24 - Sunday, “uly 24, 1994 - North Shore News Moldowan THE BOTTOM LINE INVESTORS SEEKING income often limit their selection to bonds, giving lit- tle or no consideration to preferred shares. Often this is duc in part to the investors not knowing the full story of preferreds, A preferred | share represents an equity interest in a corporation, just as a common share does. It also produces a reliable stream of income in the form of a pre-set div- idend, very much like the interest paid on a bond. The same independent services that rate bonds, Canadian Bond Rating Service and Dominion Bond Rating Service, rate many preferred issues that range from highest qual- ity (P-1 or PFD-1), to lowest quali- ty (P-5 or PFD-5). Most preferred shares can be “called,” or redeemed, by the issuer. In many cases, the call price is above the original issue price. Preferreds are well-suited to conservative investors. They offer investors the following attractive features: & High Yield: Preferred shares issued dy the same company typi- cally yield one to three percentage points more in dividends. Since dividends are paid quarterly, many investors purchase three or more preferred issues with different pay- ment dates to assure themselves a monthly dividend cheque. ® Liquidity: Most preferred shares are listed on the major stock exchanges, making them easy to buy and sell. Their prices fluctuate as intcrest rates do. + Safety: Preferred shares rank senior lo common shares, In the event of the company's liquidation, preferred sharcholders’ claims for dividends and corporate assets come before common shareholders * claims. If required, the board of directors may vote to reduce or skip the preferred dividend without placing the company in default. But, most preferred shares are cumulative, meaning dividends accumulate and must be paid to preferred shareholders before any dividends are paid to common shareholders. (Note: preferred shares are junior to all the compa- ny’s debt. Bond interest payments take priority over preferred divi- dends and bondholders would be paid first if the company were dis- solved.) The dividend on some preferred issues can be increased if the com- pany does especially well and the common stock dividend rises lo a certain level, Such issues are called partici- pasting preferreds, and usually command a premium price. Most preferreds are “non-participating” — their dividends never change, regardicss of how high the common stock dividends rise. Retractable preferzveds have a fixed term which means the investor has the right to sel! the shares back to the issuing corpora- tion at a certain price on predeter- mined dates. The investor is there- fore guaranteed a Selling price. These shares are most attractive to investors who require a steady income and are concerned about the preservation of their capital. Convertible preferred shares offer income-oriented investors a chance at capital appreciation. These preferred shares can be exchanged for a specified number of common shares. The trade-off? Prices of convertible preferreds typically fluctuate more than those of non-convertible issues. They are probably not for investors who value a relatively stable share price. One major advantage for Canadian taxpayers investing in preferred shares is the dividend tax credit. It’s available to any investor who receives dividends from a taxable Canadian corpora- tion. The Bottom Line is this: Dividend yields are rising along with interest rates. This will increase your investment income. Grant helps college THE VANCOUVER Foundation recently donated $15,000 to Capilano College to help distribute complimentary copies of a college- produced CD-ROM book to every public schoo] and public library in British Columbia. _ The Greater Vancouver Book CD-ROM was produced by college information Technology students, under the supervision of Jerry Blitstein. “Sales of CD-ROM units are fast and getting faster... we said by 1994 SATURN Swit Fully equipped family wagon at a traction of the cost of the ae nearest competitor. SALES © "SERVICE © PARTS Willingdon & Lougheed, Burnaby 0 day one of this project that we have a hunch we'll scl] as many CD- ROMs of the book as we do the Guttenburg versions,” said The Vancouver Book general editor Chuck Davies. With the Cap College version, when you want to read up on Vancouver's famous Nine O'Clock gun, your computer screen will fill with a moving picture of the gun flashing, and the retort of the gun is audible. The book will be available next year. 1994 SATURN SL Now internationally recognized as the world's value leader. Preferred shares offer good returns and preferential tax treatment If you think preferred shares might have a place in your portfolio, see your investment adviser. Because of all the variuhles associated with these securities, expert advice is essential to chouse both the right type of preferred and the right issuer. As always, your questions and comments are wel- come at 661-7475. Russell Moldowan is an invest- ment advisor in Vancouver. He advises on investment management and retirement planning. Write to Russell at (604) 661-7475, P.O. Box 10342, Pacific Ceutre, Vancouver, B.C, V7Y 1H6. q 18 SPEED MNT, BIKE ‘All payments are 36 month lease payments, plus taxes, 0.A.C. Don't be fooled by high bond & and mortgage yields. . 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