November 2019


You identify preferred shares by their stock symbols. Their symbol contains a “PR” or a “PF”. For example, an Enbridge Inc. preferred share is ENB.PR.N.

Preferred shares pay dividends, often in the range of 5 or 6 percent. This is usually one or two percent more than what the the company pays common share holders.

Like a bond, they are a form of loan, thus they do not share in the capital gain of a corporation, nor do they have any ownership or voting rights. While they rank ahead of common shares in realizing money from a company’s liquidation, they rank behind bondholders. Their ranking is of little benefit.  After the lawyers, bankruptcy trustees and the banks (with their fully secured debentures) are paid off, the chance of anything being left for distribution is just about nil.

While you can conveniently buy and sell preferred shares on the stock market very few investors have any interest in them.  Zero trades in a day is not unusual. There are 654 shares on the TSX pay paying a dividend of 3.5%. or more.  Of these, 364 are preferred shares and of these only 112 had more than 4,000 shares traded in a typical day, despite their high dividends. This is due to the low possibility of preferred shares delivering an increase in share price to speculators.

Preferred shares are issued at a standard price of $25 each. Of the 364 preferred shares only 17  had a share price exceeding $25 and of these only one was greater than $30.  The chance of realizing a capital gain from a preferred share is 1.91% and 183 or (50% of them) had lost at least 20% of their value.  They were now worth less than $20. Five were trading for less than $10.  It is not surprising that not one analyst recommended that investors buy any of these 364 preferred shares.

Three further complications discourage stock buyers.  If interest rates decrease, the corporation, who issued the preferred shares, can call them in and issue new preferred shares paying a lower dividend rate.   As well, unlike bonds where you get back all the money you invested; with a preferred share you only get back what someone is willing to pay for a preferred share. 98% of the time the price would be less than the $25 they were issued at. 

Finally, if a company runs into financial difficulty, unlike bonds, a company can suspend paying all dividends, including those for preferred shares. 


Preferred shares are cheaper than bank loans, without the payment commitments of bonds.  While the value of a company’s assets limits how much a corporation can borrow from a bank, assets do not secure preferred shares. The number of preferred shares issued seems to be limited by what the corporation “thinks” they can afford to pay out in dividends. 

Executives, with their annual stock option incentives tied into a rising common share price, promote preferred shares because their issue, unlike the issue of new common shares, does not interfere with their chances to make bonus money.

If preferred shares are likely to give you a capital loss, why would you add them to your portfolio? To guarantee that you do not outlive your savings you need the capital gain of common shares.  I identify many good ones in my book “Income and Wealth from Self-Directed Investing” that pay a higher dividend than preferred shares.

Ian Duncan MacDonald


Those vice presidents’ allegiance is to the bank, not you! The case for DIY investing

By Ian Duncan MacDonald

Special to the Financial Independence Hub

The most productive new business salesman I ever employed is now a “Vice President” with the investment division of one of Canada’s largest banks. His special skill was in belittling prospects who did not see the benefit of his sales pitch.

Frequently, I got told by his new sales that they would buy but they never wanted to see him again. Not understanding the role of investment advisors employed by a bank, I was surprised when I learned that this strong “closer” could have risen to the “executive” ranks.

With a better understanding of bank investment advisors, I now understand why he has been successful. I learned that the title of Vice President is often given to financial advisors who are great closers. It impresses the naïve. The illusion of trust and knowledge is further enhanced with several impressive designations on their business cards.

Much to my surprise, I learned that investment advisors are hired off the street the same as any sales representative is hired. If they can show they are successful closers, they are well along the way to being hired. With little internal training, they are then set loose on a public full of meek sheep who know even less about investing than this newly hired investment “expert.”

Banks already know if you’re a prime prospect

It is almost impossible to function in our society without being a bank customer. The bank does not have to guess at your net worth and whether you are a prime prospect for their full-service investment advisors. They know.

You will be contacted by phone or during a visit to your bank branch with a seductive pitch that goes like this, “Surely you would appreciate some free advice on how best to manage that great sum of money you have on deposit. It is earning next to nothing. Don’t you want to be rich? Let us make your money work for you. Our fees are so small you won’t even notice them. When can we set up an appointment for you with our vice president? Here is his very impressive business card.”

Since you have large sums just sitting in accounts, you are broadcasting that you know little about investing and are a pigeon waiting to be plucked. If you do go into a meeting with one of these sharks, they will relentlessly pursue you to sign a full-service investment agreement. Since they do this daily, there is not one objection that you can raise that they have not been trained to answer with the objective of getting your signature.

They’re not your friends

Investment advisors are not your friends. They are not working in your best interest. Their job is to get control of your money and to invest it in the best interest of the bank. They will do their best to sell you on mutual funds because the bank can make more money from them than other investments, especially those mutual funds controlled by that bank.

Once you become a full-service client, you will receive just enough attention that you do not abandon them. They are busy. They expect to lose at least 20% of their clients each year. This requires chasing hundreds of other pigeons to replace them. Whether your portfolio increases of decreases in value the bank will make money. Your investment advisor is prepared to handle any questions about your investment losses.

How to protect money? Stay as far away from full-service investment advisors as you can. Learn how easy, inexpensive and safe it is to self-direct your own investing.

After graduating from McMaster University, with $100 left in his pocket (but no student debt), Ian Duncan MacDonald hitch hiked home to Sudbury to work four months as a labourer in International Nickel’s smelter. In four months, he had saved enough to seek his fortune in the big city.

In Toronto, he was immediately hired by Dun & Bradstreet as a credit reporter. While he had expected to be a reporter for the rest of his life, D&B had other plans. Within four years, he was General Manager of their Marketing Services Division. Three years later, at the age of 28, he was responsible for the sales, marketing and advertising for all three divisions of the company.

At 32, he left D&B to build Screening Systems International Ltd, for a large conglomerate, which led to his interest in collections.  Moving to Creditel of Canada Ltd. he became  Senior Vice President. Subsequently bought by Equifax, he remained there until his retirement in 2005. In anticipation of his retirement he incorporated Informus
Inc. to sell his art, his publications and consulting services ( 

His book “Income and Wealth from Self-Directed Investing” provides a detailed system, plus stock scoring software, which arms someone who has never invested with the knowledge they need to successfully and safely generate income and wealth for the rest of their lives.

                                            GOOD STOCK BAD STOCK

                                                                          January 2020

After the mutual fund, my investment advisor put my life savings into, lost $300,000, I took back what remained and vowed to find a safer way to invest.  Since my background was in creating commercial credit risk scoring systems, I wondered, could a scoring system sort common stocks from “best” to “worse”. 

In creating commercial credit risk scores, I had had to score 2,000,000 Canadian businesses from highest to lowest credit risk.  A bank who ran several thousand customers through it, remarked that it was “remarkably predictive”.  Almost 30 years later, that scoring system is still in use every day making thousands of commercial risk decisions. 

There are only 12,927 stocks traded on all the North American public stock exchanges, a predictive stock scoring system for such a small community is easier to construct than one encompassing millions of businesses. All the financial data need to score each stock is freely available.

If you too were to construct a stock scoring system, the first step would be to determine your objective.  My objective was to identify companies who would give me an annual dividend income equivalent to at least 6% of the value of my portfolio plus show constant share price increases. Your bank, like mine, can give you easy access to all the free data elements needed to identify all stocks from most desirable to least desirable, according to whatever criteria you choose. 

When you construct a scoring matrix, you are trying to duplicate the selection and weighing process that you brain goes through in making a decision.  The items I selected to weigh were:

(1) The Current Price of the stock - The buying and selling of stocks in a stock exchange determines its current price.  A high valued stock is safer than a stock trading for pennies. 

(2) What the Price of the stock was 4 Years Ago - A stock whose price increases year after year is more attractive than one that is shrinking.  It has stock price growth momentum. 

(3) The Number of Shares Traded on average daily - Stocks that large numbers of investors are interested in have a greater chance for price growth than those that are ignored. 

(4) How many Analysts rated the stock as a Buy - Analyst buy recommendations (opinions) influence speculators.  Speculators stock purchases drive up share prices. 

(5) How many analysts rated the stock a Strong Buy. -  An analyst that rates a stock a “strong buy” is putting his reputation on the line. It encourages buyers to buy and holders to hold. 

(6) The Dividend Percent paid - If my objective was an overall 6% dividend income from the total portfolio, stocks paying more or less than 6% needed to be identified and graded. 

(7) Accountings Book Value of the stock - How many dollars would be returned to shareholders if they liquidated a company.  You would like it greater than its current share price. 

(8) The Price to Earnings ratio of the stock - How many years of earnings would it take to match the current share price? A low P/E ratio shows potential share price growth. 

 (9) The stock’s Operating Margin Percentage - Dividends are subtracted from the Operating Margin. The higher the operating margin percent, the safer your dividends.

Identifying the nine measurable nine items was just my first step. Now I needed to compare how each stock compares to another within each of the 9 criteria. For example, for (PRICE), I slotted a stock’s current price into one of the following ten categories.  It requires a similar grading system for all 9 categories. (View all 9 gradations in Chapter 12 of the book “Income and Wealth from Self-Directed Investing”).


I gave stocks purchased for between $0 and 99 cents a score of 1 

between $1 and $1.99 = a score of 2 

between $2 and $4.99 = a score of 3 

between $5 and $9.99 = a score of 4 

between $10 and 14.99 = a score of 5 

between $15 and $19.99 = a score of 6 

between $20 and $29.99 = a score of 7 

between $30 and $49.99 = a score of 8 

between $50 and $99.99 = a score of 9 

over $100 the score was 10  


Thus, a stock like the Royal Bank (RBC) trading for $107 scores a 10 in the PRICE category while (RE) RE Royalties, trading at 9 cents a share, scored a 1.  Interestingly, when I added all the sub scores from the 9 categories (PRICE to OPERATING MARGIN) the grand score for the Royal Bank was76, while RE Royalties scored only a 9, although it was paying a dividend of 5.90% and the Royal Bank was paying a dividend of only 3.80%.  Paying a high dividend today does not mean a company will still be around to pay the dividend next month nor that a company with a low score has potential to increase its share price.  You need to score all 9 factors to get a complete picture of a stock’s potential. The higher the grand score, the more desirable the stock.

A friend turned my scoring matrix into a PC computer program. All those who use it, now only need to key in the 9 items from a stock’s OVERVIEW page.  The program instantly displays a stock’s grand score. 

Using the SELECTOR software in my bank’s self-directed website, I now generated a list of all Canadian stocks who paid a dividend of 3.5% or greater (anything lower than 3.5% would make it difficult to realize my objective of a 6% dividend return from the entire portfolio).  Out of the 4,521 Canadian stocks on the TSX, 654 were paying 3.5% or more. I scored these 654 stocks. I then excluded 366 preferred shares. Despite their higher dividends, preferred shares scored poorly. There was a 98.5% likelihood that all preferred shares would show a capital loss. They really are just a loan, competing with bonds and bank loans.

The highest score was 76.  Ten companies scored over 70. There were 133 companies scoring less than 20.  There were only two stocks for less than $8 that scored over 60.

My objective was to purchase twenty good dividend stocks scoring over 50.  Twenty stocks diversified my risk. Only 5% of my life-savings is ever at risk in any one stock.  In any year, I have found I might replace two out of the twenty stocks because their scores may have fallen below 50 or their dividend may have shrunk.  I found that often as a stock’s price increases that the dividend payout moves up in tandem with price. In a market crash, while a stock price may decline, the dividend payments usually continue until the market recovers. 


The following are a few of the stocks that were identified by the scoring system and I have now held for years.  They are ones that have generated more than a $10,000 capital gain. The best one generated a capital gain of $$36,824.  Only two of all the stocks I own are below their purchase price, one for $53 and the other for $3,734. Both of these stocks score well and pay good dividends and I will hold them, expecting them to rebound.  If I were to build another portfolio today, there may well be other stocks that would give as good or even better results. 


PZA – Pizza Piizza Royalty 

SRU.Un - Smart Centres REIT 

NWH.UN - Northwest Health Centres 

NVU.UN - Northview Apartment REIT 


BMO – Bank of Montreal 

LB – Laurentian Bank of Canada 

CM - Canadian Imperial Bank of Commerce 

SRU.UN - Smartcentres REIT 

SMU.UN - Summit Industria 


 Scoring stocks is a different approach to successfully managing a portfolio. No longer is your portfolio being drained by full-service investment advisory fees or mutual fund charges. With total control, you know exactly what you are invested in and why you are invested in it. Over the years my portfolio has grown by 300% while generating an ever-growing generous income. I do not miss the stress of speculative investing nor investment advisers. 




Raised in a Northern mining town, Ian paid his way through university working in those mines. This gave him insight into the problems of commodity investing e.g. constantly fluctuating world prices, unionized workers, remote job sites, absentee owners far removed from the source of their wealth, government interference, etc.

His first job, after graduating from McMaster University, was with the large international commercial risk information company, Dun & Bradstreet. Every morning, he interviewed business owners and every afternoon he wrote reports on the viability of those businesses for banks, insurance companies and trade suppliers. His business education was enhanced when he progressed to selling D&B's marketing information to sales managers, advertising agencies and marketing managers.

At the age of twenty-five, he became General Manager of that Marketing Services Division for Canada. At twenty-eight he was promoted to General Sales Managers for all divisions of the company in Canada. This included a sales force of a 100 sales representatives in a dozen offices.

When told that he could not become president of the Canadian company without first working for D&B in the USA, he left and joined a Canadian conglomerate. Here he was simultaneously General Manager of Screening Systems International (a service that screened senior executive job applicants) and President of Inter Continental Collections ( a small collection agency).

When an opening, as Ontario Regional Manager, arose at Creditel of Canada Limited, he left to learn more about the collection agency business. It had intrigued him that millions could be made from discarded "bad" accounts. Creditel was the largest commercial collection agency in Canada, with 15 branch locations.

 A few years later, he sought out the job of Senior Vice President of their money losing, credit reporting division.  It quickly became the largest source of revenue and profits for Creditel.  This made it an acquisition target.  Equifax Inc, another large, international risk information conglomerate. They bought it to acquire the new technology that Ian had created at Creditel and quickly sold off the collection division.   Ian retired from Equifax 9 years later as a Vice President in 2005. 

In 1996, he had incorporated Informus Inc to manage the anticipated sales of his art, writing, and consulting services.