Lots of details about various hybrids can be found in the Hybrid Securities thread also if anyone is interested:
https://www.aussiestockforums.com/forums/showthread.php?t=15124
Sorry wasn't sure where to put that.
Certain general observations should be made here on the subject of preferred stocks. Really good preferred stocks can and do exist, but they are good in spite of their investment form, which is an inherently bad one. The typical preferred shareholder is dependent for his safety on the ability and desire of the company to pay dividends on its common stock. Once the common dividends are omitted, or even in danger, his own position becomes precarious, for the directors are under no obligation to continue paying him unless they also pay on the common. On the other hand, the typical preferred stock carries no share in the company’s profits beyond the fixed dividend rate. Thus the preferred holder lacks both the legal claim of the bondholder (or creditor) and the profit possibilities of a common shareholder (or partner).
These weaknesses in the legal position of preferred stocks tend to come to the fore recurrently in periods of depression. Only a small percentage of all preferred issues are so strongly entrenched as to maintain an unquestioned investment status through all vicissitudes.
Experience teaches that the time to buy preferred stocks is when their price is unduly depressed by temporary adversity. (At such times they may be well suited to the aggressive investor but too unconventional for the defensive investor.)
I think Ben Graham nailed it in the Intelligent Investor when it comes to prefs...
(bolding mine)
The salient point to takeaway (IMHO) is that people buy prefs/hybrids etc because of the percieved safety above the common equity but in the event of something like the GFC, the pref holder will find him/herself in the exact same position as the common equity.
I just see it as a vehicle to put some money into that will return more than a TD, spread it around if you like.
I'm not so concerned with the safety angle though we could be headed for troubled times.....but who knows
No worries Burnsie, just adding my.
There's probably a reason why the debt offerings go to the instos but these sort of debt return/equity risk things end up being sold primarily retail.
Plenty to think about, let us know what you will do.
I think Ben Graham nailed it in the Intelligent Investor when it comes to prefs...
If dividends and or interest rates rise, do the returns rise equally on the preference shares?
Or are they tied to a fixed base with regard to rate of return?
The only thing that annoys me with these and the new Westpac CPS is they have franking credits. I'd prefer the full yield each quarter so I have more money to reinvest
Most of them are pegged to the 90 day or 180 day BBSW rate. Generally speaking, if the RBA raises rates then the BBSW rises also. So if rates rise so will your income.
Today's 90 day BBSW is around 2.9% + NAB CPS spread say 3.2% = 6.1% gross income.
If rates say climbed up to 5% then it will look something like this.
90 BBSW 5% + NAB CPS spread 3.2% = 8.2% gross income.
The opposite can happen if the BBSW rate goes down.
Thanks for that Bill.
How is it better than just buying NAB shares, with 5% div + franking.
It seems that the return from the preference shares would be less than the ordinary shares, is it that they will be less volatile, that makes them attractive?
So_Cynical said:Don't want to side track this thread, BUT would like to mention that i listened to the Intelligent Investor (Audio Book) last week and came away with the feeling that the author was what i would call a super conservative, concentrating on capital preservation and low yield.
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