How safe are your preferred shares?

Like bonds, preferred shares are rated as to safety by the national bond rating agencies, with Pfd-1 the highest rating (safest) and Pfd-5 the lowest (most risky).

Lower-rated preferreds will usually offer a higher yield, perhaps much higher than normal, but you have to be very careful if you decide to invest in them. The low rating is a red flag; it means the company is likely in financial difficulty. If you pick up the business section of the paper and come across a preferred share with an extraordinarily high yield, you can be sure there’s a good reason for it. No one gives away something for nothing.

You can find ratings for preferred shares by going to the website of Dominion Bond Rating Service

They are also available in the website of Standard & Poor’s Canada (July 2003)

Adapted from an article that originally appeared in The Income Investor, a monthly newsletter that focuses on top-rated securities for income-oriented instors, suitable for both RRIFs and non-registered portfolios. For information on a special subscription rate, go to