Was pleasantly surprised that the Hyflux pref shares are currently going at $106.20 which translates to a yield of 6.2% if u choose to sell it tomorrow!
A quick recap on the emails in mid April that Hyflux was offering its preferance shares at 6% semi-annual payout (Apr and Oct). Hyflux will redeem back at $100 par value in 2018, if not it will "punish" itself by paying the shareholders 8% instead.
Now wait a minute, if I can sell it now in a matter of 1.5 mths and obtain a 6.2% yield, why should I wait for the full 6 to 12 mths to receive 3 to 6% dividend ?! Is there a catch somewhere ?
The catch however is advantageous to the long term investor. This is what investors call it as "capital gains", where u gain $6.20 from a par value of $100. On top of this, there is an intrinsic guarantee of 6% dividend payout every year. Isn't a 6.2% + 6% = 12.2% a good return ? I would say so.
Should I sell my pref shares now? Well it depends. Part of the reason why there is a 6% capital gain is becos investors in general cannot find anything better to invest in ?
Equities or shares are generally the highest rate of return compared to bank interest, fixed deposits, bonds etc. But looking at the Singapore market, which had stayed largely sideways for the past 6 mths (plus the March 2011 earthquake where there was a steep correction from the horrifying event), the rate of return in equities is almost zero. Worse still with Europe debt issues, high inflation and QE2 ending, the equities market probably looks biased towards the down side in the short term.
With money lazing in the bank and earning 0.1% interest, some people are taking a portion of their funds out to buy up the pref shares. Hence all the bank pref shares went up by 1-2% too.
Does it sound silly if I missed the chance to buy at $100, and now at $106.2 ? Well 5.6% (=6/106.2) is still a reasonable yield compared to bank interest nowadays. (Is 5.6% sillier or 0.1% ?) Looking at the strong price move, it might go further to say $108 in a few mths time :)
As always, investing is a personal choice, and a balance of risk vs reward.
I like this phrase from another blogger - To protect our wealth, we must take some risk :)
