Getting to know perpetual securities

[D123]

issuing bonus shares every year and shareholders can sell in open mkt and derive their dividends

Logically, issuing bonus shares will not add value to the company. That simply increases the liquidity of the stock. In certain cases, the increased liquidity might lead to an increase in share price post-split/post-bonus. But in order for this to happen, two things need to be in place. Firstly, liquidity must be the chief reason for intrinsic value not being realized. Secondly, intrinsic value must higher than what the pre-split/pre-bonus share price indicates. Both together are not always true.

Is there no way for company to bypass cum ? Can they stop paying dividend and then do share splits. after 10 years i can foresee their CPS value almost nothing. And the company do buy back on the CPS at low price ?

If it's cumulative, you don't have to pay as long as you don't pay dividends on the common stock. Once you start paying dividends on common stock you need to pay the dividends on the preferred stock/perps first. All missed dividends on the preferred stock/perps have to be paid out first.

Yes, the company can defer payment on cumulative preferred stock and repurchase common stock. If common stock is undervalued by the market, this is an effective way of rewarding common stockholders while bypassing preferred stockholders. However, you will likely lose credit with banks, lenders and the investment public.

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For me, the simplest way of screwing preferred stock holders has already been done - and that's by selling them the preferred stock in an environment with the lowest interest rates on record, and a fat basket of knowable macro risks (US, Europe, China, Japan, Brazil - all in some trouble or soon to be) on the horizon. Since interest rates cannot be negative, and deflation is not on the horizon in Singapore, these preferred stocks have little upside. (Side note: These deals have been very good for the issuing companies. It is not difficult to achieve >6% nominal returns on capital in most businesses.)

Once interest rates start to rise, real returns will decrease, and the preferred stock will likely trade at a discount to par. (Yes we know the US has iterated that they will keep interest rates low till 2014. But no, nobody knows when high inflation will hit and they'll be forced to raise interest rates.)

[Temperament]

issuing bonus shares every year and shareholders can sell in open mkt and derive their dividends

Logically, bonus shares will not add value to the company. That simply increases the liquidity of the stock. In certain cases, the increased liquidity might lead to an increase in share price post-split/post-bonus. But in order for this to happen, two things need to be in place. Liquidity must be the chief reason for intrinsic value not being realized. Intrinsic value must higher than what the pre-split/pre-bonus share price indicates. Both together are not always true.

Is there no way for company to bypass cum ? Can they stop paying dividend and then do share splits. after 10 years i can foresee their CPS value almost nothing. And the company do buy back on the CPS at low price ?

If it's cumulative, you don't have to pay as long as you don't pay dividends on the common stock. Once you start paying dividends on common stock you need to pay the dividends on the preferred stock/perps first. All missed dividends on the preferred stock/perps have to be paid out first.

Yes, the company can defer payment on cumulative preferred stock and repurchase common stock. If common stock is undervalued by the market, this is an effective way of rewarding common stockholders while bypassing preferred stockholders. However, you will likely lose credit with banks, lenders and the investment public.

____________________________________________________________


For me, the simplest way of screwing preferred stock holders has already been done - and that's by selling them the preferred stock in an environment with the lowest interest rates on recorded, and a fat basket of knowable macro risks (US, Europe, China, Japan, Brazil - all in trouble or soon to be) on the horizon. Since interest rates cannot be negative, and deflation is not on the horizon in Singapore, the yields on these preferred stocks has little upside. (Side note: These deals have been very good for the issuing companies. It is not difficult to achieve >6% nominal returns on capital in most businesses.)

Once interest rates start to rise, real returns will decrease, and the preferred stock will likely trade at a discount to par. (Yes we know the US has iterated that they will keep interest rates low till 2014. But no, nobody knows when inflation will hit and they'll be forced to raise interest rates.)

Ha!Ha!
Hyflux is/was buying back their own stocks in the market and so far has not skip paying dividends for their CPS. Someone pointed out it seems to be a joke Hyflux borrow money (by issued CPS) and then use the "borrowed money" to buy back their shares.
Not vested in any PS.