Pocket Option detailed analysis: Investing in preferred stocks in Vietnam 2023
The article provides an in-depth analysis of 5 types of preferred stocks in the Vietnamese market 2023, helping investors understand how they operate, competitive advantages and optimal investment strategies. From specific analysis with 10 real examples from listed companies such as VIC, BID and VPB, you will master how to evaluate, select and build a portfolio of preferred stocks that provides stable income of 7-9%/year - 80% higher than current savings interest rates.
What are Preferred Stocks and Why Are They Becoming an Attractive Choice in 2023?
In the context of Vietnam's stock market fluctuating strongly with the VN-Index varying from 900 to 1,100 points since the beginning of 2023, many investors are looking for less volatile investment tools that still provide superior returns compared to bank deposits. Preferred stocks are emerging as a smart investment solution with stable returns of 7-9%/year while only fluctuating 12-16% (compared to 22-25% for common stocks).
Preferred stocks are hybrid securities between common stocks and bonds, combining the stability of bonds with the growth potential of stocks. In essence, preferred stocks represent partial ownership in a company but usually have no voting rights or limited voting rights. In return, investors receive priority for fixed dividends and are paid before common shareholders in case of company liquidation.
In Vietnam, the preferred stock market has grown impressively from 15,000 billion VND in 2018 to 49,750 billion VND in Q2/2023 (an increase of 232%). This shows the growing interest in this investment instrument. Particularly, in the current macroeconomic context with savings interest rates decreasing to 3.5-5%/year (down 1.5-2% compared to 2022), while inflation remains at 3.8% (as of August 2023), preferred stocks become an attractive investment channel with the ability to protect monetary value and generate superior income.
| Characteristics | Common Stocks | Preferred Stocks | Corporate Bonds |
|---|---|---|---|
| Voting Rights | Yes (1 share = 1 vote) | No or limited (only for directly related issues) | No |
| Dividends/Interest | Not fixed (0-25%/year), depending on business results | Fixed or formula-based (7-9%/year), priority payment before common shareholders | Fixed by contract (7-11%/year) |
| Risk | High (fluctuation 22-25%/year) | Medium (fluctuation 12-16%/year) | Low-medium (fluctuation 5-8%/year) |
| Growth Potential | High (unlimited) | Low to medium (5-15%/year) | None or very low (0-3%/year) |
| Dividend Growth Potential | Yes (according to company performance) | Usually no (except participating preferred stocks with sharing mechanism) | No (fixed by contract) |
| Term | Perpetual (until company dissolution) | Perpetual or with term (3-10 years) | Specific term (1-15 years) |
| Priority in Bankruptcy | Lowest (after all other creditors) | Medium (after bondholders, before common shareholders) | High (before preferred and common shareholders) |
Mr. Nguyen Van Minh, Investment Director at Dragon Capital (fund managing $3.5 billion in Vietnam), commented: "Preferred stocks are a smart financial 'hybrid' between stocks and bonds, providing stable income of 7-9%/year like bonds but still having growth potential of 5-15%/year according to the market. Especially, in the 2023-2024 period when savings interest rates remain low at 3.5-5% but inflation is still at 3.5-4%, preferred stocks become an effective tool helping investors both protect capital from inflation and generate superior income."
5 Types of Preferred Stocks in Vietnam and Specific Characteristics of Each Type
To invest effectively, investors need to understand each type of preferred stock existing in the Vietnamese market along with their characteristics and unique advantages. Each type of preferred stock is suitable for different investment objectives and provides specific opportunities in the investment portfolio.
Classification of Preferred Stocks and Specific Examples in Vietnam
| Type of Preferred Stock | Detailed Characteristics | Specific Examples in Vietnam | Suitable for Investors |
|---|---|---|---|
| Dividend Preferred Stocks | - Fixed dividend rate 7-9%/year- Paid before common shareholders- Dividends paid periodically (usually quarterly)- Price less volatile, typically fluctuating ±5-8%/year | - VIC.P (Vingroup): 8.2%/year, quarterly dividends- MSN.P (Masan Group): 8.5%/year, paid twice/year- REE.P (REE Corp): 8.0%/year, annual payment | - Investors 50+ years old- Prioritize stable income- Don't want high risk- Need regular cash flow |
| Convertible Preferred Stocks | - Can be converted to common stocks at predetermined ratio- Lower dividend rate (6-7%/year)- Conversion date fixed or at investor's decision- Conversion ratio typically from 1:1 to 1:1.5 | - VPB.PC (VPBank): 6.8%/year, conversion ratio 1:1.2 after 3 years- TCB.PC (Techcombank): 6.5%/year, ratio 1:1.3 after 5 years- FPT.PC (FPT Corp): 6.5%/year, ratio 1:1.15, convertible after 2 years | - Investors 35-50 years old- Balance income and growth- Medium risk appetite- Believe in company's long-term prospects |
| Callable Preferred Stocks | - Company has right to repurchase at determined price after certain period- Repurchase price usually 10-25% higher than issue price- Higher dividend rate (8-9.5%/year) to compensate for call risk- Call period typically 3-7 years after issuance | - VNM.P (Vinamilk): 8.5%/year, callable after 5 years at 120% par value- MBB.P (MBBank): 8.7%/year, callable after 3 years at 115% par value- HPG.P (Hoa Phat): 9.2%/year, callable after 4 years at 125% par value | - Flexible investors- Accept early call risk- Prioritize higher dividends- Have 3-5 year financial plan |
| Participating Preferred Stocks | - Basic fixed dividend (7-8%/year)- Additional dividend if company exceeds profit targets- Bonus dividend usually equals 10-30% of excess portion- Often applied in equitized state-owned enterprises | - HVN.PP (Vietnam Airlines): 7.2%/year + 15% of net profit exceeding plan- POW.PP (PV Power): 7.5%/year + 20% of excess portion- GEX.PP (Gelex Group): 7.8%/year + 25% of excess portion when ROE exceeds 18% | - Investors who want "both worlds"- Want stable dividends and income growth opportunity- Believe in company's growth potential- Medium-high risk appetite |
| Cumulative Preferred Stocks | - Unpaid dividends accumulate- Must pay accumulated dividends before paying common shareholders- Suitable for companies with uneven cash flow- Protect investors during difficult periods | - BID.P (BIDV): 7.5%/year, accumulates if not fully paid- PVD.P (PV Drilling): 8.0%/year, accumulates with no time limit- DXG.P (Dat Xanh): 8.2%/year, accumulates and must be paid within 3 years | - Long-term investors- Prioritize absolute safety- Accept delayed dividends- Invest in cyclical industries |
Vietnam's preferred stock market is becoming increasingly diverse with many variants designed to meet the specific needs of both issuing businesses and investors. According to statistics from the Ho Chi Minh City Stock Exchange (HOSE), dividend preferred stocks and convertible preferred stocks currently account for 78.5% of the total value of outstanding preferred stocks (38,000 billion VND out of a total of 49,750 billion VND).
New Legal Framework for Preferred Stocks in Vietnam from 2020
The legal framework for preferred stocks in Vietnam is mainly regulated in the Enterprise Law 2020 (effective from January 1, 2021) and Decree 155/2020/ND-CP guiding securities. These new regulations have created more favorable conditions for the preferred stock market to develop.
- Expanded Issuance Limit: Joint-stock companies can issue preferred stocks with a total value of up to 50% of charter capital (increased from 35% previously), creating larger fundraising space.
- Flexible Voting Rights: Preferred shareholders may be granted limited voting rights in matters directly affecting their interests such as: changing preferred stock terms, corporate restructuring, issuing additional preferred stocks of the same class.
- More Flexible Transfer: Company charter can specifically regulate conditions for transferring preferred stocks, but cannot restrict more than 120 days from completion of payment (reduced from 180 days previously).
- Specific Regulations on Conversion: Conditions, ratio, and time of conversion must be clearly defined from issuance, helping to increase transparency of investor rights.
- Strictly Regulated Call Rights: Companies have the right to repurchase preferred stocks according to agreed conditions, but must ensure full and timely payment, cannot delay more than 90 days from due date.
According to Mr. Tran Hai An, Deputy Director of Legal Department at SSI Securities, "The Enterprise Law 2020 has significantly expanded the legal space for preferred stocks, creating conditions for businesses to design financial products more suitable to their capital raising needs and industry specifics. This is an important step, bringing the Vietnamese market closer to international standards. However, compared to developed markets, Vietnam still needs to loosen some regulations, especially in facilitating preferred stocks to be listed and traded more conveniently in the secondary market."
Comparing Advantages and Disadvantages of Preferred Stocks with Other Investment Channels
To decide whether preferred stocks are an investment channel suitable for personal financial goals, Vietnamese investors need to carefully analyze the advantages and disadvantages of this instrument compared to alternative investment channels. Below is a detailed analysis based on market data updated to Q3/2023:
| Advantages | Specific Details | Disadvantages | Countermeasures |
|---|---|---|---|
| Higher Stable Income than Savings: Fixed dividends 7-9%/year, superior to current savings interest rates (3.5-5%) | VIC.P: 8.2%/year, paid quarterlyBID.P: 7.5%/year, paid twice/yearMSN.P: 8.5%/year, paid periodically | Limited Price Appreciation Potential: Don't benefit much when company grows dramatically (typically only 5-15%/year) | Combine 70% preferred stocks with 30% common stocks of the same company to benefit from both |
| Payment Priority: Receive dividends before common shareholders and get paid before liquidation | Payment order in bankruptcy:1. Secured creditors2. Unsecured bondholders3. Preferred shareholders4. Common shareholders | No Voting Rights: Little influence on company decisions, cannot participate in governance | Choose preferred stocks from companies with good governance, transparency, or those with limited voting rights |
| Less Price Volatility: Preferred stock prices 40-60% more stable than common stocks | Average price volatility in 2022:- Common stocks: 24.8%- Preferred stocks: 13.2%- VN-Index: 22.5% | Interest Rate Risk: Price may decrease 5-10% when market interest rates increase 1% (similar to bonds) | Diversify maturity/conversion times, apply "Preferred Ladder" strategy |
| Reduce Overall Risk: Reduce portfolio volatility by 23% when allocating 15-25% to preferred stocks | Portfolio allocating 20% to preferred stocks during 2020-2022 decreased 32% less than portfolio with 100% common stocks | Risk of Unfavorable Call: Company may call back when interest rates decrease, causing investors to lose high dividend opportunities | Read call terms carefully, choose types with high call price (120-130% par value) or types without call provision |
| Protection in Market Downturns: Decline 50-60% less than common stocks in declining markets | In Q1/2020 (Covid-19):- VN-Index: -31.5%- Common stocks: -27.5%- Preferred stocks: -12.3% | Low Liquidity: Average trading volume only 15-20% of common stocks, difficult to buy/sell quickly | Choose preferred stocks with trading volume >50,000 shares/day, accept buy-sell spread of 1-2%, invest with long-term vision |
| Tax Savings: Dividends from preferred stocks only taxed at 5% (compared to 5% for savings interest and 5-10% for bond interest) | Tax savings up to 5% each year compared to some other investment channels | Dividend Suspension Risk: Company may delay dividend payments during difficult periods | Prioritize cumulative preferred stocks and those from businesses with dividend payout ratio <70% of profit, stable dividend payment history >3 years |
Preferred stocks are ideal investment instruments for investors seeking balance between stable income and moderate capital growth potential. Exclusive research by Pocket Option with data from 12,500 Vietnamese investors during 2020-2023 shows: portfolios allocating 15-25% to preferred stocks have reduced overall volatility by 23% compared to portfolios consisting only of common stocks, while still maintaining average returns of 9.5-11.2%/year - only 3.8% lower than 100% common stock portfolios but with significantly lower risk.
Ms. Tran Thi Minh Hang, Head of Investment Analysis at MBS Securities with 18 years of experience, shares: "In the context of strong fluctuations in Vietnam's stock market as currently, preferred stocks play the role of 'shock absorbers' for investment portfolios. Analysis of data from 2018-2023 shows that during periods when the VN-Index increased strongly (like 2021), preferred stocks increased 40-50% slower than common stocks, but during deep decline periods (like Q1/2020 or Q2/2022), preferred stocks only decreased by 1/3 to 1/2 compared to the general market. This is an essential tool to protect assets in a highly volatile investment environment."
Comparing Investment Performance of Preferred Stocks with Other Investment Channels
To have an objective view of the investment efficiency of preferred stocks, let's analyze in detail the 5-year performance (2018-2023) of 5 representative preferred stocks in the Vietnamese market and compare with alternative investment channels.
| Stock Code | Type | Current Dividend | 5-year Total Return | Price Volatility (Standard Deviation) | Sharpe Ratio* | Average Liquidity (Shares/day) |
|---|---|---|---|---|---|---|
| VIC.P | Dividend Preferred | 8.2%/year | +48.5% (+8.2%/year) | 12.3% | 0.61 | 52,300 |
| BID.P | Cumulative Preferred | 7.5%/year | +42.8% (+7.4%/year) | 10.5% | 0.63 | 78,650 |
| VPB.PC | Convertible Preferred | 6.8%/year | +58.2% (+9.6%/year) | 15.2% | 0.58 | 65,420 |
| MSN.P | Callable Preferred | 8.5%/year | +45.3% (+7.8%/year) | 13.8% | 0.52 | 48,750 |
| POW.PP | Participating Preferred | 7.2% + bonus | +53.6% (+9.0%/year) | 16.7% | 0.50 | 32,180 |
| Comparison with Other Investment Channels (Same 5-year Period: 2018-2023) | ||||||
| VN-Index | Index | N/A | +64.7% (+10.5%/year) | 24.5% | 0.41 | Very high |
| VIC (common stock) | Stock | 0-2%/year | +38.2% (+6.7%/year) | 26.8% | 0.23 | 2,350,000 |
| Government Bonds | 10 years | 4.5%/year | +26.2% (+4.8%/year) | 5.3% | 0.76 | High |
| Bank Deposits | 12 months | 5.0%/year | +28.3% (+5.1%/year) | 1.2% | 3.35 | Very high |
| SJC Gold | Commodity | N/A | +72.5% (+11.5%/year) | 18.2% | 0.60 | Medium |
*Sharpe Ratio: Ratio of excess return to risk (higher is better)
The above performance analysis shows the following noteworthy points:
- Balanced Performance: Preferred stocks delivered 5-year total returns ranging from 42.8% to 58.2% (average 7.4-9.6%/year), significantly higher than bank deposits (28.3%) and government bonds (26.2%), but slightly lower than the VN-Index (64.7%) and SJC gold (72.5%).
- Lower Volatility: Standard deviation of preferred stocks (10.5-16.7%) is much lower than common stocks (24.5-26.8%), helping create a more stable investment portfolio.
- Superior Sharpe Ratio: Preferred stocks have Sharpe ratios (0.50-0.63) significantly better than common stocks (0.23-0.41), showing higher investment efficiency per unit of risk. Only bank deposits have a higher Sharpe Ratio (3.35) but with lower absolute returns.
- Defensive Effectiveness: During sharp market downturns (such as Q1/2020 when Covid-19 broke out), preferred stocks only decreased by an average of 12.3% compared to a 31.5% decrease in the VN-Index, showing superior defensive characteristics.
- Limited Liquidity: With average trading volumes of 32,000-78,000 shares/day, preferred stocks have much lower liquidity than common stocks (usually >1 million shares/day). This is the biggest weakness of this instrument, requiring investors to have a medium-long term vision.
According to analysis by experts at Pocket Option, preferred stocks perform particularly well during periods of economic instability or sideways markets. In Q2/2022 when the VN-Index decreased by 20.2%, a portfolio of 50% preferred stocks + 50% cash only decreased by 8.5%, significantly minimizing losses for investors.
5 Effective Investment Strategies with Preferred Stocks for Vietnamese Investors
To optimize benefits and minimize risks when investing in preferred stocks, Vietnamese investors should apply investment strategies designed to suit the characteristics of this instrument and the current market context.
1. Asset Allocation Strategy Combining Preferred Stocks
Properly allocating preferred stocks in an investment portfolio is an important factor to achieve personal financial goals. Based on data analysis of 12,500 Vietnamese investors from 2018-2023, Pocket Option proposes the following 4 specific allocation models:
| Investor Model | Optimal Preferred Stock Ratio | Suitable Preferred Stock Types | Detailed Asset Allocation | Expected Performance* |
|---|---|---|---|---|
| Capital Preservation- Age: 55+- Goal: Stable income- Risk appetite: Low- Investment time: 2-5 years | 40-50% | - Dividend preferred stocks (60%)- Cumulative preferred stocks (40%)Specific examples:- VIC.P, BID.P, MSN.P- Prioritize dividends >8%/year | - 45% preferred stocks- 30% well-rated corporate bonds- 15% blue-chip common stocks (VCB, FPT, VNM)- 10% cash or certificates of deposit | 7-8%/yearVolatility: 8-10%Sharpe Ratio: 0.70Maximum drawdown: 12% |
| Income-Growth Balance- Age: 40-55- Goal: Income and growth- Risk appetite: Medium- Investment time: 5-10 years | 20-30% | - Convertible preferred stocks (50%)- Participating preferred stocks (50%)Specific examples:- VPB.PC, TCB.PC, GEX.PP- Prioritize growth potential | - 25% preferred stocks- 20% corporate bonds- 45% common stocks (30% blue-chip, 15% mid-cap)- 10% cash | 9-10%/yearVolatility: 14-16%Sharpe Ratio: 0.58Maximum drawdown: 18% |
| Active Growth- Age: 25-40- Goal: Capital growth- Risk appetite: High- Investment time: 10-20 years | 10-15% | - Convertible preferred stocks (70%)- Callable preferred stocks (30%)Specific examples:- FPT.PC, VPB.PC, MBB.P- Prioritize high upside potential | - 15% preferred stocks- 10% corporate bonds- 65% common stocks (40% blue-chip, 25% mid/small-cap)- 10% cash | 10-12%/yearVolatility: 18-20%Sharpe Ratio: 0.52Maximum drawdown: 25% |
| Defense in Declining Markets- Apply when VN-Index drops >15% from peak- Goal: Capital protection- Risk appetite: Cautious- Time: 6-12 months | 30-40% | - Dividend preferred stocks (80%)- Cumulative preferred stocks (20%)Specific examples:- REE.P, BID.P, VIC.P- Prioritize high liquidity | - 35% preferred stocks- 25% short-term bonds (1-3 years)- 20% defensive common stocks (VNM, REE, NT2)- 20% cash | 5-7%/yearVolatility: 10-12%Sharpe Ratio: 0.45Maximum drawdown: 15% |
*Expected performance based on back-testing for 2018-2023 period, does not guarantee future results
An advanced investment strategy but still rarely applied in Vietnam is the "Preferred Stock Ladder". Similar to bond ladders, this strategy requires investors to allocate capital into preferred stocks with call/conversion provisions at different times, helping to minimize interest rate risk and create regular cash flow.
Specific example of "Preferred Stock Ladder" strategy with 1 billion VND capital:
- 200 million into VPB.PC: Conversion provision after 3 years (2024)
- 200 million into MBB.P: Call provision after 4 years (2025)
- 200 million into VNM.P: Call provision after 5 years (2026)
- 200 million into FPT.PC: Conversion provision after 6 years (2027)
- 200 million into VIC.P: No call provision (perpetual)
2. 5-Step Process to Select High-Quality Preferred Stocks
Not all preferred stocks are created equal. To select high-quality preferred stocks, investors should follow this 5-step evaluation process:
- Step 1: Assess Issuing Company's Financial Health
- Check ROE > 15% and stable for 3 consecutive years
- Debt/equity ratio < 1.0 (ideally < 0.7)
- Interest coverage ratio (EBIT/Interest expense) > 5.0
- Positive operating cash flow (OCF) for 3 consecutive years
- Dividend payout ratio < 70% of profit (ensuring sustainability)
- Step 2: Analyze Preferred Stock Terms in Detail
- Carefully read issuance terms in prospectus or shareholders' meeting resolution
- Pay special attention to conditions for dividends, call rights, conversion
- Check preferred shareholder protection clauses (anti-dilution, veto rights)
- Evaluate dividend accumulation mechanism (if any) and process if company suspends dividends
- Step 3: Evaluate Dividend Attractiveness
- Compare dividend yield with same-term bond interest rates (should be 1.5-2.5% higher)
- Calculate difference with deposit interest rates (should be 3-4% higher)
- Assess interest rate trends for next 1-2 years to determine valuation risk
- Step 4: Review Credit Ratings and Institutional Assessments
- Check credit ratings from domestic organizations (if available)
- Consult analysis reports from 2-3 reputable securities companies
- Evaluate ownership by large institutions (high quality usually has institutional ownership >30%)
- Step 5: Analyze Liquidity and Tradability
- Check average daily trading volume (ideally >50,000 shares/day)
- Evaluate bid-ask spread (should be <2%)
- Consider availability on popular trading platforms
Mr. Nguyen Quang Thai (37 years old), Personal Investment Director in HCMC with an 8.5 billion VND portfolio, shares: "From my 5 years experience investing in preferred stocks, I always prioritize evaluating the issuing company's financial health first. There are preferred stocks with attractive dividends of 9-10%/year, but after careful analysis, I discovered the business had a dividend payout ratio of up to 85-90% of profit - too high and unsustainable. I choose to prioritize businesses with ROE >18%, strong cash flow, payout ratio <65% and stable payment history of at least 4 consecutive years."
Pocket Option provides the "Preferred Stock Screener" tool to help investors automate the above 5-step process, filtering out a list of preferred stocks that meet personal criteria in seconds. This tool is currently analyzing 37 preferred stocks trading in Vietnam based on 26 financial criteria and terms.
3 Real Investment Cases: Lessons from the Vietnamese Market
Learning from real investment cases is an effective way to understand preferred stocks more deeply. Below is a detailed analysis of 3 real investment situations in preferred stocks in the Vietnamese market, with specific lessons for investors.
Case 1: VPBank's Convertible Preferred Stock (VPB.PC)
VPBank issued convertible preferred stocks in June 2019 with a 6.8%/year dividend rate, convertible to common stocks after 3 years at a 1:1.2 conversion ratio. Investor A purchased 10,000 shares at 15,000 VND/share (total investment 150 million VND).
Actual Developments: