Preferred shares are often considered a hybrid security, since they share characteristics of both common stocks and corporate bonds. Like bonds, preferreds typically have a predictable income stream. But unlike bonds, most preferreds do not have a maturity date. And most important, the income from preferred shares is considered dividends rather than interest.
I’ve received many questions about preferred shares over the years: this asset is class is clearly popular with Canadian investors. But the honest truth is that I didn’t have much insight to share: I don’t include preferreds in my model portfolios for DIY investors, and our Toronto team at PWL Capital does not include them in client accounts. But other PWL advisors use them regularly, so I teamed up with my colleague Raymond Kerzérho, director of research at PWL Capital, to write a new white paper on the subject. In The Role of Preferred Shares in Your Portfolio, we describe the different types of preferreds in the Canadian marketplace, consider their risks and potential rewards, and help investors decide whether it’s worth adding them to a diversified portfolio.
In the first of a series of blog posts on this subject,