The absolute dull returns derived from the state bonds and ineffective interest rates of the central banks worldwide are fuelling investments in Canadian Preferred stocks and their related vehicles. At nil or minimum risks the average yearly yield of this North American asset class ranges between 4-6% and the category's best performers are yielding as much as +7% annually. A consistent performance of these stocks which are mostly from the Banking and Real Estate Funding universe have enabled most Canada preferential ETFs to deliver a 30 day sec yield upwards of 3.6 % last paid in December 2012.
Many Investors in a bid to gain more attractive returns often purchase passive shares of companies, not only are they taxed more favourably than the bonds, but allow a major up gradation of investors' regular income. Last ten years estimates show a clear decline of interest rates in the United States of America and the rest of the world, which in all likelihood will continue to disappoint investors until a permanent solution to world economic woes is achieved.
As the name suggests the inactive shareholders get priority over the common stake holders when it comes to dividend pay outs especially when the respective company faces a crunch, but what you get in income, you will lose out in Capital.
Participating share holders seldom gain from market surges because the asset comes with a feature predominantly called as the "Call" feature. This allows promoters to call back the participating equity as per the price to book valuations, thus ensuring that the gains that may arise from speculation, guidance outperformance or simply due to any upside in the market are distributed only among the common stockholders.
A pre-investment assessment should be carried out on three counts that are also factored in when making up the relevant benchmark i.e. Solactive Canada Preferred Stock Index:
· Average volume of trade of the stock.
· Credit quality and Market capitalization figures of the security.
· Historical performance of the company's equity vis-a-vis their benchmark.
Top equities from this side of the market would include Royal Bank of Canada [RBC] PFD, Toronto Dominion Bank [TD] PFD and preferential securities of Trans Canada and Enbridge Inc. among others, all these shares provide a handsome annual yield guidance of at least +4% and even as high as +6% as in case of RBC and TD.
Direct investments are avoidable if the investment pool is not large enough to match that of an institutional investor because a standardised exposure can be attained easily through a Canada Preferential Securities Fund. An index bound fund can be easily seen as true copy when it comes to stock picking. As in Index, all equities are given equal weight age and are among the top income yielding stocks listed on the Toronto Exchange.
Capital bonds which have been for long a favourite among the conservative investors are losing their sheen due to their paltry returns, complicated taxation policy and their dependence on Central banks. In order to avoid a fiscal stagnancy in one portfolio, NASDAQ listed and Solactive Index attuned, these dividend paying Canada funds resolves the income issues, especially for somebody whose entire focus is on a healthy retirement corpus.
Individuals already engaged or looking to freshly acquire the asset must know that there is little or none capital growth and the focus here is strictly limited to individuals looking for a regular income from a minimum risk product.
Any upside in the market may also lead to relative losses if majority of your investments are accumulated in the asset hence when investing; make sure to use your allocation sensibility and bona fide financial advice.
Global X Canada Preferred Stock Fund [CNPF ETF] is correlated to its name sake benchmark and delivers as per its performance, post the annual expenses of 0.58%. Sector wise, the largest investments are understandably in Banking Corporations that make up for more than 70% of the assets, Energy and Telecom sectors come in at second and third with 13.36% and 8.55% of the assets respectively. Big dividend churners like TransCanada and Enbridge Inc are among the top stocks for CNPF along with Toronto Dominion and Royal Bank of Canada.