Hubert / Sunova Common & Surplus Shares now RRSP/TFSA Eligible | Hubert Financial | Discussion forum

This is a great thread, Yatti! I wish I'd thoroughly read and parsed every word as I would've likely had most of my answer before contacting a Hubert Financial CSR via online chat several weeks ago.

If you're interested, here is the information, which I have cross-posted (from my reply in an unrelated thread) on the share payouts. Dividends are paid annually in December based on your total relationship/deposit balances in December of the prior year. They are based on the number of shares you hold but also your total relationship with Sunova/Hubert. So, essentially, why I didn't receive a dividend in December 2011 was because I didn't become a member until July 2011 and in order to receive the 2011 dividend, I would've had to have been a member in December 2010.

Hope that clears things up! If not, more details below.

An update on Hubert Financial dividends from CSR "Tara" via an online chat session:
"Tara says:
Yes and here was my response. Our dividends are paid annually based on the previous years ending balance. You will be paid a dividend in December this year. If you provide me your member number and secret password I can confirm"
…
"Doug says:
So the reason no dividend was paid last year (2011) in mid-December was because I was not a member in 2010. Gotcha.
Tara says:
Exactly. Historically the dividends have paid very well so it is always exciting to find out. I will be sure to let you know."

I'll keep you guys updated on what the dividend amount will be for me (I have $100 in member equity shares; each share is $5).

However, since reading your thread, I'm a bit confused if one's deposit/relationship balance plays into it at all or, if as you said, it's only based on the total holdings of one's "share" account. That also explains what that "surplus" account is for on everyone's Hubert online banking!!

Cheers,
Doug

Good point(s), Yatti.

Given the stated historical dividends you quoted above, if indeed the payout is only based on one's "share" holdings, it may be worthwhile buying maybe $10,000 in "shares". Sure, they're not Manitoba CUDGC insured, but it's unlikely Sunova Credit Union is going to fail.

Cheers,
Doug

I disagree that Sunova is financially not as strong as Cambrian Credit Union - both are roughly the same size and have a similar clientele. Coast Capital Savings is probably stronger for sure - it's probably one of the best-managed and admired credit unions in Canada, based only on anecdotal evidence.

How would I classify them? They're not like 'preferred shares' in a Canadian bank at all (which are more like a fixed income security than an equity security). They're the equivalent of owning common shares in a Canadian bank, but the company is incorporated under provincial credit union incorporation legislation rather than the federal Bank Act or Canada Business Corporations Act.

There's no reason to suggest these shares wouldn't be eligible for the federal dividend tax credit. So long as they're not "trust distributions", I would think they would be - even dividends from privately-held corporations would be eligible, I would assume, no? Until evidence presented to the contrary, I would argue against stating they're not eligible. Thanks.

They may not be as liquid as other publicly-traded securities, true, and they do require Board approval to redeem large amounts, according to Hubert's website.

As for other credit unions allowing you to purchase surplus shares, all or most credit unions (including Coast Capital, I believe) allow you to purchase additional member equity shares in the credit union; however, I believe you only get one vote per member as opposed to one vote per share like the Canadian publicly-traded banks. They may not refer to them as 'surplus' shares, but it's the exact same thing.

Hope that clarifies things somewhat.

Cheers,
Doug

Share dilution like publicly-traded companies wouldn't occur, but it would affect their "members' equity" portion of their balance sheet. That said, this sort of capital would likely count as so-called "Tier 1 capital" and make them better capitalized than, say, issuing a bunch of debt securities (although, as a credit union, they may be limited in what sort of securities they can issue anyway...I'm not too sure!).

It's only a bit scary because it's unknown territory - we're used to publicly-traded company shares!

Cheers,
Doug

cmore said

While I am not looking to be argumentative, however, these shares do not pay a dividend that qualifies for the dividend tax credit, rather must be taken as interest income. Don't take my word, do your own research. Now as fo financial strength...if I all of a sudden forgot 25 years of accounting and finance experience, Sunova is not the same size as Cambrian, has an entirely different form of capital and operates with much higher expenses. Again, don't take my word, simply review their annual financial statements.

I realize you're not trying to be argumentative but the "burden of proof" falls on you to prove the tax treatment of Sunova Credit Union shares as well as its form of share capital. My understanding is all Manitoba credit unions operate the same way and have the same share capital structure. Having higher expenses would not mean Sunova is "less safe" or "less financially sound" than Cambrian; it just means they're net income isn't as high. Cambrian may not permit additional member share purchases but that's their choice. And, as Yatti's pointed out, it appears Sunova is "capping" additional share purchases at 200 shares (or $1000) per owner, presumably so their capital structure doesn't get way "out of whack" (as I said above).

As for the federal dividend tax credit, again until you can prove otherwise, they are treated as dividends. Even the CRA's own website indicates this - as long as it is paid by a taxable corporation in Canada, whether provincially- or federally incorporated, they are dividends. Credit unions are taxable corporations - it's just their incorporating legislation is a different act than the provincial Company Act or federal Bank Act or Canada Business Corporations Act. The only thing not eligible would be distributions paid by a trust, which would be treated as trust income and taxed to the end recipients/beneficiaries of said trust.

Hope that clarifies!

Cheers,
Doug

I'm not going to argue this anymore; you may be right on the federal dividend tax credit but to state that Cambrian has a better capital structure than Sunova is misleading to readers. So, to future readers, this thread should have no bearing on Cambrian having a better capital structure or being more solvent than Sunova. Please take the contents of this thread with a "grain of salt" as they are just that, opinions not facts. Thank you.

Cheers,
Doug

Cool. Thanks for the update, Yatti. Will try and look later! Let me know your thoughts when you've had a chance too.

Cheers,
Doug