Aug 14, 2013

Cory Diary : Preference Shares

Preference Shares(PS) are specific class of stocks where a company promise to pay fixed dividends subject to terms and conditions. Like equity, PS have different risk levels and rewards. For me to invest in PS, things i would look for is as follow:


1. Piece of Mind : Risks from company collapse
Limit myself to safety of the bank which align my motivation to be in PS

2. Sufficient Returns : Dividends in Percent around 4-5% are reasonable
Sufficient enough to ward-off inflation

3. Reputation : Consistency in payments
Calling off once or twice payments will lower my returns significantly for already a low return

4. Currency Risk : Large capital for fixed yield cannot afford currency risk
Ratio of invest amount to yield is high. Shift in rate may wipe-off my returns.


Cory
14th August 2013

2 comments:

  1. When interest rate rise, PS price falls.. Banks won't call when interest rise, cos the cost of paying dividend is lower than interest from loans

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  2. Make sense PS will fall. For DBS 4.7% now at $108, is like 1.7x of a year dividend premium. For a long term investor holding PS price has not much relevence since we have no plan to sell. So the constant stream of 4.7% income is not a bad deal compared to Fixed Deposits. And unlike Reits, there are no cash call. In the event it get recalled, we get $100 back and not market price.

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