Alterna Savings looking to raise $50 million in 4% preferred share issuance | Alterna Bank | Discussion forum

Briguy said
Very interesting-it's targeting a 4% per year dividend rate IF it declares a dividend that year, and it's not CDIC guaranteed. I wonder if it's worth getting that extra 0.85% interest for that slight added risk. In addition, you have to be a member to purchase shares, so having an Alterna Bank account would not qualify you.  

Thanks for the reply, Briguy. You live in Ontario, so you're definitely eligible. You would need to at least hold the minimum membership shares ($5.00) in Alterna Savings and Credit Union, not Alterna Bank, but you can open an Alterna Savings membership entirely online, I believe. I think it's very likely the Board will pay that indicated annual dividend rate for the initial period. Liquidity can sometimes be an issue with credit union investment shares in that the Board has to approve redemptions but, generally speaking, so long as you can hold the shares for the initial five year period, they will do their best to let you redeem your shares (at par value, meaning the price you paid) by either (a) having another member buy your shares or (b) redeeming your shares with a portion of the proceeds of a future investment share issuance.

In terms of past investment share issuances, the Board has declared all dividends at the indicated rate, if that's helpful. As well, I've been a Sunova Credit Union member through Hubert Financial since 2011 and have been paid dividends in the form of surplus shares in every year 2012-2018 (2019's is due any day now) at a rate of between 4.25-6%.

In many ways, it's more like a corporate bond than a publicly-traded Canadian bank's preferred shares in that, since there's no secondary market, the shares don't have equity market volatility and level of risk. Sure, they're not guaranteed, but if you would be comfortable owning, say, shares in a mid-tier Canadian bank (i.e., Canadian Western Bank, Laurentian Bank, Equitable Group, or even HSBC Bank Canada's preferred shares), then I think this is a good option. The key is just make sure you won't need to access the funds before the initial period.

Cheers,
Doug

Loonie said
We used to have a business membership at Alterna CU. They were friendly enough but the fees and rates were unimpressive. I would not re-join for the purpose of buying these shares. I wish I liked them better as there is a physical branch that is convenient.

Oh, I didn't realize you'd had your prior business with Alterna Savings. I wonder if their fee structure for business accounts has improved significantly? I do note, though, that they have a no fee seniors' chequing account. If nothing else, would you ever use potentially as a TDCT replacement for your main day-to-day banking chequing account, or is TDCT's branch still equally convenient to Alterna Savings?

However, I doubt I would buy the shares of any CU. I might if I were younger, but for someone in their 70s or older, I don't think it makes a lot of sense to tie up your money in something where you can't be sure you'll get it out at any particular point in time. If there should be a financial crisis either in the CU or more generally, they might hang on to it for quite a while. This makes it unsuitable for RIFs (if even allowed).

From my perspective at least, the reward is not high enough to justify this inconvenience.

I assume CU shares are permitted in a RIF, but your points are well taken and, at any rate, Alterna Savings seems to only offer them in non-registered, RSP, and TFSA accounts.

Some, however, may like it as an income stream similar to stock market dividends, but without the same kind of market risk.

Great summary for who they would be good for. Essentially, those willing to take corporate bond or dividend paying equity risk, but without the risk of stock market volatility.

The best application might be for TFSA, for people who don't intend to use theirs until they're running low on other assets, down the road. There is no dividend tax credit to be lost within TFSA, and no mandatory withdrawals as with RIFs which might be difficult to access (if allowed at all - I don't know). However, such a person may have other things they'd rather do with their TFSA money.

A TFSA would be great for these CU shares. 100% agree.

Unlike Bill, I would like to support CUs, and I understand that this is the way they must raise funds, but they seem to do well raising them from other people so my contribution is not crucial.  

Exactly. I, too, respect most CUs (except when they start to behave like, and want to be like, the "Big 5" banks - Coast Capital Savings, First West, and Meridian seem to be in that "camp") and would definitely support them. It's certainly within Bill's prerogative to not support them directly, and I respect that, too.

Cheers,
Doug

Norman1 said

Loonie said
The problem with putting these in RIFs is that RIFs, by law, require annual withdrawals. These bonds don't allow for corresponding annual redemptions. In order for the bonds to be RIF-eligible, the CU would have to make special arrangements, which they probably won't want to do.
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RRIF withdrawals don't have to be in cash. The withdrawals can be in-kind.

One could just withdraw the appropriate number of shares out of the RRIF and hold the shares outside of the RRIF. If the minimum withdrawal were 5.4% and one had 55 shares, one could withdraw at least 5.4% x 55 = 2.97 shares or three shares to satisfy the minimum.  

Good point, Norman. What about the withholding tax on the in-kind withdrawal? Is there a CRA election form that allows the financial institution not to withhold any taxes provided you've pledged a portion of your non-registered assets to satisfy the withholding tax remittance?

Cheers,
Doug