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Online Share Trading

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Stand Bank Preference Shares

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Cosmos
Not applicable
Can anyone explain why these share continue to decline. I thought that they would stay pretty much static and that they were a low risk alternative to ordinary shares. Will they bottom out and rise???
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7 REPLIES 7
DEP
Super Contributor
all bank pref shares are showing good value. you need to hold for i little long. demand is just slow at the moment.
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Dabbler
Occasional Contributor
The preference shares pay a static rate of return, which is meant to counter what you could earn from a bank, were the money with them in a call account. Since interest rates are going up at the moment (possible again shortly as well) it means you can get a better return on the funds in the bank account, so why buy the preference shares? I am stuck in the same dilema and currently feel like I invested into something I was very naive about and didn't bother to investigate properly because the returns looked good and also I was lead to beileve, like you, that they would remain relatively constant in capital value. I would also like to read further opinions on this to determine if my thoughts on this are indeed correct. I reckon it's a good question.
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kr_pto
Super Contributor
the problem came in last year in that ppl (myself included) were paying a premium for the pref shares, above their listed prices. so you were essentially saying you were prepared to live with less dividend yield for the right to have the pref share. then suddenly the started losing favour, and this years tax story hit confidence in them for a six. so they are now below what is fair value (should be around 100 normally, i think). but they are still a good option for anyone who needs income with less tax liability, as they are dividends not income (versus bank account interest for e.g). tax law change shouldnt impact too heavily in the end, as many issuers are promising to adjust the return accordingly (since they are benefitting from the reduced STC and later abolishment of STC). hope that helps a bit. kind of a ramble...
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SimonPB
Valued Contributor
pref shares are better then a bank for two main reasons; income is tax free as a div & better rate of interest.

certainly they should have stayed relatively constant in capital value - this is due to either the maerket having no clue or being worried about the new div tax laws (albeit this is a non issue). If you're in for the med/long haul they will most likely revert to the correct asset price.
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DEP
Super Contributor
if interest rates go up so does the dividend on pref. shares.Pref. shares pay out a % of prime. SBPP pay 70% of prime, so interest rates should not affect the capital value.
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JohnnyCash
Super Contributor
Prefs are a yield play and a yield play only so cannot really buy them for shorter then a year, 3 even better. Just check STD's current yield @ 70% of prime gives you 8.75% on a nominal R100. Mr market says he's not so sure and will give them to you for another .75% yield extra @ a total of 9,4%. That equates to 15.5% pre-tax return. Not bad, even with the apparant issues. I've got and also got a jolt when they dropped and since then been sticking the prefdiv back into more Prefs.
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