A Yield to Caution

Article Excerpt

DIVIDEND 15 SPLIT CORP. $10.74 (Toronto symbol DFN; Shares outstanding: 43.9 million; Market cap: $471.5 million; Dividend yield: 11.2%; www.puremultifamily.com) holds shares of 15 big Canadian companies. These include BCE, Bank of Nova Scotia, Thomson Reuters, Loblaw Cos., Sun Life Financial, Enbridge and Telus. It can also invest up to 15% of its portfolio in other stocks. Dividend 15 yields a very high 11.2%. However, its income does not cover those high distributions to its shareholders. To make up the difference, it must realize capital gains on its securities. But those gains are far from guaranteed, so it supports its distributions by selling call options on the stocks it holds. Selling call options also generates an income stream for the company. However, these sales tend to limit any capital gains that Dividend 15’s portfolio might otherwise generate. That’s because when the stocks it owns go up, holders of any call options on those stocks will buy them from the trust at the…