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What Are Split Shares?
Split share funds (“Splits”) are unique investment corporations that provide opportunities for both conservative and more aggressive investors. They typically invest in an pool of dividend paying companies and divvy up or “split” the dividends paid by underlying stocks from the potential capital appreciation from that same pool of securities. Splits reallocate, these two benefits (dividends and capital appreciation) between the two separate exchange vehicles: a Preferred Share and a Class A share.
How Do Splits Work?
The Preferred Share:
Preferred shares are generally more appropriate for conservative investors seeking stability and a regular source of tax-efficient income. Preferred shares receive fixed, cumulative, quarterly distributions and have a priority claim on the fund’s assets ahead of Class A shares. Preferred shares have a favourable fee structure as most of the corporation’s expenses are borne by Class A shares. The preferred shares, however, do not benefit from the growth in the underlying portfolio of stocks.
The Class A Share:
Class A shares are typically designed for less risk averse investors seeking enhanced capital gains. All of the capital appreciation in the underlying portfolio of stocks accrues to Class A shares. This provides embedded leverage and does not have additional costs associated with utilizing traditional leverage by borrowing at prevailing interest rates. Class A shares also receive a targeted monthly distribution generated from capital gains and excess dividend income after preferred share distributions have been paid.
Portfolio of Dividend Paying Stocks
Preferred Share
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Class A Share
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The dividends and capital appreciation earned in the pool of dividend paying stock are split between the two distinct share classes.
Scenario Analysis
| Portfolio of Dividend Stocks Original Value = $25 Per Share |
Preferred Shareholders Original Value = $10 Per Share |
Class A Shareholders Original Value = $15 Per Share |
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Scenarios are presented gross of fees and fund expenses.
Who Should Buy Preferred Shares?
Preferred Shares are typically well-suited for long-term investors seeking a stable stream of dividend
income generated by high-quality, large-cap companies. These shares are more conservative and have a steady distribution due to their fixed, cumulative quarterly payments.
What Splits Does Middlefield Manage?
Middlefield manages actively managed Split Share strategies currently focused on the energy and real estate sectors. Buying a Class A or Preferred share of a Middlefield Split Share is an efficient way to invest in a sector or group of stocks using a unique investment vehicle run by a private and independent asset manager. Middlefield manages over half-a-billion dollars in split share assets which trade on the TSX and can be purchased in the same manner as any other stock trading on the exchange.
| Fund | TSX Ticker Preferred Share | TSX Ticker Class A Share | Investment Focus |
|---|---|---|---|
| Middlefield E Split | ENS.PR.A | ENS | Energy (Enbridge) |
| Real Estate Split | RS.PR.A | RS | Real Estate |
Whether you have specific investment inquiries or general questions about Middlefield, our team would be glad to help.
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This material has been prepared for informational purposes only without regard to any particular user’s investment objectives or financial situation. This communication constitutes neither a recommendation to enter into a particular transaction nor a representation that any product described herein is suitable or appropriate for you. Investment decisions should be made with guidance from a qualified professional. The opinions contained in this report are solely those of Middlefield Limited (“ML”) and are subject to change without notice. ML makes every effort to ensure that the information has been derived from sources believed to reliable, but we cannot represent that they are complete or accurate. However, ML assumes no responsibility for any losses or damages, whether direct or indirect which arise from the use of this information. ML is under no obligation to update the information contained herein. This document is not to be construed as a solicitation, recommendation or offer to buy or sell any security, financial product or instrument.
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change frequently, and past performance may not be repeated. You will usually pay brokerage fees to your dealer if you purchase or sell shares of an investment fund on the Toronto Stock Exchange or alternative Canadian trading platform (an “exchange”). If the shares are purchased or sold on an exchange, investors may pay more than the current net asset value when buying shares of the investment fund and may receive less than the current net asset value when selling them. There are ongoing fees and expenses associated with owning shares of an investment fund. An investment fund must prepare disclosure documents that contain key information about the fund. You can find more detailed information about the fund in the public filings available at www.sedar.com. Investment funds are not guaranteed, their values change frequently and past performance may not be repeated.
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