Unlocking Value in Power Financial’s Preferred Shares: A High-Yield Haven Amid Rate Volatility

In a world of rising interest rates and volatile markets, income investors are increasingly drawn to securities that offer both safety and yield. Power Financial Corporation’s preferred shares—PWF.PR.P and PWF.PR.T—present an intriguing opportunity. Trading at deep discounts to their liquidation values while offering attractive dividends tied to government bond yields, these securities are undervalued income plays. Here’s why now is the time to act.

The Discounted Bargain: Why These Shares Are Undervalued

Both PWF.PR.P and PWF.PR.T trade at significant discounts to their $25 liquidation value, reflecting investor pessimism about rising rates and potential redemption risks. As of May 2025:

• PWF.PR.P trades at $15.91, a 36% discount to $25.
• PWF.PR.T trades at $23.19, a 7.6% discount, with its higher dividend yield compensating for shorter-term risks.

These discounts are overdone. While investors fear that rising rates will pressure dividend sustainability, the reset mechanisms baked into these shares act as a natural hedge. Let’s unpack why.

Reset Mechanisms: A Hedge Against Rising Rates

Both series feature 5-year rate resets, which recalibrate dividends to current market conditions. The key terms:

• PWF.PR.P resets in January 2026, with dividends tied to the 5-year Canadian government bond yield + 1.6%.
• PWF.PR.T resets in January 2029, using the same benchmark + 2.37%.

This structure ensures dividends keep pace with rates. In a rising rate environment, this means higher income over time—exactly what investors need to offset inflation and rate hikes.

The widening discount gap highlights undervaluation, especially for PWF.PR.P.

Non-Cumulative Structure: A Double-Edged Sword with Hidden Safety

Critics point to the non-cumulative feature, which means missed dividends aren’t paid later. But this is a misreading of the risk.

• Power Financial’s stability as a subsidiary of Power Corporation of Canada (a $200B+ conglomerate) ensures strong creditworthiness.
• Both series have perpetual terms but are redeemable at $25 on reset dates. Holders gain capital appreciation potential if shares rebound toward $25 before redemption.

The non-cumulative tag, while a risk, doesn’t negate the ongoing dividend payments. For example, PWF.PR.P’s current yield of 3.14% (vs. its original 4.40% coupon) is still compelling, especially with a reset-driven upside.

The Investment Case: High Yield, Safety, and Capital Gains

1. Income Now:
2. PWF.PR.P yields 3.14%, while PWF.PR.T offers 6.03% at current prices. These are top-tier yields in today’s low-yield world.
3. Rate Volatility Hedge:
4. Resets in 2026 (PWF.PR.P) and 2029 (PWF.PR.T) lock in higher dividends if rates rise further.
5. Capital Appreciation:
6. Holders of PWF.PR.P could see a ~$9.09 per share gain if prices rebound to $25 by 2026.

The widening gap signals undervaluation as yields rise.

Why the Discounts Are Overdone

Investors are pricing in worst-case scenarios—unlikely scenarios given Power Financial’s financial strength. Key counterpoints:

• Redemption Risk: While the company could call shares at $25, it’s more likely to let them trade at discounts to avoid paying above market rates.
• Dividend Sustainability: The resets are self-correcting. If rates fall, dividends adjust downward, but the $25 liquidation value remains a floor.

Act Now: The Clock Is Ticking

Time is critical. For PWF.PR.P holders, the January 2026 reset is a near-term catalyst. Even a modest rebound in prices could unlock double-digit returns.

Action Steps for Investors:
1. Buy PWF.PR.P for leverage: Its 36% discount offers the highest asymmetry—significant upside with limited downside.
2. Hold PWF.PR.T for steady income: Its higher yield and later reset provide a safer, longer-term play.

Conclusion: A Rare Gem in a Rocky Market

Power Financial’s preferred shares are a hidden gem for income investors. Their discounts reflect overdone fears, not fundamentals. With resets aligning dividends to rising rates and liquidation values acting as a floor, these securities offer high yield, safety, and capital appreciation potential.

Don’t let fear hold you back. Act now—before the market recognizes the value these shares truly hold.

Historical data shows dividends adjust smoothly with rates, reinforcing their reliability.