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It’s no secret that I like preferred shares. I think they’re a nice choice for investors who are willing to take a little more risk with the fixed income part of their portfolio. You’ve got the chance that a company issuing preferreds will eventually blow up, but you’ve also got that risk whenever you buy bonds or even common stock. The yield will tell you what kind of risk the market puts on the stock.
Investing in preferreds is a little bit frustrating for Canadian investors, since our preferred share market is dominated by the banks and insurance companies. Once you take away the financials, there are about 50 different companies to choose from. Most have a yield somewhere in the 4-5% range, which isn’t very exciting, especially if the underlying common stock yields just as much. Who would buy a BCE preferred share that yields 5% when the common stock yields just as much and gives an investor potential for a capital gain?
I recently took a look at Bombardier, the maker of planes and trains. The company had a crummy week. First a major customer for its new CSeries line of business jets openly mused about canceling its order, since Bombardier has already twice delayed its delivery date for its new line of jets.
And then, the Russian government announced it may pull the plug on its joint venture with the company. Bombardier was going to set up a factory in Russia to build a bunch of jets, and then sell them to the Russian government. This deal was slated to be worth $3.4 billion. It sounds like the Ruskies just want a reduction on price, but we’ll see. It’s not good, anyway.
I took a look at the company, and promptly lost interest in the common shares. They’ll be dead money at best until it starts delivering planes, which is currently slated to be sometime in the second half of 2015. But the preferred shares look interesting.
I’m looking at the series C preferred shares, which pay out $1.56 per year and currently trade at $22.24. They’re redeemable at $25 at any point in the future (not likely in the short term), and the payout is set at $1.56. You’re looking at a 7% yield on Friday’s closing price.
I think they’re a decent deal at this price. The company has a mountain of cash, a good train business that makes money, and a business jet business that hopefully sorts itself out at some point. Even though the debt is a little excessive, I don’t think the company is about to go away.
Onto the links!
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You might not have heard about it, but Russia and China signed a $400 billion deal for the former to supply the latter with natural gas over a 20 year deal. I wrote about how it’s kind of a big deal to Canadian natural gas companies.
I took a look at a couple of beaten up oil companies. I think one has the potential to be taken over. Click to see what companies they are.
Retail is a tough business these days, especially in Canada. I took a look at three retailers to avoid, and two that I actually like. You guys can probably figure out which one I like. If you can’t, I’d recommend paying more attention.
Want a simple ETF portfolio with a annual cost of about 0.30% that gets you exposure to more than 1,500 worldwide stocks? I hook you up.
I ran a screener, and came up with two large cap Canadian companies that represent the best value. You’ll have to do some clickin’ to see what companies I picked. I’m such a tease.
That’s it. See you guys back here tomorrow for the dump.