BPRF ETF’s $0.11 ‘Dividend’ – What Investors Need to Know

The Brompton Flaherty & Crumrine Investment Grade Preferred ETF (BPRF for CAD-hedged shares, BPRF.U for USD units) has been making headlines for its monthly $0.11 distribution. But here’s the catch: this is not a dividend. That’s right—investors chasing income might be in for a surprise. Let’s unpack this.

First, the fine print: The fund explicitly states it has never paid dividends and categorizes its distributions as return of capital (ROC). That means every $0.11 paid out each month doesn’t come from earnings or interest—it’s a portion of your original investment being returned to you. This structure has major tax implications and could erode your principal over time.

The distinction matters. Unlike dividends, ROC distributions do not qualify as income. Instead, they reduce your adjusted cost base (ACB), which could trigger capital gains taxes down the line if the units are sold. For non-registered accounts, investors receive a T3 slip, but the distributions won’t be listed as dividends. This is a critical detail for tax planning.

So why structure payouts this way? The answer lies in the ETF’s mandate. BPRF invests at least 75% of its assets in investment-grade preferred securities, a sector known for stable but not explosive returns. The sub-advisor, Flaherty & Crumrine, a 40-year veteran in preferreds, aims to provide steady income without relying on volatile dividend yields.

The fund’s 2024 performance was solid, with the CAD-hedged shares up 10.7% and USD units gaining 11.0%—all based on NAV. These returns reflect the underlying preferred securities’ price appreciation, not dividend payouts. The 0.75% management fee is reasonable for an actively managed ETF, especially given the expertise of Flaherty & Crumrine.

Now, let’s talk portfolio. As of late 2024, top holdings included preferred shares from Delphi Financial Group, Metlife Inc., and Enbridge Inc., accounting for 50.6% of assets. These are blue-chip issuers with strong credit ratings, aligning with the fund’s investment-grade focus. This diversification helps mitigate interest rate risk, though preferreds are still sensitive to rate changes.

The key takeaway is this: BPRF is not a dividend machine. It’s a capital return vehicle designed for investors willing to trade near-term tax efficiency for long-term growth. The $0.11 monthly payout is a carrot to attract income seekers, but the real value lies in the portfolio’s stability and the manager’s track record.

Critics might argue that ROC distributions eat into principal, but proponents counter that it allows BPRF to avoid the volatility of dividend cuts. In a rising rate environment, preferred securities can struggle, but BPRF’s focus on investment-grade issuers and hedging (for the CAD version) provides a buffer.

In conclusion, BPRF is a niche play—but a valid one. Investors chasing dividends should steer clear. However, those seeking a managed portfolio of high-quality preferreds with steady NAV growth and disciplined risk management can find value here. Just remember: that $0.11 isn’t free money. It’s a piece of your own investment coming back to you, with tax consequences to match.

The numbers back this up: a 10.7% return in 2024 for CAD investors, a 40-year sub-advisor pedigree, and a portfolio stacked with top-tier issuers. Just don’t call it a dividend fund.