Ask Mr. Thrifty: Is the DUCA 4.25% Investment Share Offering a Good Deal?

We use this forum to post follow-up Q&A on the topics in our blog.

Q: Thanks for your informative 2019 article on DUCA. I’m a member of the credit union and wondering about the current 4.25% investment share offering. Is this risky? Is it a good deal for money that doesn’t need to be accessed before five years? And is the money going to be accessible after that five years, or are there limitations on how much can be released and when?

— Regards, Ann

A.

Good question! Thank you for your inquiry.  

We haven’t looked closely at the DUCA 4.25% investment share offering but would urge you to read the FAQs on the DUCA website as well as the offering memo and make sure that an investment is consistent with your objectives and risk tolerance.   

Some high-level notes:

• an investment in DUCA shares is not covered by deposit insurance
• the dividend is not guaranteed
• the dividend could be paid either in cash or in additional shares
• the dividend is taxable as interest income
• there is no active secondary market should you wish to exit your investment

Quite a different risk profile compared to a GIC or savings account…….and not sure that the incremental yield is worth it.   

You may also want to compare the yield on the DUCA 4.25% investment share offering to the dividend yield you could get by investing in common shares of the Big Banks on the TSX.  On this basis, the DUCA share offering does not compare favourably, especially if you consider that the DUCA “dividend” is being taxed as interest income and therefore not eligible for the dividend tax credit. 

Bank of Nova Scotia common stock, for example, is yielding 4.9% at the moment and you can buy and sell it as you like in a liquid market (and BNS regularly increases its dividend). Moreover, common stocks offer a greater potential for capital gains over the long run, whereas the DUCA investment shares would be redeemed at the original issue price.

Hope this helps!

Mr. Thrifty

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