Question
I have a Barclays 6.0 per cent non-cumulative callable preference share, tt was recommended by a financial adviser some time ago.
I believe it matures in 2017. I am happy to keep the shares til maturity provided the payments are made each year which has been happening even through the worst period when Lloyds etc had to stop paying coupons.
The value of the shares has been and is very low, but I ws wondering if you have any advice and I am not sure what exactly does happen in 2017?
ThanksAnswer
Let's start with a quick recap. Preference shares are a cross between shares and corporate bonds. Unlike ordinary shares they pay a fixed dividend (much like a bond) rather than participate in a company's profitability. Plus preference shareholders must receive dividends before they're paid to ordinary shareholders and they also rank higher in the event the company goes bankrupt (but not as high as debt, e.g. corporate bonds).
However, preference shares don't usually carry voting rights and if the company is successful returns over time are likely to be lower than ordinary shares, although probably higher than corporate bonds.
The Barclays 6% preference shares you hold unsurprisingly pay a 6% annual income on 15 December each year (the 6% is based on the £10,000 issue price, so £600 annual dividend per share held). The non-cumulative part means that if Barclays doesn't pay the annual dividend it doesn't have to make good the missed dividends if/when payments are eventually resumed - so tough luck investors.
Barclays has the option to 'call' the preference shares on 15 December 2017 (i.e. buy them back from you at £10,000 per share) and on each anniversary thereafter. The income level will also change from 15 December 2017 (assuming Barclays doesn't redeem the shares). The new rate will be 3 month LIBOR plus 1.42% - potentially a much lower income if interest rates remain at current levels (at the time of writing LIBOR is 0.8%) and income will be paid quarterly.
At the time of writing the share price is around 62.8 (based on a notional 100 issue price - it keeps the maths simpler than a listing based on £10,000), so new investors are getting a flat yield of just over 10%, plus there's scope for gains if the shares are eventually redeemed at £10,000.
The main risks are Barclays not being in a position to pay the 6% dividend, deciding not to redeem (bad news if the share price remains below redemption price as less scope to recover losses), a lower income from December 2017 if interest rates remain low and, of course, Barclays going bust. The latter is fairly unlikely, but there's a fair chance Barclays will decide not to redeem in 2017.
Assuming you bought at issue then you're currently sitting on a loss and your best bet of clawing back some of the loss is for the Barclays ordinary share price to improve, as this should pull up the price of preference shares. Meanwhile, the dividends are decent so things could be worse. If you bought after issue you may be sat on a loss or profit. If a profit then getting out will reduce risk - the financial sector remains volatile - although the fixed income remains appealing if you can tolerate the potential share price volatility.
You can view more details about your preference shares in the Barclays prospectus here.
I have a Barclays 6.0 per cent non-cumulative callable preference share, tt was recommended by a financial adviser some time ago.
I believe it matures in 2017. I am happy to keep the shares til maturity provided the payments are made each year which has been happening even through the worst period when Lloyds etc had to stop paying coupons.
The value of the shares has been and is very low, but I ws wondering if you have any advice and I am not sure what exactly does happen in 2017?
ThanksAnswer
Let's start with a quick recap. Preference shares are a cross between shares and corporate bonds. Unlike ordinary shares they pay a fixed dividend (much like a bond) rather than participate in a company's profitability. Plus preference shareholders must receive dividends before they're paid to ordinary shareholders and they also rank higher in the event the company goes bankrupt (but not as high as debt, e.g. corporate bonds).
However, preference shares don't usually carry voting rights and if the company is successful returns over time are likely to be lower than ordinary shares, although probably higher than corporate bonds.
The Barclays 6% preference shares you hold unsurprisingly pay a 6% annual income on 15 December each year (the 6% is based on the £10,000 issue price, so £600 annual dividend per share held). The non-cumulative part means that if Barclays doesn't pay the annual dividend it doesn't have to make good the missed dividends if/when payments are eventually resumed - so tough luck investors.
Barclays has the option to 'call' the preference shares on 15 December 2017 (i.e. buy them back from you at £10,000 per share) and on each anniversary thereafter. The income level will also change from 15 December 2017 (assuming Barclays doesn't redeem the shares). The new rate will be 3 month LIBOR plus 1.42% - potentially a much lower income if interest rates remain at current levels (at the time of writing LIBOR is 0.8%) and income will be paid quarterly.
At the time of writing the share price is around 62.8 (based on a notional 100 issue price - it keeps the maths simpler than a listing based on £10,000), so new investors are getting a flat yield of just over 10%, plus there's scope for gains if the shares are eventually redeemed at £10,000.
The main risks are Barclays not being in a position to pay the 6% dividend, deciding not to redeem (bad news if the share price remains below redemption price as less scope to recover losses), a lower income from December 2017 if interest rates remain low and, of course, Barclays going bust. The latter is fairly unlikely, but there's a fair chance Barclays will decide not to redeem in 2017.
Assuming you bought at issue then you're currently sitting on a loss and your best bet of clawing back some of the loss is for the Barclays ordinary share price to improve, as this should pull up the price of preference shares. Meanwhile, the dividends are decent so things could be worse. If you bought after issue you may be sat on a loss or profit. If a profit then getting out will reduce risk - the financial sector remains volatile - although the fixed income remains appealing if you can tolerate the potential share price volatility.
You can view more details about your preference shares in the Barclays prospectus here.
Read this Q and A at http://www.candidmoney.com/questions/question710.aspx
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