Have you considered Preference Shares?

purch

Somebody mentioned Natwest prefs recently, they seemed a good deal especially in the past where the yield was/is 33%

It should be noted that whilst most Bank issued prefs are non cumulative, so far during the financial "crisis" none of the Banks have missed a dividend payment on their prefs.

Even Bristol & West (owned by Bank of Ireland) have paid every divided.

Ark_Welder

purch wrote: »

It should be noted that whilst most Bank issued prefs are non cumulative, so far during the financial "crisis" none of the Banks have missed a dividend payment on their prefs.

Even Bristol & West (owned by Bank of Ireland) have paid every divided.

Unfortunately, not the case: Both LBG and RBS have had to suspend dividend payments on at least some of their preference shares as a result of receiving government assistance:

http://www.lloydsbankinggroup.com/investors/debt_investors/preference_shares.asp
http://www.investors.rbs.com/download/other/Schedule.pdf

Others, not so sure, so you do need to confirm the payment status (amongst other things!) before making a purchase.

purch

Apart from those, of course

The Lloyds Prefs were able to be converted to some other fancy security, and/or some to ordinary shares if my failing memory serves me correctly.

Reaper

purch wrote: »

Apart from those, of course

The Lloyds Prefs were able to be converted to some other fancy security, and/or some to ordinary shares if my failing memory serves me correctly.

Your memory does serve you correctly. The EU said because of state help they were not allowed to pay dividends to preference share holders, so they gave investors the option of converting them to a brand new thing they invented for the purpose called Enhanced Capital Notes. They do pay dividends and they do have fixed redemption dates. The difference between ECNs and the rest is covered in the link in my first post.

The key thing to be aware of is to get around the EU restrictions the ECNs will automatically convert to Lloyds ordinary shares if the bank's Tier 1 capital ever falls below 5%. Not something you would want to happen, so just beware of that small extra risk.

Reaper

whysocry wrote: »

You dont own a share of the company with a pref ?

My understanding is that you do. You can either invest in a company by lending it money (bank loans, company bonds and other forms of debt) or taking a stake in the business (all forms of shares).

moneylover

Reaper wrote: »

Preference shares don't seem to get mentioned much but as I've just bought a bunch I thought I would pass on my findings.

Just re-activating this thread as I was wondering if Reaper would tell us if he has been pleased with these investments made about 15 months ago and whether he is still investing further?

Reaper

I've been delighted with them. While both RSA and Aviva have slashed the dividends on their ordinary shares they are not able to do the same on the preference shares which therefore still yield me a 7.3% and 8.4% (based on purchase price).

The capital value of both has risen too.

However both make me nervous as they provide permanent fixed interest which makes them vulnerable to the high inflation which has been widely predicted for a long time now. I keep wondering if I should quit while I am ahead but it would be tough to give them up.

I also bought Doric Nimrod Air One which is an odd one. You buy a share of an aircraft which is leased out to an airline giving an income plus hopefully a lump sum at the end of the term when (if) they manage to sell it.

Ark_Welder

To buy these two today (OK, Friday), the yield on RSAB with ask price of 114 is 6.47%, and for GACA at an ask price of 130 is 6.83%

Reasons for continuing to hold are: the predicted inflation might not turn up, or not at accelerated rates; if higher inflation does turn up it might be later than expected; the alternatives for income (and this assumes that they were bought for the income rather than total return) might also get hit by inflation - and that includes equities, which do better with Goldilocks' inflation, i.e. not to high, not too low. In the meantime, the increase in capital provides a buffer against falls, whereas a new purchase would bring the potential psychological problem of a fall below purchase price, so the temptation to hold until prices rise again (even though the overall position might mean ending up with the same amount of capital as holding the original securities would give).

They're the types of questions that I'm asking myself right now!

sabretoothtigger

Might be an idea to sell pref or any fixed yield when sterling is stronger then now. There is various fears playing out now. Inevitably fixed income will not look good long term

I sold my Barc in favour of Stan, San and Lloy but I wanted to buy some prefs in Lloyds as well as the shares I have. I may have missed the boat, maybe they can sell off a bit in line with Sterling falling to 1.46 dollars and no doubt some bad news

moneylover

Thats amazing Reaper. Am very pleased for you; and have found the associated comments by others very useful. Realistically its not all going to disappear down any plughole overnight and what else would you do with the money anyway