BCE Preferred Shares – What You Should Know

Written By Canadian Preferreds

On July 22, 2020
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This video will go over BCE Preferred Shares and point out some of the facts you should know as an investor, who’s currently holding or considering BCE preferred shares.

BCE Preferred Shares - What You Should Know - https://canadianpreferredshares.ca/

BCE Preferred Shares – What You Should Know

Video transcript:

In this video I will go over BCE Preferred Shares and point out some of the facts you should know as an investor, who’s currently holding or considering BCE preferred shares.

For this demo I will be using the ‘free’ website. Let’s see what type of weight the preferred share ETF’s have assigned to BCE. We will start by looking at the BlackRock ETF CPD. The current market value is currently 1.1 Billion dollars. The seem to be holding most of the BCE preferred series.

Let’s get a better understanding by looking at the holdings by Issuer. Here we can see that BCE is 3% of the BlackRock portfolio.

Now let’s see what the portfolio’s weight is in the Telecom sector. In here we can see that the telecom sector is 3.24% of the portfolio weight.

Let’s take a look that the BMO ETF. The current market value is 1.8 Billion dollars.

Looking at the portfolio By Holding, we can see that this BMO ETF is holding fewer BCE issues that the BlackRock ETF.

Looking at the portfolio By Issuer, we can see the weight of BCE is 2.54% of the total portfolio.

Looking at it By Sector, we can see that Telecom is 2.74% of the total portfolio.

Now let’s look at the Evolve ETF. This is a much smaller ETF with the current market value at 34 Million.

Looking at the holdings, we can see that they do not hold any BCE issues.

Looking at the Evolve portfolio By Sector, we can see that they do not hold any issues in the Telecom Sector.

Now, let’s go the the ranking page for BCE preferreds. In the section BCE Inc. Credit Rating, we can see the rating by S&P, DBRS & Moody’s. For preferred shares S&P rates BCE Inc. With a P2L, and DBRS with a PFD3.

In the section Overall Preferred Share metrics, we can see that BCE has issued 21 preferreds. The lowest current yield is offered BCE-Y at 3.93%, while the highest current yield is offered by BCE-R at 8.71%. The Average Current Yield of all 21 preferred issues is 5.68%.

Continuing, of the 21 preferreds, 12 of them are 5 year resets. Of the 5 year reset set, the lowest reset yield is offered by BCE-C at 0.48%, while the highest reset yield is offered by BCE-O at 5.00%. The average reset yield is 1.95%.

There’s a big difference between the Average Current Yield of 5.68%, and the Average Reset Yield of 1.95%.

Let’s take a look at the compare tool. Let’s sort by Reset Yield. The very first thing you see is a number of preferreds that are currently yielding 7% +. At reset these will be yielding .5%. This explains the huge difference between the Current Yield and the Reset Yield.

As you can see, this class of preferreds is a negative spread 5 year reset. This means that at reset time, the new yield is going to be a minimum of 80% of the 5 year rate. This translates to a yield of 0.28%, based on today’s rate of .35%. To get the yearly dividend we multiply .28% times the face value of the preferred which is $25. You end up with $.07. This represents your YEARLY dividend for this preferred. Now if we divide 7 cents by the current value of the preferred, which is $14.48, to get the reset yield, you end up with 0.48%. So at reset, this preferred will give you 7 cents dividend or 0.48%. In other words, the current yield is 15 times the reset yield.

So, what should you do? Let’s go to the Prospectus Information section, and locate Series AC, because we have been reviewing BCE-C. Right away we can see that AC converts to AD, and vice-versa.

Let’s look at the Conversion Terms. In here you can see that holders of series AC can convert to series AD. Series AD offer a floating dividend rate to 80% of Prime. With Prime being 2.45% today, 80% of that is 1.96%. Comparing that to not converting, you end up with 4 times the yield of the original .48%. The solution here is to convert to Series AD. As you can see this is a far better choice. To convert you must inform BCE you plan to do so within the allotted time period.

It may also be an opportunity, depending on what happens to the share price, after it resets. With a crazy low yield I would expect to get this for a couple of dollars. For a patient investor this is definitely an intriguing situation.

On our website, you can find a tool that will let you know what the upcoming reset dates are. Let’s go to ‘Other Tools > Resetting within 6 months’. This page shows you which preferreds are resetting within the next 6 months. Sort them by Reset Date, to bring the closest Reset Dates to the top. As you can see the next preferred share to reset is CMQ on July 31st, while the first BCE issue (BCE-R) will be resetting on December 1st. This issue, BCE-R, will be going from a current yield of 7% to a reset yield of .5%. But you can convert to an equivalent 80% of prime, preferred share.

Until next time, Happy Investing!

2 Comments

  1. KarenM

    Silly question. I have some BCE-R and I’d like to convert it as you mention by December 1. How exactly do I do that? I’m using Questrade. Do I contact BCE?

    Reply
    • AAlex

      You have to contact your broker (Questrade). Here is a link with instructions https://www.bce.ca/investors/preferred-shares/2020-conversion-notice-series-r.pdf

      Note: item #5 of the release.
      As of December 1, 2020, the Series R Preferred Shares will, should they remain outstanding, pay, on a
      quarterly basis, as and when declared by the Board of Directors of BCE Inc., a fixed cash dividend for the
      following five years that will be based on a fixed rate equal to the product of: (a) the yield to maturity
      compounded semi-annually (the “Government of Canada Yield”), computed on November 10, 2020 by two
      investment dealers appointed by BCE Inc., that would be carried by a non-callable Government of Canada
      bond with a 5-year maturity, multiplied by (b) the “Selected Percentage Rate”. The “Selected Percentage
      Rate” determined by BCE Inc. is 600%. The annual dividend rate applicable to the Series R Preferred
      Shares will be published on November 13, 2020 in the national edition of The Globe and Mail, the Montreal
      Gazette and Le Devoir and will be posted on the BCE Inc. website at http://www.bce.ca.

      They seem to be using a new formula to come up with the new yield (much better than what was declared in the prospectus).

      the yield to maturity
      compounded semi-annually (the “Government of Canada Yield”), computed on November 10, 2020 by two
      investment dealers appointed by BCE Inc., that would be carried by a non-callable Government of Canada
      bond with a 5-year maturity, multiplied by (b) the “Selected Percentage Rate”. The “Selected Percentage
      Rate” determined by BCE Inc. is 600%. The annual dividend rate applicable to the Series R Preferred
      Shares will be published on November 13, 2020 in the national edition of The Globe and Mail, the Montreal
      Gazette and Le Devoir and will be posted on the BCE

      Best to wait till the 13th when the new yield will be announce before making any decisions.

      Reply

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