OCBC Preferred Stock

Recently OCBC offered Preference shares to both institutional and retail investors.

"The dividend is paid twice a year in June and December.

The minimum subscription is 200 preference shares or S$20,000, and thereafter in multiples of 100 preference shares or S$10,000.

OCBC says the preference shares are perpetual securities with no fixed redemption date.

This is a very new investment tools thus most retails investors here are not familiar with preferred stocks investing.'' - Taken from ChannelNewsAsia on 02 June 2008

Basically preferred shares work like normal stocks, just that there is a fixed dividend yield on par value and other conditions on it for instance, is it a cumulative preferred stocks, when is it redeemable and so on.

OCBC preferred stock is providing a dividend yield of 5.1% par value which is significantly higher than the return of 0.8% for bank deposit or the return of 3.3% on a ten-year Singapore Government Bond.

" The preferences shares have been rated Aa3 by ratings agency Moody's. Fitch has given an A+plus rating, while Standard and Poor's has assigned an A-minus. " - Taken from ChannelNewsAsia on 02 June 2008

The preference shares in this case have received high credit ratings. Thus it is very unlikely that the bank will go bankrupt.

But since the dividend are not guaranteed and cumulative, investors have to note that there might be chances that the bank will not pay dividends. Investors have to realise also since it is issued by a bank, whether it can issue dividends will also be subjected to MAS rules. In instances, where the bank has insufficient reserves if it issues dividend or the bank is in danger of becoming insolvent, it is very unlikely that the bank will issue dividends.

But OCBC claimed that since the end of World War II, it has never stop paying dividends on its common stocks (shares that are a class lower than preference shares.)

Investors are advised to read up on what is offered by OCBC Preference shares before committing investment capital into it.

You can read more about preferred stocks and its risks here.