Split Share Preferreds (SSPs): Are They Worth the Risk for High Yields?

Split Share Preferreds (SSPs): A Critique

Investors looking for fixed-income securities should consider Split Share Preferreds (SSPs). These are a hybrid type of investment that combines the features of common shares and preferred shares. SSPs are created when a company issues two different classes of shares, one with high dividends and low volatility, which is the preferred share, and the other with lower dividends but higher capital appreciation potential, which is the common share.

The main advantage of investing in SSPs is their high yield. The dividend rates on these securities can be significantly higher than those offered by traditional preferred shares or bonds. Additionally, because they offer exposure to both income generation and capital growth through their underlying assets like stocks or mutual funds, they provide investors with more diversification.

However, there are also some drawbacks to investing in SSPs that investors should be aware of. One disadvantage is that they carry a higher risk than traditional preferred shares due to their exposure to market fluctuations. Unlike bonds or GICs whose returns are guaranteed at maturity date, SSP’s returns depend upon the performance of its underlying assets.

Another issue with SSPs is liquidity risk since trading volumes tend to be lower compared to traditional equity products such as common stocks or exchange-traded funds (ETF). Moreover, SSP prices can fluctuate widely if demand suddenly increases or decreases leading to price instability for individual investors who may not have access to large amounts of capital needed for buying/selling activities.

Finally, it’s important for potential investors considering an investment in an SSP product to do their research thoroughly before making any decisions about whether this type of security is appropriate for them based on their personal financial goals and risk tolerance levels.

In conclusion, while Split Share Preferreds offer high yields and greater diversification options compared to traditional fixed-income investments alternatives like bonds or GIC’s; it’s essential that investors consider all risks involved before deciding if this hybrid security is suitable for their investment portfolio.