Canadian Preferred Equity: The Best-Kept Secret in Fixed Income for High-Quality, High Income

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 Investment Partners

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

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