Preferred shares are hybrid securities that act a little more like bonds than equities. Companies issue them in place of debt, and preferred shareholders get dividend priority. If the common share dividend is ever eliminated, preferred shareholders would still get paid.
Canada has three main preferred share ETFs, each offering exposure to an asset class that pays attractive dividends while offering some capital protection.
The oldest preferred share ETF in Canada is the Claymore S&P TSX Preferred Share ETF (TSX:CPD), which has a market cap of more than $1.2 billion and trades, on average, about 150,000 shares a day. It has been around since 2007.
It offers a 4.9% dividend yield from 228 underlying preferred shares. Its management expense ratio is 0.51%.
The BMO Laddered Preferred Share ETF (TSX:ZPR) is Canada’s largest, with more than $1.4 billion in assets. It trades on average nearly 300,000 shares per day and offers a 12-month trailing yield of 5.1%. It has 170 different holdings.
And finally there’s the Horizons Active Preferred Share ETF (TSX:HPR), which uses an active management approach. It has assets of over $800 million with more than 100,000 shares trading hands on an average day.
This ETF only yields 4.4% on a trailing basis, and it comes with a management fee of 0.55%, which is only slightly more than its passively-managed competitors.
Ultimately, I think I would own the BMO-Laddered ETF since it offers the best trailing yield of the three with a competitive management fee of 0.5%.
