The November 23rd proposal of the Federal government to reduce federal taxes on ordinary dividend income received from Canadian corporations will be very beneficial to shareholders of Prime Dividend Corp.
Prime Dividend Corp. is a mutual fund corporation that pays ordinary dividends and capital gain dividends. If the proposal is enacted, both Preferred shareholders and Class A shareholders will benefit through the enhanced after tax return they’ll receive on dividend payments made in 2006. The top marginal personal tax rate on dividends is expected to decrease by approximately 35% from 31.3% to 20.3% (in Ontario), if fully implemented at both the federal and provincial level. Preferred shareholders are expected to receive their distributions in the form of ordinary dividend income and the Class A shareholders to receive a mix of ordinary dividend income and capital gains dividends.
The Prime Dividend Corp. investments include some of the highest paying dividend corporations in Canada. The proposal will make dividends received from these Canadian corporations much more attractive on an after tax basis and encourage these corporations to raise their dividend payments to shareholders.
The fund’s investment objectives are:
Preferred Shares for Floating Rate:
(i) Provide holders of Preferred shares with cumulative preferential monthly cash dividends initially at a rate of 5.50% per annum. The dividend will float at the prime rate in Canada plus 0.75%; and
(ii) on or about December 1, 2012 (termination date), to pay holders of the Preferred Shares the original issue price of those shares.
Class A Shares for Floating Rate :
(i) to provide holders of Class A shares regular monthly cash distributions initially targeted to be 6.75% per annum. The dividend will float at the prime rate in Canada plus 2.00%; and
(ii) on or about December 1, 2012 (termination date) to pay the holders of Class A at least the original issue price of those shares.
Investment in the portfolio of high yielding Canadian Companies by Prime Dividend :
Shares held within the Portfolio will generally represent no less than 4% and no more than 8% of the net asset value
