The Steady Stream: Why United Corporations Limited's Preferred Shares Offer Reliable Income Amid Market Volatility

In a financial landscape increasingly marked by uncertainty and volatility, investors are turning to instruments that offer predictability and stability. Among these, preferred shares have emerged as a key asset class for those seeking steady income streams. United Corporations Limited's Second Preferred Shares, 1959 Series (UNC.PR.B), stand out as a prime example of a security that combines consistent dividends with favorable tax treatment, making it an attractive option for income-focused investors. Let's explore the reliability of this fixed income stream and its implications for preferred shareholders.

The Unwavering Dividend Policy

Since 2023, UNC.PR.B has maintained a strict dividend discipline, paying $0.375 per share quarterly. This consistency is underscored by the company's public declarations:
- In February 2025, the Board reaffirmed the $0.375 dividend, with a record date of May 5 and a payable date of May 15.
- The November 2024 press release similarly confirmed the same dividend amount, set to be paid in early 2025.
- Earlier filings, including those from 2023, suggest no deviations from this rate, even as broader markets faced fluctuations.

This chart would show a flat line at $0.375, illustrating the absence of cuts or hikes—a stark contrast to many equities and even some preferred shares that face dividend volatility during economic downturns.

Tax Efficiency: A Key Competitive Advantage

Beyond predictability, UNC.PR.B's dividends are eligible for the enhanced dividend tax credit under Canada's Income Tax Act. This designation reduces the effective tax burden for Canadian investors, effectively boosting their after-tax returns. For instance, a $0.375 dividend qualifies as an “eligible dividend,” meaning it benefits from a lower gross-up rate and preferential tax treatment compared to non-eligible dividends. This makes UNC.PR.B particularly appealing to Canadian income seekers, who can retain a higher portion of their payouts.

Implications for Investors

1. Reliability in a Volatile Market: Preferred shares typically rank higher than common shares in the capital structure, offering a safety buffer. UNC.PR.B's unbroken dividend history since 2023 reinforces its status as a low-risk income generator.
2. Defensive Portfolio Play: In periods of economic uncertainty or rising rates, steady dividends act as a stabilizer. UNC.PR.B's fixed income stream can anchor a portfolio, providing predictable cash flows.
3. Tax-Smart Income: The enhanced tax credit adds incremental value. For example, a Canadian investor in the top tax bracket (approximately 54%) would retain ~80% of the dividend after taxes, compared to ~60% for a non-eligible dividend.

Risks and Considerations

While UNC.PR.B's stability is a strength, investors should note:
- Interest Rate Sensitivity: Preferred shares often decline in value when rates rise, as their fixed payouts become less attractive relative to new issues. However, the security's long track record and tax benefits may mitigate this risk.
- Call Risk: Some preferred shares are callable, meaning the issuer can redeem them early. Review UNC.PR.B's terms to confirm its call protection.

Investment Takeaway

For income-oriented investors, especially those in Canada, UNC.PR.B presents a compelling opportunity. Its $0.375 quarterly dividend—unchanged since at least 2023—provides a reliable income stream, while tax efficiency amplifies returns. Pair this with United Corporations Limited's historical commitment to dividend consistency, and the security emerges as a top-tier choice in the preferred space.

Actionable Advice: Consider adding UNC.PR.B to a diversified income portfolio, particularly if seeking Canadian-dollar denominated, tax-advantaged cash flows. Monitor interest rate trends and the company's balance sheet health, but for the near term, the security's reliability justifies its place in defensive portfolios.

In a world where uncertainty reigns, United Corporations Limited's preferred shares offer a rare blend of stability and tax-smart income—making them a pillar for steady growth.