The Basics Of Preferred Stock Investing

The Basics Of Preferred Stock Investing. How to invest with the best preferred shares offered by Canadian issuers. Pick the best preferred available in the market today. Choosing the highest yielding preferreds of investment grade quality is a few clicks away. Each day we evaluate and rank all preferreds based on the latest information available.

Written By Canadian Preferreds

On January 1, 2020

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Preferred Stock Investing

Looking to invest in Canadian Preferred Shares but not sure how to proceed? You have come to the right website. We explain The Basics Of Preferred Stock Investing.  If you feel you need to start from the beginning you should read our primer on preferreds. Preferreds offer higher dividends than the common stock and the dividend is almost guaranteed ( Common shareholders cannot receive dividends till preferred holders have been paid in full).  Just like the common stock preferred can have capital loss or gain. Dividends are paid on a monthly or quarterly basis. 


Who Should Invest In Preferreds

Here are a few of the reasons investors choose to invest in Canadian Preferred shares.

  1. Are you looking for a steady income stream, if so, preferreds are for you. Preferreds , by design,  offer a steady stream of income. As such they represent a great vehicle for growing your portfolio value. The dividend can be used for whatever you feel is appropriate for you. It can be a great way to suplement your annual income.
  2. The share price of a preferred is less volatile when compared to the common stock. Common stock dividends have been cut many times over the years.  Check the “Common VS preferred” section in our compare tools for any issuer of interest to you.On the other hand preferred share dividends are rarely cut since it impacts the issuers credit ratings. In my opinion preferred dividends are much safer than common share dividends.
  3. The dividend is always known either for the life of the preferred (for perpetuals) or for then next 5 year period ( for the 5 year resets). Knowing what your income will be in the future allows to better plan your financies.
  4. Have you considered an annuity? I think a perpeutal preferred will offer you better income and you get to keep your initial investment. Pick a high investment grade perpetual and you never have to worry about it again.  Annuities are offered large insurance companies which also offer perpetuals. Pick a perpetual of the insurance company you considered for the annuity.
  5. You want to have an income stream without having to check on your investment all the time. Since the dividend on the preferred is set for a set time you only have to check on your invstment less often.


Advantages of Preferreds

For Canadian investors, there exist substantial tax advantages. The dividend tax credit can be used to offset other taxable income up to mid $40K. 

Just like common shares, you can build a diversified portfolio of preferred shares. You can pick from banks, insurance companies, utilities and have a safe investment you don’t have to think about. The portfolio feature of our website will provide you with data analytics reports, customized for your personal portfolio. The portfolio features makes it easy to set up a properly diversified portfolio of preferreds across issuers, sectors, with the right mix of resets vs perpetuals.

For environmentally friendly investors looking for green companies you can pick one of the green renewable power utilities.

Read more on the advantages on this globe and mail article or this one


How To pick the right preferred

The Basics Of Preferred Stock Investing must include how to picking a preferred stock. Its not as easy as picking the common. Each issuer may have multiple preferred’s. Our “rank issuer preferreds” tool will help you locate the best preferred at time. Many metrics are provided like

  1. Current, reset and blended yields –  making it easy to find the highest yielding preferred for the next 5 year period.
  2. “what if 5 year GOC scenarios” show how the various rates will affect the yields of the preferreds.
  3. Current and Reset Yield graphs show you the trends of these yields.
  4. Short position graphs of the common and all preferreds let you know what the market thinks of the issuer and preferred shares.
  5. A compare between Common and Preferred yield will guide you to select the highest  yielding instrument.

The “rank issuer preferreds” tool is great once you have identified the issuer. Currently there are over 50 issuers of Canadian Preferred Shares. How can you select the right one for you? We provide you with a “Compare sector Preferreds” tool. These tools can help you by showing you different views of the data by:

  1. category/sector: here we group all issuers by a common theme like Canadian Banks , Canadian Insurance Companies  and many other usefull sets.
  2. preferred share type: Perpetuals, 5 Year resets, Minimum Rate resets, Floaters, etc. 

Understading the state of your current holding and the projected future returns is key to buidling a high yielding, safe and well diversified porofolio. For example you may want to sell you lower yielding preferreds and switch to higher yields. The data analytics reports we provide on your portfolio can be used to understand the current state of your portfolio and how it can be improved. Setting up a portfolio in your website is easy and secure. 

All the data you need to make your decision is presented in a single table making it easy to compare. Along with the base data we also show you potential future yields for the resets.

A number of articles and videos are available in our website to educate you in the selection process and metrics used. Explore our site for the right tools and information.


Additional Resources.

Here is a list of additional resources regarding preferred shares.  

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