Randy LeClair is managing director and a fixed income strategist at Manulife Asset Management.
We are looking for opportunities to diversify away from the heavily weighted financial sector in the rate-reset side of the preferred share market. Enbridge provides a means to get into the energy distribution sector with a solid company with a strong track record. This particular preferred share issue is trading slightly above its par value ($25.39) and a current dividend yield close to 4 per cent (3.94 per cent). In addition, the redemption or reset will not come until Sept. 1, 2018, which provides a way to lengthen the maturity profile of your portfolio.
This was a recent new issue in the "perpetual" preferred share space. A high quality Canadian life insurance company, Great-West is a way to have non-bank financial exposure since the banking sector will undergo significant change in the preferred share market over the next couple of years. This preferred share came with a large fixed dividend of 5.4 per cent. It has a long period (until March 31, 2021) before it can be "called" (redeemed) by the company back at the original $25 par value however it can be redeemed earlier by the company (2017) at a premium to par. Current yield is 5.12 per cent with a yield to the longest call date (in 2021) of 4.75 per cent.
Is another recent new issue perpetual preferred share and opportunity to diversify into other non-financial names in the preferred share market. The company is in the regulated electric and gas transmission business, along with some regulated and unregulated energy generation assets. The company profile provides a stable cash flow and a diversified asset portfolio. Similar to the recommended Great-West issue, this preferred share came with a decent fixed dividend of 4.9 per cent. It has a long period (until Sept. 1, 2021) before it can be "called" (redeemed) by the company back at the original $25 par value however it can be redeemed earlier by the company (2017) at a premium to par. Current yield is 4.74 per cent with a yield to the longest call date (in 2021) of 4.56 per cent.
Past picks: Aug. 4, 2012
Co-operators General Insurance Company
Total return: +6.2 per cent
Total return: +4.2 per cent
Total return: +3.9 per cent
Total return average: +4.77 per cent
The current economic environment of low growth, tame inflation, relatively high unemployment, no wage growth and a consumer that has high debt levels; is supportive for a low and stable interest rate scenario for the next six to 12 months. It's difficult to imagine interest rates moving substantially higher in the near term. Corporate bond yields and preferred shares continue to offer great value versus government bonds in this scenario and should provide stable, positive returns for the remainder of 2012 and into 2013.
Watch Mr. LeClair on BNN.