How should you select preferred shares to invest in?

An investor considering an investment in preferred shares should first obtain a list of those preferred shares currently issued and trading on a stock exchange. From this list, the investor typically starts by reviewing the preferred shares with the highest credit rating or the preferred shares issued by familiar companies.

Once the investor has selected a few preferred share candidates, they can study each of the preferred share’s features to try and assess their suitability. The features and specific details for each preferred share issue can be found at the issuer’s website under the “Investor Relations” section, “Share Information.” Most companies will have a specific section for their preferred shares.

Additional sources for preferred share information include discount and full-service brokers. The most complete source of information can be obtained by purchasing the Financial Post’s Preferreds and Derivatives annual book.

When selecting a preferred share an investor can try to select shares that have different quarterly dividend payment dates. For example, preferred shares typically pay the dividends in four quarterly payments. Therefore, if you are investing in 3 preferred shares and the credit ratings are similar, try selecting one share that pays in each of the following 3 time periods:

  • December, March, June, and September
  • January, April, July and October
  • February, May, August and November

This payment schedule will provide a dividend payment in each calendar month providing a smooth income stream.

Related Questions