ETF Education Report: Flaherty & Crumrine Dynamic Preferred and Income Fund Inc (DFP)

What this ETF is trying to do

DFP is an Exchange Traded Fund (ETF) traded on the NYSE. While the specific investment strategy isn't detailed in the data, its name suggests it focuses on "preferred" securities and generating income for investors.

What the numbers show

When looking at an ETF, it is important to separate "price return" from "total return."

• Price Return: This measures only the change in the share price. For DFP, the one-year price return was approximately -12.86%. The year-to-date (YTD) price return was approximately -8.75%.

• Total Return: This includes both the share price changes and the cash distributions paid out to investors. Because of the cash payments, the total return is usually different from the price return. For example, the one-year total return was approximately -6.04%, which is higher than the price return of -12.86%.

Looking further back, the three-year total return was approximately 39.87%, while the three-year price return was approximately 12.85%.

To visualize the price change, we can look at an estimated price from roughly one year ago, which was $21.77. The current price is $18.97.

Income and distribution explanation

This ETF focuses on providing cash to investors. The distribution yield is approximately 8.24%. This means the amount of cash paid out is high relative to the current share price. These distributions usually happen monthly, with 12 payments recorded over the last year.

It is important to remember that a high distribution yield does not mean you are earning that percentage as your total return. Total return is the most accurate way to see how much value an investment has actually gained or lost over time.

NAV erosion explanation

"NAV erosion" is a term used to describe when the value of the underlying assets in a fund decreases over time. StockValueFinder uses an "erosion-risk score" to measure this risk.

DFP has an erosion score of 75, which is labeled as "mild price erosion." This is a measurement of risk and does not necessarily mean the fund's value has collapsed. However, it is a signal for investors to watch how the share price moves alongside the distributions being paid out.

Pros

• The ETF provides a relatively high distribution yield of approximately 8.24%.

• It has a history of providing monthly income.

• The three-year total return shows significant positive growth (approximately 39.87%).

Cons

• The one-year price return has been negative (approximately -12.86%).

• The five-year total return is negative (approximately -3.92%).

• There is a "mild" erosion-risk score of 75.

Beginner takeaway

When looking at income-focused ETFs like DFP, high yields can look very attractive. However, it is vital to check the total return. A fund might pay out a lot of cash (high yield), but if the share price is falling significantly, the total value of your investment might still go down. Always look at both the price movement and the distributions together to get the full picture.