In a market starved for income, where every basis point comes with baggage, one asset class is quietly punching above its weight: Canadian preferred equity.

It’s one of the few corners of fixed income offering double-digit bond-equivalent yields, minimal duration exposure, and investment-grade quality. Yet, it remains off the radar for many investors.

Let’s break down why this overlooked asset class is worth a closer look. 

High Yield, Low Duration — With a Tax Advantage

The U.S. high-yield bond market is offering tempting returns: 8.3% on the BAML Single-B Index at the end of last week (April 18, 2025), up from 7.5% at the start of the year. However, Canadian preferreds are quietly delivering even better outcomes without the same interest rate risk.

Take Enbridge preferred equity, for example. It currently offers a mid-7% yield based on today’s coupon and reset rates. But here’s the kicker: thanks to Canada’s dividend tax credit, investors in top tax brackets can realize a bond-equivalent yield of approximately 10%. Compare that to just 5% on Enbridge’s 10-year straight debt.

The story only gets stronger when you dig into credit quality.

Credit Quality That Speaks for Itself

Canadian preferred shares issued by investment-grade companies have a near-perfect track record. In fact, the last time a coupon was missed on this type of security was 1991 — more than 30 years ago — by TrizecHahn. That’s a zero-default rate in practical terms.

This reliability is paired with a unique structure: fixed-reset coupons, which adjust every five years based on the 5-year Government of Canada bond yield. That means investors get built-in protection from interest rate risk, while still locking in strong current yields.

Enbridge Isn't the Only Opportunity

While Enbridge is a standout, it's not alone. We see strong fundamentals and attractive yields across a broad set of issuers in the preferred space:

• Brookfield Corporation
• Cenovus
• TransAlta
• Capital Power
• Canadian banks

Across the board, we believe these names combine strong credit ratings, reliable income streams, and compelling tax-adjusted yields.

Answering the Common Questions

Our fixed income team often gets the same handful of questions when talking about Canadian preferreds — so let’s address them head-on.

Isn’t the asset class shrinking?
Yes, issuance is down, and banks are calling away existing paper. But that’s actually supportive of prices in a supply-constrained environment. As more investors look for low-duration income, this creates a favourable supply-demand backdrop.

What about liquidity?
Preferreds are less liquid than traditional bonds, particularly for large institutional buyers. That’s why in our credit funds, we keep exposure in the low-teens (as a % of AUM). Still, for income-focused investors who value reliability over daily pricing, they can function similarly to annuities — with far better yield potential.

Why not just own long bonds instead?
The long bond outlook is clouded by massive U.S. Treasury issuance. The Congressional Budget Office projects over $2 trillion in new Treasuries in the next year, plus additional refinancing needs. The U.S. is already paying $1 trillion in annual interest — as much as it spends on defence or discretionary programs. In this environment, bond yields could stay volatile, and preferreds offer a more stable alternative (US Congressional Budget Office projections).

How have preferreds actually performed?
Since the start of 2018, Canadian bonds have delivered zero cumulative return. Preferred shares? Up nearly 30% — even after recent pullbacks. That outperformance has persisted since early 2022, coinciding with the end of quantitative easing and a shift toward more normalized interest rate regimes.

Bottom Line: The Opportunity in Preferreds Is Real

The Canadian preferred equity market offers:

• 10% bond-equivalent yields in top-quality names like Enbridge
• Minimal interest rate risk thanks to reset structures
• A long history of coupon reliability
• Tax advantages for Canadian investors
• Attractive returns relative to traditional bonds

In today’s market, where the search for income is as competitive as ever, Canadian preferred equity deserves a place on the radar of every income-oriented investor.

Our actively managed approach captures yield and stability in Canadian preferred equity. The Purpose Canadian Preferred Share Fund focuses on income, capital preservation, and high-quality issuers across diverse sectors.

Looking to learn more?
Our approach to investing is disciplined and straightforward. The credit investment team applies industry-specific knowledge and experience to analyze and appreciate risk/return potential in every investment. Learn more about our investment approach here.

 — Sandy Liang, CFA, is the Head of Fixed Income at Purpose Investments

The information in this article draws on is provided by Bloomberg unless otherwise stated.

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