URFPA: Now a speculative buy

With sufficient fear in the market overall and with existing fear around URF being around for a while now, we are seeing the price of URF preference shares being priced at a massive discount to their face value of $100.

URF preference shares pay a fixed dividend of $6.25 per share.

At current market pricing of around $62, this equals a dividend yield of 10%. With a chance in a few years to pay a much higher dividend as their is a step up provision which states that if URF is not bought back or converted into normal shares then it has to pay a higher dividend.

If URFPA is converted then either:
a) the face value of $100 has to be paid (which will give a capital gain of around 60%). If this happens then the return on this investment will be fantastic given holders will have been paid 10% a year dividends as well.
b) URFPA will be converted into normal URF shares. Under this provision the maximum number of shares that can be issued per preference share is 205 URF shares, but remember this is converted at face value of $100 not at the current market price $62. Therefore assuming maximum conversion then at $62 the shares will be converted into effectively URF shares at 30c. ($62/205)

From a capital safety point of view, (b) doesn't reflect the 10% dividends along the way. Two years of $6.25 dividends would mean the net capital entry point is just $50 (ignoring tax effect). At $50 effective capital preservation entry price is just 24c.

All investing is a risk, but in my opinion the key to investing is to analysize on the basis of probabilities a return on an investment with the initial capital being preserved.

I acquired 500 units of URF preference shares today.