Long-time readers here should remember that I referred to a specific security as cash parking vessel. I didn’t make it much of a secret, but I was referring to DREAM Unlimited’s preferred share, which has been redeemed at the end of 2019.
There has been a lot that has happened since then and now! During the COVID crisis, there were a lot of good opportunities for fixed income investors in the form of bonds, preferred shares and income-bearing equity (in addition to others). Today, however, when scanning my fixed income lists, it is a total wasteland – generally the reasonably safe returns will give you a 5% dividend, while marching up the risk spectrum (e.g. Bombardier’s BBD.PR.B) will get you about 7.3%. It is slim pickings.
The next nearest cash-parking vessel is Birchcliff Energy’s (TSX: BIR.PR.C), which I have written about during the COVID crisis. Unfortunately, it, along with its twin cousin, (TSX: BIR.PR.A) is likely to get called out over the next 1.6 years – I am expecting the company to redeem the latter for par on the September 30, 2022 rate reset date.
It is very tempting to leverage up on “safe” preferred shares yielding 5% or so and finance it with 1.5% margin debt, but as the market instructed people 12 months ago, doing so can be very financially hazardous in the event of a collapse in asset prices.