All over the news, there has been talk of Warren Buffett buying
preferred shares of Bank of America and getting a great deal that individual investors simply couldn't get.
As a result, in my line of thinking, I believe that is where new entrants to the ETF market may lay... For example, stock pickers like me balk at the bid / ask spreads (sometimes 10 % of the value of the security) and low volumes (some trading days, 0 shares change hands) of some perfectly good securities, such as
the preferred shares of banks & insurance companies — as a perfect example.
Not exact matches
To pay for the
shares, Berkshire swapped $ 5 billion
of Bank of America
preferred stock it had bought in August 2011.
He agreed to invest $ 5 billion and lend BoA his name; in return, the
bank would pay him a hefty 6 % annual dividend on his stake
of preferred shares.
Buffett himself noted in a recent annual letter that if
Bank of America (bac) were to lift its annual dividend above 44 cents a
share before 2019, «we would anticipate making a cashless exchange
of our
preferred into common.»
This lack
of supply has coincided with strong demand — including among institutional investors who purchased large amounts
of the Canadian
bank's last round
of attractively - priced
preferred share issuance in December.
2014.01.21 Royal
Bank of Canada announces increase to
preferred share issue Royal
Bank of Canada (RY on TSX and NYSE) today announced that as a result
of strong investor demand for its previously...
This ratio tells me which kind
of financing management
prefers; do they privilege more debt from
banks or selling more
shares and diluting ownership.
Created four years ago as the country's financial system teetered on the verge
of collapse, TARP provided more than 700
banks with a combined $ 205 billion
of capital by buying dividend - paying
preferred shares.
As a result, the
Bank of Canada's current stance to leave interest rates unchanged given its concerns about the country's lacklustre economic growth could be an important catalyst for
preferred share performance going forward — especially when combined with the U.S. Federal Reserve's projections for multiple rate hikes this year.
As a result, the
Bank of Canada's current stance to leave interest rates unchanged given its concerns about the country's lacklustre economic growth could be an important catalyst for
preferred share performance going forward — especially when combined with the U.S. Federal Reserve's projections for multiple rate hikes this year.
The appeal
of preferred funds is they offer higher yields than bond ETFs, explains Alfred Lee, vice-president
of BMO Global Asset Management and lead manager
of the
bank's Laddered
Preferred Share Index ETF (TSX: ZPR).
The plan is to invest tactically in a wide variety
of security types including junk bonds,
bank loans, convertibles,
preferred shares, CDOs and so on.
For instance, the National
Bank of Canada
preferred share symbol would be NA.PR.
For example, 500
shares of Royal
Bank's AD $ 25 par preferred will generate $ 562.50 in dividends a year which will buy about 11 of the bank's common shares paying a dividend of $ 2.16 e
Bank's AD $ 25 par
preferred will generate $ 562.50 in dividends a year which will buy about 11
of the
bank's common shares paying a dividend of $ 2.16 e
bank's common
shares paying a dividend
of $ 2.16 each.
After five years, you will have received about $ 2,815 in
preferred dividends and an additional $ 297 in common dividends and hold approximately 55 common
shares of Royal
Bank.
However today's investing stars like Warren Buffett seem to love
preferred shares lately, and have loaded up on the
preferred shares of many financial institutions like Goldman Sachs and
Bank of America.
Many «core» Canadian fixed income managers have made a good living by holding large amounts
of bank subordinated debt and more recently the capital securities (essentially
preferred shares)
of all five major
banks.
Four
bank holding companies announced that they had redeemed all
of the
preferred shares that they had issued to the U.S. Treasury under the Capital Purchase Program
of the Troubled Asset Relief Program (TARP).
I
prefer cash myself... But Zamano's size may be a blessing: i) a cash deal, even at a decent premium, wouldn't break the
bank, or ii) an all -
share deal mightn't present much difficulty either — for ZMNO shareholders who
prefer a cash exit, the impact
of their selling might be quite limited in relation to an acquirer's market cap / trading volumes.
When a buyer purchases a company in the private market, he has to pay for the company equity (including common stock,
preferred shares, minority interest, etc), he has to pay off all the debt, but in return the buyer gets the cash the company has in its
bank accounts and other cash equivalents in form
of securities and other liquid assets.
Also note that the Royal
Bank of Scotland is
preferred shares, and not the common.