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FFN and FTN pref shares A for North America Financial 15 split
October 5, 2021
5:46 am
savemoresaveoften
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These 2 showed a 6.5% div yield and all they do is invest in NA FIs, which none of them currently pays that high a dividend.
And looking at their 5 year price history, they dont really break below $10.
I imagine all they do is sell some shares as they appreciate to fund the dividend shortfall and charge a MER in return for their "service" ? If so, it will only work in a rising share price environment.....

October 5, 2021
2:10 pm
Norman1
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They are not selling shares.

Those preferred shares are one class of shares of a split share corporation. I wrote previously about how they work.

October 5, 2021
5:54 pm
savemoresaveoften
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Norman1 said
They are not selling shares.

Those preferred shares are one class of shares of a split share corporation. I wrote previously about how they work.  

If they try to make up short fall by writing options, that won’t work in a rising stock price environment either. But price seems stable for both classes ?

October 5, 2021
6:23 pm
canadian.100
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savemoresaveoften said
These 2 showed a 6.5% div yield and all they do is invest in NA FIs, which none of them currently pays that high a dividend.
And looking at their 5 year price history, they dont really break below $10.
I imagine all they do is sell some shares as they appreciate to fund the dividend shortfall and charge a MER in return for their "service" ? If so, it will only work in a rising share price environment.....  

I suspect the 6.5% is the distribution which is composed of dividend plus return of capital.
Check the detailed terms and conditions. A “distribution” is not the same as a dividend.

October 5, 2021
11:17 pm
Norman1
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If the preferred shares fund 10/25 of the cost of the financial institution shares and the Class A shares fund the remaining 15/25 cost, then the financial institution shares only have to yield around 2.6% to fund a 6½% dividend on the preferred shares:

(2.6% x [$10 + $15]) / $10 = 6.5%

October 7, 2021
4:23 pm
savemoresaveoften
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canadian.100 said

I suspect the 6.5% is the distribution which is composed of dividend plus return of capital.
Check the detailed terms and conditions. A “distribution” is not the same as a dividend.  

Return of capital can only happen when they sell shares. So back to what I think, there is no reason to pay them a MER each year for a relatively simple strategy one can easily replicate.

October 7, 2021
9:03 pm
Norman1
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One can't replicate that strategy by oneself.

How could one pay only $10 and receive the dividends on $25 of common shares without having someone else front the additional $15?

October 8, 2021
3:23 am
savemoresaveoften
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Norman1 said
One can't replicate that strategy by oneself.

How could one pay only $10 and receive the dividends on $25 of common shares without having someone else front the additional $15?  

Correct me if I am wrong. They are not ‘lending’ the investor $15 and only charge the MER on $25. They basically doing a leverage buy (put down $10 and buy the extra $15 on margin) with the investors bearing all the risk, if that is true, an investor can buy the stocks on margin to achieve similar return.

October 8, 2021
10:26 pm
Norman1
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Preferred shareholders provide $10. The Class A shareholders provide $15.

MER is correctly charged on the $25 total. There's no margin involved.

October 9, 2021
4:43 am
savemoresaveoften
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Norman1 said
Preferred shareholders provide $10. The Class A shareholders provide $15.

MER is correctly charged on the $25 total. There's no margin involved.  

Still don’t get it, neither TD common nor prefs have a dividend as high as 6.50%. How do they sustain paying 6.50% then. You mentioned covered call but that’s not sustainable either in a share appreciation environment. Every time they have to roll the call forward, bid/offer spread they have to pay away will eat into the enhanced yield from the option premium.

October 9, 2021
7:14 am
Bill
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If I understand, there are two classes of shares yet only one of them pays out all the dividends received from the underlying investments. So if you buy the shares that pay the dividends then you also get the dividends that the non-dividend paying class of shareholders are forgoing (in hopes of capital gain instead, which the dividend paying shares do not participate in). I stand to be corrected, but that's my understanding of what Norman1 explained.

October 9, 2021
8:47 am
Norman1
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It is as Bill described.

Two classes of shares issued by the split share corporation. The preferred class gets the dividends the other class doesn't receive. The other class gets the capital gains or losses the preferred class doesn't receive.

It looks like with Quadravest Capital's North America Financial 15 split corporation, the preferred shares receive the dividends of the underlying portfolio. The class A shares receive any increases in the dividends from and any capital gains/losses of the underlying portfolio.

The preferred shareholders of the split corporation receive amplified dividends. The class A shareholders receive amplified capital gains/losses.

October 9, 2021
9:01 am
savemoresaveoften
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Norman1 said
It is as Bill described.

Two classes of shares issued by the split share corporation. The preferred class gets the dividends the other class doesn't receive. The other class gets the capital gains or losses the preferred class doesn't receive.

It looks like with Quadravest Capital's North America Financial 15 split corporation, the preferred shares receive the dividends of the underlying portfolio. The class A shares receive any increases in the dividends from and any capital gains/losses of the underlying portfolio.

The preferred shareholders of the split corporation receive amplified dividends. The class A shareholders receive amplified capital gains/losses.  

I see, thanks for Bill and Norman for explaining. To give up the dividends, I assume the latter group receive a more than 1:1 capital gain / loss just like a leveraged long ?

October 9, 2021
11:32 am
Norman1
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Yes, that's what the latter group is hoping for: Leveraged capital gains plus any dividend increases.

October 9, 2021
12:30 pm
AltaRed
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https://en.wikipedia.org/wiki/Split_share_corporation is a pretty good read on Split Share corporations in general. Most retail investors really don't understand them and probably should stay clear.

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