Rod's Investments: 2023

Monday, August 21, 2023

Rate Reset Preferreds

A list of the currently available Canadian minimum rate reset preferred shares. These are different from regular preferred shares in that they are reset every five years from the date of issue (or redeemed at par) and have a minimum rate that they can be reset to, thus limiting the lower range to which the rate is reset compared to most preferred shares.

They are preferable to regular preferred shares that act more like a bond: if rates rise their stock price declines and this can be substantial. Depending on how far away the rest date is the fall in price is less. For example, Emera series H Cumulative Minimum Rate Reset First Preferred Shares, issued in 2018 had an initial dividend of $1.225 yielding 4.90% (based on the $25 par value). The dividend was reset August 15, 2023 to $1.581 yielding 6.32%.

Comparing the volatility of a regular rate reset preferred to a minimum rate reset. The Emera series C (a regular rate reset preferred) and series H both reset in 2023. But during the stock market collapse in March of 2020, the series C dropped as low as $12.60 whereas the series H only fell to $21.34.

For all of those listed below the reset rate is based on the Government of Canada 5 year bond yield on or near the reset date plus additional interest, provided it is above the minimum. Information found at CanadianPreferredShares.ca. Stocks are listed in order of higher credit rating.

Symbol	Credit Rating	Fixed Rate Base	Reset Date	Dividend Amount per Quarter	Indicated Yield	Issue Name
CU.PR.I CA1367176262	Pfd2	5YR + 3.69% Min_4.5%	2025/12/01	$0.2813	4.50%	CU_4.50%_Series_FF
BN.PF.H CA11271J6694	Pfd2L	5YR + 4.17% Min_5%	2025/12/31	$0.3125	4.96%	BAM_Inc._5.00%_Series_44
BN.PF.I CA11271J6447	Pfd2L	5YR + 3.85% Min_4.8%	2027/03/31	$0.3366	4.80%	BAM_Inc._4.80%_Series_46
BN.PF.J CA11271J6280	Pfd2L	5YR + 3.10% Min_4.75%	2027/12/31	$0.3893	4.75%	BAM_Inc._4.75%_Series_48
BEP.PR.G BMG162581323	Pfd3H	5YR + 4.47% Min_5.5%	2026/01/31	$0.3438	5.50%	BRP_L.P._5.50%_Series_7
BEP.PR.M BMG162584053	Pfd3H	5YR + 3.00% Min_5.0%	2028/04/30	$0.3781	6.05%	BRP_L.P._5.00%_Series_13
EMA.PR.H CA2908768617	Pfd3H	5YR + 2.54% Min_4.9%	2028/08/15	$0.3953	6.32%	Emera_4.90%_Series_H
EMA.PR.J CA2908768468	Pfd3H	5YR + 3.28% Min_4.25%	2026/05/15	$0.2656	4.00%	Emera_4.25%_Series_J
ENB.PF.K CA29250N5192	Pfd3H	5YR + 3.17% Min_4.9%	2028/03/01	$0.3883	6.21%	Enbridge_4.90%_Series_19
PPL.PF.A CA7063277643	Pfd3H	5YR + 3.26% Min_4.9%	2028/03/01	$0.3939	6.302%	PPL_4.90%_Series_21
PPL.PF.E CA7063277239	Pfd3H	5YR + 3.51% Min_5.2%	2028/02/15	$0.4051	6.48%	PPL_KML_5.20%_Series_25
AX.PR.I CA04315L8657	Pfd3L	5YR + 3.93% Min_6%	2028/04/30	$0.4371	6.00%	Artis_REIT_6.00%_Series_I
BPO.PR.C CA1129006674	Pfd3L	5YR + 5.18% Min_6%	2026/06/30	$0.3823	6.12%	BOP_Inc._6.00%_Series_CC
BPO.PR.E CA1129006427	Pfd3L	5YR + 3.96% Min_5.1%	2027/03/15	$0.3435	5.10%	BOP_Inc._5.10%_Series_EE
BPO.PR.G CA1129006260	Pfd3L	5YR + 3.74% Min_4.85%	2027/06/30	$0.4091	4.85%	BOP_Inc._4.85%_Series_GG
BPO.PR.I CA1129005924	Pfd3L	5YR + 3.23% Min_4.85%	2027/12/31	$0.3974	6.36%	BOP_Inc._4.85%_Series_II
ECN.PR.C CA26829L6026	Pfd3L	5YR + 5.19% Min_6.25%	2027/06/30	$0.4961	7.94%	ECN_Capital_6.25%_Series_C
BIP.PR.B BMG162521436	NR	5YR + 4.53% Min_5.5%	2025/12/31	$0.3438	5.50%	BIP_L.P._5.50%_Series_3
BIP.PR.E BMG162522004	NR	5YR + 3.00% Min_5.00%	2028/03/31	$0.415125	6.642%	BIP_L.P._5.00%_Series_9
BIP.PR.F BMG162522269	NR	5YR + 2.92% Min_5.10%	2028/12/31	$0.402875	6.446%	BIP_L.P._5.10%_Series_11

Above are Canadian Minimum Rate Reset Preferred shares. Below are US dollar preferreds that are floating rate (i.e., reset quarterly) but with a minimum value.
These Bank of America preferreds all use the 3-month CME SOFR for the rate reset, and varying minimum rates.* All are perpetual and re-callable anytime.
Importantly, these are all non-cumulative, but no dividends have been missed since issue even during the price collapse of BoA common and preferred shares in 2009.

Symbol	Credit Rating	Fixed Rate Base	Reset Date	CUSIP	Prospectus
BAC-PE		3mth CME SOFR + 61.161bps – Min. 4%	perpetual	060505815	Series E
BML-PG		3mth CME SOFR + 101.161bps – Min. 3%	perpetual	060505633	Series 1
BML-PH		3mth CME SOFR + 91.161bps – Min. 3%	perpetual	060505625	Series 2
BML-PJ		3mth CME SOFR + 101.161bps – Min. 4%	perpetual	060505591	Series 4
BML-PL		3mth CME SOFR + 76.161bps – Min. 4%	perpetual	060505583	Series 5

* – The prospectuses for the above preferred shares state that the dividend rate was to be determined by the three-month LIBOR rate on the London market. This was changed by an Act of Congress in 2022 to replace the LIBOR rate with the CME SOFR rate.

Tuesday, April 4, 2023

Graham Number

The Graham number is a formula based on the work of the pioneering investment analyst Benjamin Graham.

The Graham number is a method developed for defensive investors. It evaluates a stock’s intrinsic value by calculating the value of the stock based on its earnings and book value. If the resulting value is higher than the current selling price then the stock is considered to be under valued. The formula is the square root of 22.5 times the multiplied value of the company’s earnings per share (EPS) and book value per share (BVPS).

To apply this method, two conditions must be met:

The average Price to Earning ratio (P/E) for past 3 years should not be > 15.
The Price to Book ratio (P/B) should not be > 1.5.

Financial Stocks:
Note that he did not believe this formula provided a valid criteria for selecting financial stocks like banks and insurance companies, and also does not apply to asset-light companies with more than 10% growth rate (which I believe would apply to most high-tech companies and other startups).

Other criteria Graham saw as essential to a defensive approach to stock selection:

Current assets should be at least twice current liabilities.
Long-term debt should not exceed the net current assets.
Positive earnings in each of the past 10 years.
Uninterrupted dividends for at least the past 20 years.
A minimum increase of at least 33% in EPS in the past 10 years.

Earnings vs. Owner Earnings

Owner earnings rather than the stated earnings tell us the amount of value the company is creating and how much is flowing back to shareholders.

Owner earnings equal:

reported earnings
+ depreciation & amortization
+/- other non-cash charges
– average annual maintenance capital expenditures (Capex)
+/- changes in working capital.

“An intelligent investor is a realist who sells to optimists and buys from pessimists.” – Benjamin Graham.

Term Deposits

The term for US dollar GICs in Canada is Term Deposits or TDs (called Certificates of Deposit or CDs in the U.S.). They are available in Canada from most financial institutions. There are cashable, redeemable and non-redeemable TDs; non-redeemable ones pay the highest interest rate.

Scotiabank - redeemable, non-redeemable and cashable

TD - cashable and non-cashable

RBC - redeemable, non-redeemable and cashable

Redeemable vs cashable GICs (via NerdWallet):

Both cashable and redeemable GICs are flexible investment options that allow you to withdraw your money before the end of the GIC’s term.
While most cashable GICs have a short locked-in period (30-90 days) before you can access the money without any penalty, redeemable GICs do not; You can withdraw your cash anytime.
Another difference involves the interest you’ll earn if you withdraw your money before the term is up.
For the most part, a cashable GIC earns interest during the time period that you hold it. So if you have a one-year cashable GIC and redeem it after eight months, you’ll receive interest for those eight months with no penalties. If you do the same with a redeemable GIC, you’ll be subject to early-redemption rates set by the bank, which are usually significantly lower than the rate you get if you finish the full term.

Useful Links

Annuity payout calculator

Dividend History for both CDN & US stocks

Heritage Financial GICs and Savings Accounts

High Interest Savings Accounts chart

Best High-Interest Savings Accounts

Scotiabank Tiered Deposit Accounts, both CDN & USD

Royal Bank Investment Savings Accounts, CDN & USD

TD Bank Investment Savings Accounts, CDN & USD

Prime rates in Canada & US

5 year bond rate - Canada

T-Bill rates - Canada

SEDI insider trading data - Canada

FinViz insider trading data - US

RateHub - GIC rates

Preferred Stock Channel

Annuity Payout Calculator

Tax Treaties with Canada

Graham Intrinsic Value Calculator

Dividend Leaders is a great resource for finding dividend lists for countries and sectors:

Dividend Leaders - World Telecom Stocks

Dividend Leaders - Swiss Stocks

Dividend Leaders - Singapore Stocks

CURRENCIES

A look at the loss in value of the Canadian dollar highlighted by its decline against the Swiss franc, and the even worse collapse of the British pound when shown against the weak Canadian dollar.