North American Financial 15 Split Corp T.FFN

Is this and other Quadravest investments a dividend trap?

[Sanderz]

Referring to the Class A shares (not preferred shares),   I see that this, along with a few other Quadravest funds/stocks, have super high dividend yields at the moment.  I understand some of these are under the NAV, but investing now while the yield i s high seems like a good idea for the future.

However, are these just dividend traps?  They say if a yield is high, it can be a dividend trap, and that if it's too good to be true it probably is.

Just want to get some people's opinions and insight here.

I bought just a small position here yesterday, for now

[chessplayer]

I think you should do a bit of research on split shares before dipping any further. In this case, I hope you understand that this stock will not pay any distribution before the NAV reaches 15$ and that currently you would be paying a premium to the real value of the shares that compose the portfolio. If I were I would look at splits that pay distribution and that are trading at a discount to NAV

[amugsgame]

Exactly as Chessplayer said!. The dividend trap is not understanding the split fund structure. Once understood the funds can be played long/short to healthy profits. 

[Sanderz]

I appreciate what you and chessplayer both said. Here is what I understand about the split fund structure so far: Class A shareholders get paid if the unit nav is above $15 Preferred shareholders get paid regardless/first Class A shareholders can go many periods without receiving anything (ie. Until NAV is above $15) These funds are a basket of holdings that quadravest holds, instead of being a

[Gongshow44]

Yes correct....but only be aware that Quadravest could consolidate the Class A shares (they did this with FTN about 18 months ago).  If they pulled the same maneuver your yield would drop down to about 12% . 

[Sanderz]

Didn't know that about FTN. Thanks for letting me know. And did they do it because the NAV was too low or what? Even a 12% yield isn't too bad but it's sure a far cry from 30

[Sanderz]

I just read the news release to see why ftn did the share consolidation. Well hopefully that doesn't happen here, but we'll see. Thank you for the heads up

[chessplayer]

The key to understand split shares is to understand that prefs pay dividends, but commons pay distribution which is basically a return of the capital of the shares held in the fund. If the shares in the fund do not appreciate at a pace greater than the value of what is being paid to the prefs, there will be no value creation for the commons. 

[Bigalex]

If i'm not wrong the split funds use options trading / covered calls to generate more value and being able to paid more than the 6% market sustainable yield.

[mouserman]

You only make money on options if you guess the timing for  the direction of the covered calls. If too high they expire worthless, but you still own the stocks that have lost a big %.  

[PileOfShit]

This post has been removed in accordance with Community Policy

[mdoldon]

How is it a trap?  Buyers  of covered calls are by definition gamblers.  I'm not sure that calling them bearish necessarily applies.  Isn't it their choice whether they bid for them?

[ClydeTower]

"...Buyers  of covered calls are by definition gamblers..." - Sorry, but that makes no sense.