RE:How FFN Pays 22% YieldAnd on top of all of that don't forget it's the commons that pick up the tab for the fund fees and cost, MER, regardless if they are being paid a dividend or not, provided the NAV of the commons is above zero of course. If, and only if, the NAV of the commons fell to zero (all Quadravest's) then the preferreds would start to pay the costs PileOfShit wrote: FFN investors mistake yield for return. On average, a large portion of FFN’s dividend is funded by NAV erosion, i.e. return of capital. Presumably, FFN generates at most 9% real return based on combined NAV. If the combined NAV stayed at 15.01, it could generate 1.351 (15.01 x 0.09) in real return per year, of which 0.675 goes to preferred shares, leaving 0.676 for common shares. But the common dividend is fixed at 1.36 per year, so 0.684 (1.36 – 0.676) has to be taken from the NAV to make up the shortfall. When the combined NAV was 15.01 (May 31), FFN’s price was $6.07, for a real yield of 0.676 ÷ $6.07 = 11.1%. Only by taking 0.684 from the NAV to pad the dividend to 1.36 could the yield be inflated to 22.4%.
About that 9% real return: ZWB (covered call Canadian banks ETF) yields 6.5% and ZWK (covered call US banks ETF) yields 7.6%, so a presumption of 9% real return is generous. The most surprising aspect of FFN is that the weighted average dividend yield of its holdings is only 3.0%, so a lot of call option magic and capital gains have to happen to pay the common shares.