A Yield to Caution: Dividend 15 Split Corp.

Article Excerpt

DIVIDEND 15 SPLIT CORP. $8.06 (Toronto symbol DFN; Shares outstanding: 65.5 million; Market cap: $527.9 million; Dividend yield: 14.9%; www.quadravest.com) holds shares of 15 big Canadian companies. These include BCE, Bank of Nova Scotia, Thomson Reuters, TC Energy, 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 14.9%. 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. However, these sales tend to limit any capital gains that Dividend 15’s portfolio might otherwise generate. That’s because when the stocks that the trust owns go up, holders of any call options on those stocks will buy them at the agreed upon price. That means the company loses…

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