preferred shares canada

Best Preferred Shares ETFs in Canada (High monthly Dividends)

In this post, we will review the top 5 monthly preferred shares ETF in Canada. These ETFs are great way to diversify the fixed income portion of any portfolio. First, we will discuss what a preferred share is and the difference with a regular share. Afterwards, we will talk about the features that a preferred share has and that makes it attractive to investors. Finally, we will compare the most popular preferred shares ETFs in Canada.

Definition of preferred shares

When you own a share of a company. You are basically part of the business. You have the right to vote and participate in shareholders’ annual meeting. Your return will depend solely of the performance of the company in the stock market and its dividends. It’s rewarding but it’s also risky. Preferred shares are a bit different. You don’t get to vote and you have no ownership in the business. Your preferred share entitles you priority to dividends based on a percentage agreed upon in advance. The priority means the company needs to pay you first before paying the regular shareholders. In case of bankruptcy, you have first claim on the assets of the company. So, in essence, a preferred share is kind of hybrid product that shares certain characteristics of bonds (a bit of safety) and some of regular shares (potential for appreciation).

Investors can invest directly in preferred shares as they trade like stocks. Or, they can buy preferred shares ETF to achieve diversification and reduce risk.

Preferred shares features

A preferred share grants the holder a percentage return based on its par value. There are several risks associated with preferred shares:

  • The issuer can decide not pay dividends in a particular year because of bad financial results. Unless you hold a cumulative right, you will not receive your dividends for that year;
  • The preferred share price tend to rise if the price of the regular share rises or lose value if the opposite scenario occurs;
  • Preferred shares are sensitive to interest rates. When interest rate are low, preferred shares are in demand because their dividend is much higher than other fixed income products. If interest rate rise, investors will turn to safer fixed income products such as bonds. This will impact negatively the price of the preferred share;
  • An issuer of preferred shares can decide to recall his shares or offer the option to convert them to regular stocks anytime. This is assuming the shares that were issued are ‘callable’.

What’s a preferred shares ETF

It’s basically ETFs that invest mainly in preferred shares. These ETFs are quite popular because they offer investors interesting yields with possibility of capital appreciation. Among all fixed income products, there’s no question that preferred shares usually offer the best return in comparison to bonds. This being said a preferred share carries more risk than owning a bond.

Methodology

I started by selecting all Fixed income ETFs offered in Canada. I considered in my comparison only ETFs that pay more than 3% dividend yield. 3% is a reasonable payout especially if it’s combined with an interesting capital appreciation. Most fixed income ETFs holders seek a regular dividend income. So, it’s an important condition.

Second step: I ranked these all preferred shares ETFs in Canada based on the past 52 weeks performance.

Third step: All ETFs in the list should have asset under management above 100 M. Generally speaking, the higher the AUM the better the liquidity because of the high volume of shares exchanging hands daily. This factor is important because investors should be able to buy and sell an ETF at a reasonable spread. The spread is the difference between the bid and the ask price. For liquid assets, the spread can be as little as 0.005$ while for low AUM ETFs the spread can easily reach 0.05$. If you buy 100 shares that’s 5$ cost in addition to the commission you’re paying to the broker.

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Table 1: Top 5 Preferred shares ETFs fundamental data

NameMER
%
AUM*
Dyn Ishares Active
Pref Shares – DXP
0.67                        725
RBC Canadian Pref
Share – RPF
0.58                        951
Horizons Active
Pref Share – HPR
0.64                     1,750
BMO Laddered
Pref Share – ZPR
0.50                     2,170
Ishares S&P TSX
CDN Pref – CPD
0.50                     1,450
Source: Yahoo Finance as of July 30th 2021. AUM Asset under management in millions

Table 2: Top 5 Preferred shares ETFs Performance

NameDiv
yield
YTD
%Chg
1yr
%Chg
3yrs
%Chg
DXP3.8121.9250.206.15
RPF4.4518.4546.694.26
HPR4.3418.3346.144.77
ZPR4.7718.3845.434.73
CPD4.2914.4436.574.17
Source: Yahoo Finance as of July 30th 2021. AUM Asset under management in millions
  • ZPR BMO Laddered Preferred Share is the most popular preferred shares ETF in Canada with over 2 Billions in Assets;
  • Looking at short term performance and dividend yield, BMO’s ZPR offers the highest dividend yield with a great performance;
  • DXP Dynamic Ishares Active Preferred Shares has the best long term performance.

Dyn Ishares Active Pref Shares (DXP)

Invests primarily in a diversified portfolio of preferred shares of Canadian based businesses. Based on the past 52 weeks, this ETF had the highest performance! so far

DXP Monthly Dividend distribution

Ex-DatePayable
Date
Cash
Am
nt
Total
Dist
May 21, 2021May 28, 2021 0.072 0.072
Apr 26, 2021Apr 30, 2021 0.072 0.072
Mar 25, 2021Mar 31, 2021 0.072 0.072
Feb 22, 2021Feb 26, 2021 0.072 0.072
Jan 25, 2021Jan 29, 2021 0.072 0.072
Dec 30, 2020Jan 6, 2021 0.072 0.072
Nov 24, 2020Nov 30, 2020 0.072 0.072
Oct 26, 2020Oct 30, 2020 0.072 0.072

RBC Canadian Preferred Share (RPF)

The RBC Canadian Preferred Share ETF seeks to provide unitholders with exposure to the performance of an actively managed portfolio of rate reset preferred shares issued by Canadian companies, selected on the basis of fundamental analysis, credit research and interest rate sensitivity analysis.

RFP Monthly Dividend distribution

Ex-DivPay
date
Cash
distr.
Total
distr
2021-01-212021-01-290.0890.089
2021-02-182021-02-260.0870.087
2021-03-232021-03-310.0850.085
2021-04-222021-04-300.0810.081
2021-05-192021-05-280.0830.083

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Horizons Active Pref Share (HPR)

The investment objective of the Horizons Active Preferred Share is to provide dividend income while preserving capital by investing primarily in preferred shares of Canadian companies. The ETF may also invest in preferred shares of companies located in the United States and fixed income securities of Canadian and U.S. issuers. The ETF, to the best of its ability, seeks to hedge its non-Canadian dollar currency exposure to the Canadian dollar at all times. HPR is a popular ETF and has asset under management in excess of 1 Billion dollars.

HPR Monthly Dividend distribution

Ex-div
Date
Paym
Date
Paym
Amnt
01-28-202102-10-20210.03563
02-25-202103-10-20210.03284
03-30-202104-13-20210.03284
04-29-202105-12-20210.03210
05-28-202106-10-20210.03210

BMO Laddered Preferred Share Index ETF (ZPR)

The BMO Laddered Preferred Share Index ETF (ZPR) has been designed to replicate, to the extent possible, the performance of the Solactive Laddered Canadian Preferred Share Index, net of expenses. The Fund invests in and holds the Constituent Securities of the Index in the same proportion as they are reflected in the Index. ZPF is a popular ETF and has asset under management in excess of 1 Billion dollars. It offers the highest yield in our top 5 ETFs (as of Feb 25th).

ZPR Monthly Dividend distribution

Ex-Div
Date
Pay
Date
Cash
Dist
Total
Dist
Jan 27, 2021Feb 02, 20210.0450000.045000
Feb 24, 2021Mar 02, 20210.0450000.045000
Mar 29, 2021Apr 05, 20210.0450000.045000
Apr 28, 2021May 04, 20210.0450000.045000
May 26, 2021Jun 02, 20210.0450000.045000

Ishares S&P TSX CDN Pref (CPD)

Seeks to replicate the S&P/TSX Preferred Share Index, net of expenses.

CPD Monthly Dividend distribution

Ex-DatePayable
Date
Cash
Amnt
Total
Dist
May 21, 2021May 28, 2021 0.04800 0.04800
Apr 26, 2021Apr 30, 2021 0.04800 0.04800
Mar 25, 2021Mar 31, 2021 0.04800 0.04800
Feb 22, 2021Feb 26, 2021 0.04800 0.04800
Jan 25, 2021Jan 29, 2021 0.04800 0.04800
Dec 30, 2020Jan 6, 2021 0.05000 0.05000

Disclaimer

The data on this website is for your information only. It does not constitute investment advice, or advice on tax or legal matters. Any information provided on this website does not constitute investment advice or investment recommendation nor does it constitute an offer to buy or sell or a solicitation of an offer to buy or sell shares or units in any of the investment funds or other financial instruments described on this website. Should you have any doubts about the meaning of the information provided herein, please contact your financial advisor or any other independent professional advisor.