Christian Farstad - Vancouver ScotiaMcleod

If you are new to preferred shares or even if you are an experienced investor you should understand how Canadian preferred shares are rated.

There are two companies that rate preferred shares in Canada. Standard & Poors (S&P) and the Dominion Bond Rating Service (DBRS).

Preferred shares are rated on their credit quality to show the likelihood that the company will pay the dividends as promised. The rating system is:

P-1 is the rating for superior companies like Royal Bank of Canada.
P-2 is a satisfactory rating example companies are TransCanada Pipelines or National Bank.
P-3 is an adequate rating for companies such as Dundee Corporation or Brookfield Properties Corp
P-4 is speculative
P-5 is highly speculative
C or D is very speculatively rated or in arrears

The system allows for a High and Low rating to the scale. So a P-3 High is better than a P-3 rating and obviously a P-3 Low rating is worse than a P-3 rating.

I recommend that you stay P-3 and above. Stick to P-1 and P-2 if you are quite conservative.