Monday 16 January 2012

Portfolio Buy: Santander 10 3/8% Preference Share (SAN)

I have recently purchased a holding of Santander UK's 10 3/8% preference shares, which on purchase were yielding over 10%.

This is clearly a risky investment with this level of return. Essentially this is a bit of a gamble on the stability of the Spanish and Eurozone financial system.

So beware...

This choice of investment follows a recent review of corporate bond opportunity for Abbey National, a subsidiary of Santander UK. The alternative of buying a Santander preference share (which was previously an Abbey National preference share) was suggested by blog reader Nandan.

There is an interesting Motley Fool thread here. This highlights that the income from this security is subject to the 10% 'tax credit'.

I include Preference Shares in the top Level 7 of the Income Pyramid, along with corporate bonds and other fixed interest securities.

In practice, the ISA account where I had cash to spend did not allow the purchase of the Abbey National corporate bond (which I would have preferred - as with a preference share the bank has the option of just stopping the coupon payment), so I opted for the preference share.

With a current yield at purchase of over 10%, this indicates that the market sees a lot of risk in this security. Most of this risk I believe relates to the Eurozone problems. I was therefore heartened today - following the Standard & Poors' Eurozone mark-downs in 9 Euro countries - to see that the price of this security has actually risen a little (rather than falling through the floor).

We'll see for the longer term; but for now this will hopefully provide a boost to my portfolio income.

Purchase price: £0.90

I am not a financial advisor and the information provided does not constitute financial advice. You should always do your own research on top of what you learn here to ensure that it's right for your specific circumstances.


  1. how about now?

    1. There's been quite a lot of coverage stressing that Santander UK is pretty much free-standing UK bank, with all the guarantees that implies. The RBS fiasco is not likely to happen again. At the worst, Santander Spain might sell it. So, in my mind: no material change. Of course, with any high yield like this there is more than average risk - so make sure your portfolio include lots of safer assets, too.