RE:Anyone here unhappy with DFN?raptorsfan wrote: I'm like Chaz Brown. I'm sort of enamoured of split dividends. I bought some DGS and realized that it can be pretty bleak if it drop below threshold to pay div so now i'm eyeing DFN. Seems like this is the most dependable split out there.
I value the groups thoughts / comments / musings / etc
Consider this:
With the price of DFN at $8.99 and a NAV of $17.79, an investor is buying access to the gains of $17.79 worth of stock for $8.99. That is about 50% leverage.
The iShares S&P/TSX 60 Index ETF (XIU.TO) holds the top 60 companies on the TSX by market cap. It has a YTD return of 16% with a yield of 2.91%. If that were leveraged 50% the return on capital would be near 35%. After the cost of leverage at 5.25% that leaves a net return of about 32%, more than double that of DFN.
The difference is in the down years. When XIU is negative, the cash return is about 3%, capital lossess have ranged from 7% to 31%. It would be a long year looking at red in one's account.
DFN can pay regularly as it builds up a surplus in the good times. It works somewhat like an annuity, paying the same every year regardless of what the market does. In 2016 XIU gained 21% while DFN paid around 12%. The upside is capped in order to pay through the down years. In 2015 and 2018 XIU lost 7% while DFN continued to pay $0.10 every month.
For those who want a steady income without having to manage buying and selling, DFN makes it easy.
Leveraging XIU would likely make better returns, but the dividend income would be quite small in comparison and would have to be supplemented with selling shares each year to match the income from DFN. In addition, one likely will have to live through periods of negative returns. While DFN does have some volatility, it is inconsequential in comparison.