Please Note: Blog posts are not selected, edited or screened by Seeking Alpha editors.

Discounts And Premiums On Capital Shares - March 15, 2018

|Includes: Dividend 15 Split Corp. (DVSPF), FNNCF, LFBCF, TDBSF
Summary

There are few discounts available in Canadian Split Share Corporations.

Listing of Class A shares not currently making distributions.

The following tables list the Capital shares of Split Share corporations (prices as of March 15, 2018), broken down into three sections:

  • Trading at a discount to NAV (Net Asset Value)
  • Trading at a premium to NAV
  • Under the NAV threshold for paying a dividend

Capital shares trading at a discount to NAV:

Symbol NAV Price Dis/Prem Dist Yield NAV Coverage NAV Cvg
SBN $9.12 $7.75 -15.02% $0.08 13.04% $9,353,253 1.91
TXT.UN $4.57 $4.25 -7.00% $0.08 7.92% $5,470,565 1.38
FCS.UN $5.64 $5.25 -6.91% $0.06 13.71% $6,373,397 1.56
OTC:TDBSF $6.98 $6.66 -4.58% $0.05 9.19% $23,638,887 1.70
PIC.A $7.83 $7.81 -0.26% $0.20 10.41% $78,262,346 1.52
Symbol Reliability Net Assets
SBN 100.00% $19,609,013
TXT.UN 100.00% $19,806,428
FCS.UN 100.00% $17,673,747
XTD 81.89% $55,969,298
PIC.A 100.00% $228,190,211

While it may look like TXT.UN is under the NAV threshold of $5 that many split funds operate under, it does not have that condition, pays a smaller distribution and has done so since inception in 1997. TXT.UN, along with PIC.A, are the two of the longest running split share funds.

These funds have a very good record of maintaining their distributions, as can be seen from their reliability scores.  Reliability is calculated by how many months the funds have been running, and how many months distributions were made.

While XTD has missed some monthly distributions, that was nearly five years ago and it has been steady ever since.  

  • XTD and SBN are single stock funds of TD Bank and Scotia Bank respectively.
  • TXT is a fund of six Canadian banks and four life Canadian insurance companies.
  • FCS is a range of (at least 25) dividend paying companies
  • PIC.A is six Canadian banks.

These offer the best deals on share price as they are trading below their NAV, and with the exception of PIC.A are among the smallest of the currently available split share funds.

NAV Coverage is a measure of the value of funds above the value of the Preferred shares. This indicates how likely it is for distributions to be made to the Capital shares. The greater the coverage, the better.

Capital shares trading at a premium to NAV:

Symbol NAV Price Dis/Prem Distribution Yield NAV Coverage NAV Cvg
SBC $14.23 $14.50 1.90% $0.10 8.28% $73,127,616 1.62
BK $13.15 $13.82 5.10% $0.12 10.25% $67,365,105 1.54
OTC:LFBCF $9.61 $10.11 5.20% $0.10 11.87% $104,533,608 1.31
FFN $8.40 $9.10 8.33% $0.10 13.19% $52,409,198 1.23
LCS $6.35 $7.00 10.24% $0.08 12.86% $10,320,462 1.09
PDV $7.17 $8.15 13.67% $0.07 10.26% $2,589,374 1.14
OTC:DVSPF $8.71 $10.68 22.62% $0.10 11.24% $162,691,195 1.25
DGS $6.08 $7.56 24.34% $0.10 15.87% $36,850,283 1.07
OTC:FNNCF $8.42 $10.55 25.30% $0.13 14.30% $105,475,951 1.21

Trading at a premium to NAV means a buyer is paying more than the intrinsic worth of the security. That the two highest shares demanding a premium also have the highest yields indicates that there is a strong market for high monthly dividend payers. The top three (the highest premiums at the bottom of the table) also are the largest funds of all those listed. Those in the greatest demand indicated by higher premiums do not necessarily have greater NAV coverage.

Capital shares under the NAV threshold for paying a dividend:

Symbol NAV Price Dis/Prem Dist Yield NAV Coverage NAV Cvg
WFS.UN $4.92 $4.60 -6.50% $0.08 26.09% -$164,849 0.99
DF $4.95 $7.22 45.86% $0.10 16.62% -$821,711 0.997
LFE $4.85 $5.42 11.75% $0.10 22.14% -$2,224,543 0.99
OSP $3.74 $5.80 55.08% $0.10 20.69% -$3,724,779 0.92
FTU -$0.20 $0.96 N/A $0.00 0.00% -$14,602,593 0.65
XMF -$2.18 $0.33 N/A $0.00 0.00% -$22,603,997 0.52
YCM $2.32 $1.85 N/A $0.00 0.00% $0 0

The yields may look great on these funds, but it means little if there are no distributions.

  • WFS.UN - no distributions since September 2008
  • DF - no February or March 2018 distributions, yet there is still a 45% premium on the shares. This fund could certainly recover, but at 45% premium, there are better choices
  • LFE - also no February or March 2018 distributions, but a much more modest premium in comparison at 11.75%, but poor record at 48.05%. Again, there are better choices.
  • OSP - also no February or March 2018 distributions, but a very curious 55.08% premium for a fund that missed 5 payments in 2017 and 2 of 3 in 2018.
  • FTU - has been underwater for quite some time and has even missed dividends on the Preferred side of the split as well. NAV has recently been increasing such that the Preferred shares will be covered (i.e. the NAV on the Preferred is currently $9.80, which is $0.80 higher than since the start of 2018 and will soon surpass $10 at which time the Class A shares will have a positive value.
  • XMF - Class A distributions were made for the first 18 months of the existence of the fund, but none since.
  • YCM - Has yet to make a distribution on the Class A shares

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.