Upon further research, I was able to find the prospectus on Empire Life Insurance Co‘s preferred share class on SEDAR‘s website. I was surprised, on the negative side, to discover that EML.PR.A is redeemable by the company, when there is no mention of this on the annual report or anywhere at www.empire.ca.
As per the prospectus, the Series 1 Preferred Shares (EML.PR.A) are not redeemable by the company before April 17, 2021 (which is also the date of the first rate reset to the Government of Canada 5 year bond yield + 4.99%). On that day, and on April 17 every fifth year after that, subject to certain provisions and restrictions, Empire Life may redeem all or any number of the outstanding Series 1 Preferred Shares by payment of CAD $25.00 in cash per share, together with accrued unpaid dividends, with at least 30 to 60 days prior notice.
To sum up, the company can buy back these preferred shares for $25 every time the rate resets. If the company doesn’t like the new dividend rate, and can borrow at a lower rate than that, it is in their interest to redeem them (and they will probably do it (I would)).
That said, these shares are now trading at CAD $26.85 (??!!), 7.4% over the face value and redemption price. The only reason I can think of for this to be happening is that investors are not aware that the shares can be bought back for $25 (like me, even after reading the annual report), and they are paying a higher price because Canadian bond rates have been going up and they think the dividend rate will be much higher on April 17, 2021.
Therefore, I am changing Empire Life Insurance Co from the ‘Yes’ tray to the ‘No’ tray, since I am very suspicious because they didn’t mention all the above in the annual report. This fact has a huge bearing on the value of these shares and they should have disclosed all this.
I would not invest in this company, and if I did, the maximum I would ever pay would be $12.50 per share for a 50% discount over face value.