How these stocks are different from equity investments?
Well in a nutshell, a participating stock is a cross between a debt instrument & equity stock, where the holder has no voting rights but is valued over the common stock holder during dividend distribution. This enables a good yield for the investor & offers better claims in case of stock liquidation of the held company.
Due to its conservative nature a preference stock does not gain as much as equities in a steady bull run but at the same time provides a safety cushion in volatile markets & spells out a handsome yield in scenario where low interest rates are a norm.
Does investing in a cumulative stock ETF will get me better returns?
Strongly Affirmative! If one is aware of the basic potential risks?
Other than the unavailability of voting rights, the primary reason investors shy from participating stock funds are the complexities involved.
An issuing company offering preferential equity will want you to opt among different variations like fixed rate or adjustable, participating or non-participating & so on. The list is endless & only a seasoned investor is qualified enough to make these choices on his own.
A cumulative stock equity traded fund [ETF] offers a solace to this. Individually you don't need to perform any R&D on the companies you choose & furthermore, a balance allocation of the funds allows a smart diversification &higher dividend yields, especially in a low interest rate market environment.
In fact if you take a time bound example of the gruelling phase during 2007-2009, where most common stocks fell flat. A diversified portfolio with a participating stock investment may have still procured a positive five year return.
Why invest in CNPF?
Canada is a perfect market for US investors to add international exposure & create dividend income through preferential stocks. The Canada preference stock funds may provide the right manipulation of your portfolio in a time when globally, the economy growths are quite bleak & a steady dividend pay-out fund is a smart choice.
Naturally the majority of fund allocation in these instruments is in the financial sector as companies issue participating equities, primarily for finances & fund generation. The average allocation chart of these funds will reveal investments close to 70% in financials and rightly so.
Toronto Dominion Bank [TD Bank] has shown a growth of +10% in 2012 & has announced a growth forecast of +11% for the coming 2013. A very handsome dividend yield at 2.61 CAD in2011 has compelled most analysts to put a BUY call on this stock, where Financial Times, London has even gone public stating that the TD Bank stock [TD:TOR] will outperform the market & the Canadian Bank Index as well.
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