Preferred shares in page

Information isn’t always easy to come by when you’re investing with preferred shares – lean on the experts to analyze value. Learn more about what to keep in mind with this asset class:

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Transactional costs can be high.

Although they are listed on the Toronto Stock Exchange, preferred shares trade in much smaller volumes than common stock from the same issuer, which increases the cost to transact. Using limit orders and a market professional is often a good idea to help reduce costs. Investors should also consider the overall market sentiment as well as the day and date before transacting.

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Consider their role in a portfolio.

Are you buying a preferred share as an alternative to a bond or GIC, or are you considering the preferred share in comparison to the common share of the same issuer? This makes a big difference when determining which preferred shares you would consider purchasing and how much of your account you might allocate towards them.

 

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Prices are important.

Preferred shares are complex securities, which can seemingly act like bonds at certain times, but more like common equity at other times. Alongside market sentiment, the price of each preferred share is a key driver of this behaviour. For example, if a preferred share is trading at $26 but the issuer can redeem the issue at $25 anytime, the upside of this particular issue is limited, like a bond. The price of the preferred share will equally determine which yield calculation you should use to determine value. Valuing preferred shares properly can be a complex task but is required to truly understand the risk of the security.

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Information is sparse; lean on experts.

Analyzing the true value of preferred shares is made more difficult by the fact that information isn’t easy to come by. Some companies have great websites; others, not so much. At RBC Dominion Securities, we have a team of dedicated individuals with up-to-date information on every preferred share and all of the daily market developments for our benefit.

Read this primer here for more information on the different types of preferred shares that exist in Canada today.