How to Choose a Company’s Best Preferred Share

A company usually issues multiple preferred shares. When you decide to purchase one, how do you pick? This tool will allow to choose the best one from the bunch. The tool provides you with a set of metrics to use when making your decision.

Written By Canadian Preferreds

On November 24, 2019

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So you have decided to purchase a preferred share, from a company you are familiar with. You trust the company, and are willing to take a little risk by purchasing one of their preferreds. How to Choose a Company’s Best Preferred Share is quite simple once you have all the information in front of you.

After doing some research on the internet, you discover the company offers multiple preferreds of various types and yields. Many financial sites provide information about each preferred, but there is nowhere you can find a table with all of them.  What you need, is to see all of them on one page, with all the metrics you consider important, so you can make an educated decision. Most importantly seeing all the data in single view is what makes the decision process easy.

Each of us will consider various metrics and assign different weights to each one.  After giving it some thought, you can pick one based on your personal investment style. With the information you get from our tools, picking the right preferred is easy and time efficient.


Compare Preferreds within Issuer

Our tool was developed to satisfy this need.  The Compare Preferreds within Issuer tool lists all preferred shares issued by the company in an easy-to-read format. Each column on the table presents a metric for you to consider. A full explanation of the table columns/metrics can be found in our Ranking Table Column Information. We recommend you take the time to understand what each metric means and how it should be used.


When to Use this Tool

Use this tool only after you have selected the company. The tool will list all preferreds issued by the selected company.

No matter which preferred you pick the risk of default is the same.  


How to Use the Compare Tool

Since you have already picked the company, all you are left with is, to choose a share that meets your needs. You now need to decide on the following

  • Do you want a perpetual or a reset. Checking the Data Analytics reports for your portfolio can provide you with additional information. 
  • Looking to hold for long term or short term.
  • Do you want to have a chance on capital gains or just looking for income.
  • For a reset, are you willing to take less income upfront and hope for upside of capital gains and income after reset.


How to Choose a Company’s Best Preferred Share

Picking the best share depends on the type of share. Two types of shares are available Resets and Perpetuals.


Picking a Perpetual

Choosing a perpetual is the easiest choice you can make. Current yield is the only metric to consider. For this class of preferreds all other metrics should considered as information only. Column “Current (Yield | Dividend)” shows the yield and dividend currently offered by the share.

Click on column “Current (Yield | Dividend)” to sort the table and pick the one with the highest yield.

There is no need to consider how interest rates will affect your yield down the road. Once you purchase the perpetual the yield is locked in for the duration you hold the preferred. 


Picking a Reset

Resets are a bit more complicated to select.

The quick and simple way. Sort on column “Blended (Yield/Dividend)” and pick the one with the highest yield. Make sure you understand how the tool calculates the blended rate before choosing to use this option.

The complex and possibly better way. This way you can pick the preferred which best fits with your risk/reward profile, and future dividend income stream. Unfortunately the tool will not tell that since each of us have different goals. The tool can be used to provide you with metrics needed to make the decision.

  1. Sort by column “Blended (Yield/Dividend)”. 
  2. Take into account the “Reset Date”. The further away into the future the date is, the more likely the blended rate will be correct.
  3. Consider the “Rate Increase” metric. It shows you how much of premium/discount factor the share is reflecting, based on the current price.
  4. Based on what you think the rates will be in the future (at reset date of the preferred) you can choose a preferred with longer or shorter reset date. You can see potential yields for each preferred based on a number of what if scenarios of the 5 year bond yield.
  5. Use the Data Analytics reports of your portfolio section to better understand your holding and possible adjustments you should make to fit your goals. The Laddering section shows you how your current portfolio is structured and where adjustments are needed. 


How to Choose a Company’s Best Preferred Share – Conclusion

In short, picking the best share is easy. Since you have access to all the data you need, in a simple view. In other words its visually easy to identify the best preferred.  Just sort the table on the most important metric to you and pick the first preferred on the list.