RE:RE:Bought morebaranja wrote: Mmb060 wrote: Bought more at 5.07.. probably the last since i dont want weighing too high
I am new here. 23% dvidend on this one? How does this fund work? What kind of ETF is this?
Preferred shares are more conservative and have a steady income stream due to their fixed, cumulative quarterly payments.
Payments are usually in the form of eligible Canadian dividends which are taxed at a lower rate than other types of income.
Preferred shares have a priority claim ahead of the Class A shares on the fund’s assets in the event of termination. However, the
net asset value of Preferred shares do not benefit from growth in the underlying stocks. The market price of a Preferred share has
historically tended to be fairly steady and investors have a monthly and annual retraction feature. All Brompton Preferred shares
are also non-callable at a price other than the net asset value so you will not be forced to give up your shares for less than their
par value.
A knowledgeable investor, not adverse to the ups and downs of the market, who might be bullish on the underlying portfolio, may
be interested in Class A shares. Buying a Class A share of a Split rather than buying the underlying stocks yourself can result
in magnified gains if the value of the underlying portfolio increases or magnified losses if the value of the underlying portfolio
decreases, due in each case to leverage. The monthly payments to Class A shares are a target (not fixed).1
They can be missed
if the portfolio declines but on the other hand, if the portfolio has realized gains, the Class A shares may be entitled to special
distributions on top of the monthly payments. In the event of termination the Class A shares receive the balance of the portfolio
(net asset value) after the Preferred shares receive their original issue price plus any accrued and unpaid Preferred dividends.
Split share funds (“Splits”) are unique investment corporations that offer two distinct classes of shares and typically invest in an
underlying portfolio of dividend paying companies.
The two distinct classes of shares are classified as 1) Class A shares and 2) Preferred shares. Both classes of shares trade
separately on the TSX.
Typically an investor buys a stock to receive dividends and to take advantage of any gains on a stock price.
Split share funds split, or effectively reallocate, these two benefits between the two separate classes of shares. Preferred shares
receive fixed, cumulative quarterly payments. Class A shares capture the movement of the underlying stocks, but in a more
magnified way than if an investor owned the underlying portfolio of securities directly. This magnification of return is commonly
known as “leverage”.
As an example, if the underlying stocks go up 5%, the Class A share’s value increases more than 5%. That is because the Class A
shares receive all growth in the fund, even on the Preferred share portion. The reverse is also true.
Unlike a traditional split share fund, Brompton designs Splits where the Class A shares receive a steady monthly distribution when
the net asset value is above a specified threshold (as well as participating in a levered way on the return of the portfolio securities).1
Class A share distributions are funded by capital appreciation, additional income earned from a covered call writing program and
any excess dividend income earned in the underlying portfolio that is over and above what is needed to fund the Preferred share
dividends.
Which Share is Right for you?
BROMPTON SPLIT SHARE PRIMER
What are Split Share Funds?
How are the Monthly and Quarterly Distributions Funded?
The dividends received on the stocks held in a Split Share Fund’s portfolio are used to fund the fixed, cumulative quarterly payments
made to the Preferred shares.
Capital appreciation plus any excess dividend income and any option premium received from covered call writing are used to fund
the targeted monthly payments to the Class A shares.
The objective is to pay mostly Canadian eligible dividend income to the Preferred share and a combination of return of capital,
dividends and capital gains to the Class A share.
In either case, the distribution payments are very tax efficient compared to many other income-oriented investments.