Equities for the long run...
The potential to earn (more) favorable returns from real estate and/or equity investing suggests that ownership can be far more lucrative than holding a renter’s interest in a fixed income alternative. Though potentially more rewarding, equity returns are rarely steady, nor predictable. Choosing to include equities as part of your overall investment solution must be framed upon an understanding that portfolio risks diminish over time, and that variability may be moderated through diversification and objective portfolio management...
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Common Stock
Common shares represent ownership in a corporation. Shareholders may benefit both from capital growth potential and optional dividends if/when payable. Often dividend payments provide some insight with respect to profitability and fiscal management – companies with a history of dividend payments and/or a history of increasing dividend payments are sometimes considered to be blue-chip. Scotiabank is an example – since 1998 Scotiabank shares have returned a total of 170.7% over 10 years; for a compound return of 10.5%/annum. With dividends reinvested the total return was 265.3% or 13.8%/annum. -
Preferred Shares
A form of equity, preferred shares also represent an ownership, however preferred shares carry a par value and dividend rate which often is more favorable than that offered by other traditional fixed income oriented investment alternatives. Where owned in a non-registered setting, income payable by a preferred share is generally considered to be tax-advantaged as a result of claiming the Dividend Tax Credit. In some instances, income may be treated for tax purposes as Return of Capital. Many preferred shares have a call or maturity date while others are perpetual. Preferred shares are often rated (by the various rating agencies) in a similar fashion to bonds. -
Trust Units
Income Trusts were originally designed to take advantage of more favorable tax treatment as compared to traditional corporations.. Generally, income trusts are representative of more mature businesses; which pay out to the majority of cash flows generated by the underlying operations to unit holders. By 2011 income trusts will be taxed as any other corporation. Just as is the case with common stocks, the price may fluctuate; many trusts offer capital growth potential in addition to attractive cash flows. -
Real Estate Investment Trusts (REITs)
Real Estate Investment Trusts (REITs) are a type of income trust, though are specific to (commercial) real estate assets. Like an income trust, a REIT is designed to pay regular (monthly) cash flows, but also enjoys the potential for long-term capital appreciation. For certain (qualified) REITs, the favorable tax treatment enjoyed today, will extend beyond 2011.
