Power Financial's Preferred Shares: A Secure High-Yield Anchor for Conservative Portfolios

In an era of historically low interest rates, investors seeking reliable income have turned to preferred shares as a bridge between bonds and equities. Among these, Power Financial’s Series H preferred shares (PWF.PR.H) stand out with a compelling 5.75% dividend yield, bolstered by the financial strength of its parent, Power Corporation of Canada. For conservative portfolios, this non-cumulative instrument offers a rare blend of tax efficiency, steady cash flows, and downside protection—provided investors understand its nuanced risks.

The Case for PWF.PR.H: Yield and Tax Efficiency in a Rising Rate World

The Series H shares currently yield 5.95%—a premium to the 10-year Government of Canada bond yield of just 3.5%—thanks to their market price of $24.14, a 3.4% discount to their $25 liquidation preference. This spread reflects investor caution around non-cumulative risk, but it also creates an entry point for those willing to accept a trade-off: dividend stability in exchange for flexibility for the issuer.

The tax treatment of these shares is a key advantage for Canadian investors. Dividends qualify as eligible dividends under Canadian tax law, allowing recipients to claim a dividend tax credit that reduces the effective tax burden. For example, an investor in Ontario’s highest tax bracket (20.03%) pays just 16.7% of the dividend amount in taxes—far more favorable than the treatment of interest income or non-eligible dividends. This makes PWF.PR.H a standout for taxable accounts.

Safety in Structure: Backed by Power Corporation’s Resilience

While non-cumulative preferred shares carry the risk that dividends could be deferred during economic stress, PWF.PR.H benefits from the AAA-rated balance sheet of Power Corporation, one of Canada’s largest diversified financial holding companies. With operations spanning insurance, asset management, and energy infrastructure, Power Corporation’s diversified cash flows reduce the likelihood of dividend cuts.

The shares also offer redemption clarity: Power Financial can buy them back at par ($25) at any time, but current market conditions suggest this is unlikely. The stock trades at a discount to liquidation value, implying investors already price in redemption risk. For holders, this creates a floor: if redeemed, they profit from the $0.86 premium to the current price.

Risks and Considerations for the Cautious Investor

No investment is risk-free. PWF.PR.H’s non-cumulative structure means missed dividends are not owed, though Power Corporation’s track record of maintaining preferred dividends since the shares’ issuance in 2006 is reassuring. Additionally, rising rates could pressure preferred share prices, though the 5.95% yield acts as a cushion.

Why Act Now?

With fixed-income alternatives offering meager returns and equities volatile, PWF.PR.H provides a rare combination of high yield, tax efficiency, and corporate backing. The discount to liquidation preference adds a margin of safety, while the $25 redemption price offers a clear upside trigger. For income-focused portfolios, this is a rare opportunity to lock in a 6%+ yield with minimal downside—especially for Canadian investors.

Final Call: A Conservative’s High-Yield Play

Power Financial’s Series H preferred shares are not for the risk-averse in search of absolute certainty—but they are ideal for investors prioritizing income, tax efficiency, and capital preservation. Backed by one of Canada’s most stable financial powerhouses, PWF.PR.H delivers a yield that outpaces bonds and offers a structural edge in tax treatment. In a low-rate world, this is a buy-and-hold asset worth anchoring your portfolio around.

Act now to secure this high-yield anchor before rates rise further—or the market narrows the discount to liquidation value. For conservative income seekers, this is a rare win-win.