Retirees: Canadian Bank Preferred Shares Offer Copious Yield

Canadian banks like Canadian Imperial Bank of Commerce (TSX:CM) have very high-yield preferred shares.

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Did you know that Canadian bank preferred shares offer very high yields?

In many cases, their common stock is high-yielding enough, but the preferred shares really take things to the next level.

At the end of October, Raymond James Financial released a report that showed the abundance of yield available in Canadian preferred shares. Financials, especially banks, were among the highest yielding of the bunch. In this article, I will explore the highest-yielding Canadian banks mentioned in Raymond James’s report.

CIBC serves up a truckload of yield

Of all the Big Six banks mentioned in Raymond James’s report, Canadian Imperial Bank of Commerce (TSX:CM) has far and away the highest-yielding preferred shares. Its series “S” preferreds were listed in Raymond James’s report as having a 7.76% yield. Since then, the shares have risen in price. The yield is only 6.77% now. That’s not as juicy as what was once available, but it’s much higher than the yield on CM common stock.

Canadian Imperial Bank of Commerce is exactly the kind of company whose preferred shares may be better than its common stock. With common stock, you “participate” in the company’s growth, meaning your dividends and stock price may rise as its earnings rise. Unfortunately, CIBC’s earnings have been declining. Over the last five years, they have declined by 2.5% CAGR, or 12% over the entire period. Despite the negative earnings growth, CIBC has managed to pull off a few dividend hikes, and its stock has traded sideways rather than actively falling in price.

CIBC’s common stock looks risky now. But its preferred shares may be just the ticket. As a fixed coupon instrument, they will appreciate in price if interest rates go down. In the meantime, their 6.76% yield will continue being paid, even if the shares just trade sideways.

Although CIBC is not the fastest-growing Canadian bank, it has done well enough for its preferred shares to be investable. Preferred stock is like a bond: as long as the company is solvent, you’ll likely get paid. CM is the kind of stock that can be counted on to pay a preferred coupon/dividend, though it’s not growing much, so maybe its preferreds are better than its common stock.

Other preferreds mentioned in Raymond James’s report

In addition to the notably juicy CIBC preferred stock, there are others worth mentioning in Raymond James’s report. Some notable ones include the folllowing:

  • TD Bank: series “I” preferred shares yield 7%.
  • Bank of Montreal: series “E” preferred shares yield 5.55%.
  • Bank of Nova Scotia: series “I” preferred shares yield 5.8%.
  • National Bank: series “E” preferred shares yield 7.68%

These yields were reported by Raymond James on October 31. Most of these probably have lower yields now, as bank stocks (including preferred stocks) have risen on the expectation of lower interest rates. Speaking of which, if the Bank of Canada starts cutting interest rates next year, then there is a decent chance that some of the preferreds mentioned above will rise in price. So, potentially, there is more on offer here than just yield.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Andrew Button has positions in Toronto-Dominion Bank. The Motley Fool recommends Bank Of Nova Scotia. The Motley Fool has a disclosure policy.

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