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What are rate-reset preferred shares and how do they work?



Our response:

As the name implies rate-reset preferred shares share characteristics between a stock and a bond. It provides fixed income in the form of a dividend like a bond but also has a share price that can rise, and fall based upon market conditions, like a stock. What makes rate-reset preferred shares different than typical preferred shares is that the fixed dividend resets on a specified date (generally every five years).

In environments where interest rates are rising, securities that generate interest income become more attractive to investors and as a result demand high prices but when interest rates drop, the price decreases as investors view them as less attractive. With rate-reset securities the rate adjusts up or down dependent on the interest rate environment on the specified date the security resets.

You may wish to speak to a registered financial representative to help explore options that fit your personal circumstances and investment goals.

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