FTN Financial 15 Split Corp
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Thread: FTN Financial 15 Split Corp

  1. #1
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    FTN Financial 15 Split Corp

    Can someone explain this please , what the hell is it and with a dividend distribution solid for years on end , why isnt everyone just pile $$ into it and collect the money ?

    I'm a newer investor with income based portfolio with some trading cash for the dips , but this one intrigues me to say the least .

    Thanks


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    Take $25 of dividend stocks, and split it into capital shares ($10) and preferred shares ($15). All the dividends go to the preferred shares, which will boost the yield from say 4% nominal on the underlying securities to 5.5%. They also typically sell put options to have further income. Any changes in the market value of the underlying securities will be reflected in the value of the capital shares. They are chartered for say 10 years with 5 year extensions possible, etc, and can eventually dissolve and return funds to the investors.

    Why people don't like them? First of all, many people are looking for total returns in excess of that, say ~7-10%, so preferred shares don't cut it. For "fixed" income, I suppose it's okay. But you can buy your own preferred shares from major companies at similar yield. Then you have less risk than the common dividends, no risk at all from the split corporation (fraud, etc), and you won't be paying anyone 1% management fees.

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    Thanks Kelaa , so is it an ETF or a mutual fund . I like equities and dabbled in ETF's but would rather have the underlying securities . I wasnt going with the preffereds just the common shares . So is there a MER on those ? I own the BMO Covered call Bank ETf and want out .

    I just think its odd with a dividend staying at the level its at , for years and barely any movement on actual stock price , why not own for the income .

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    Quote Originally Posted by spdr1812 View Post
    Thanks Kelaa , so is it an ETF or a mutual fund . I like equities and dabbled in ETF's but would rather have the underlying securities . I wasnt going with the preffereds just the common shares . So is there a MER on those ? I own the BMO Covered call Bank ETf and want out .

    I just think its odd with a dividend staying at the level its at , for years and barely any movement on actual stock price , why not own for the income .
    It's ETF, and it should have MER.
    But you can buy your own preferred shares from major companies at similar yield.
    I just don't want to have 15 preferred and prefer to hold DFN.PR.A (same provider as FTN.PR.A - just more diversified), not only financials like FTN . On the other hand FTN hold not only Canadian, but also US financials... for common shares I hold mostly individual stocks

    I own the BMO Covered call Bank ETf and want out .
    You cannot compare ZWB with FTN, as kella said FTN is more "fixed income",ZWB - not. I was holding ZWB when it just was launched, but soon soldit and was just buying banks common shares directly.

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    I wrote the wrong name for the options writing the split corp does. "Covered call" is the right one.

    For the split corps, whatever you do, it would be a bad idea to hold both the capital shares and the preferred shares together. The management fees will in the long run make the returns less than the underlying securities. I think when they are issued, they want to sell you a matched pair of shares. The fee is in the range of 0.75%. For $100k investment, that's $750 dollars per year. That'll cover a lot of trades, should you wish to buy securities yourself. I personally don't like paying this level of fees for Canadian equities.

    For yield in the that range, there are plenty of options (preferred shares, Enbridge Income Fund, Pembina/Veresen, Altagas, Alaris Royalty, The Keg Royalties, etc.). And if you don't need eligible dividends, then plenty of mortgage investment corps and REITs will even give you 8% yield.

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    For yield in the that range, there are plenty of options (preferred shares, Enbridge Income Fund, Pembina/Veresen, Altagas, Alaris Royalty, The Keg Royalties, etc.)
    I personally hold ENF, ALA,KEG from what you listed. Also hold DFN.PR.A for more diversification

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    Quote Originally Posted by kelaa View Post
    Take $25 of dividend stocks, and split it into capital shares ($10) and preferred shares ($15) ...
    The few I have looked at in enough detail are more like "buy for $25, split into capital shares ($12) and preferred shares ($17)". There's costs to setting up the underlying portfolio, releasing the prospectus, paying for the underwriter to make the brokers/clients aware of it etc. etc.

    Once it is up and running, then there's usually a fee for managing the porfolio.


    Quote Originally Posted by kelaa View Post
    ... All the dividends go to the preferred shares, which will boost the yield from say 4% nominal on the underlying securities to 5.5% ...
    Have you checked this?
    https://www.theglobeandmail.com/glob...article622696/

    Back in the late '90s when I first learned of the split share corporate structure, this was true. When I poked around in 2008 to find a way to leverage Canadian financial institutions, everything I looked at paid income to both the preferred and the capital shares. The difference I could find was that typically the capital share income could be suspended if the capital share's trading price dropped below a set point.

    The preferred shares, OTOH could not have their income suspended plus on wind-up, had to be paid out first. For example, if the vote was to wind up where the underlying portfolio could only payout out the preferred shares with nothing left for the capital shares - then the capital share holders would be paid nothing.




    Quote Originally Posted by kelaa View Post
    ... Any changes in the market value of the underlying securities will be reflected in the value of the capital shares.
    YMMV ... the TRP capital shares I bought should have been worthless but never traded below $1. As I felt there was enough time for management's moves to fix the problems (i.e. four years), after watching a while, I bought. In about the same time frame that the common shares doubled, the TRP capital shares went up six fold.


    Quote Originally Posted by kelaa View Post
    ... Why people don't like them?
    This is true ... but there's lot of other reasons as well.

    Some don't understand the structure so they stay away. Others understand the structure but don't like the liquidity or how hard it is to get a good feel for what the combination of shares are worth (especially if the capital shares are trading based on future hope instead of asset value).

    Some are confusing as one of the split corps had a one preferred to four capital shares structure.


    Cheers
    Last edited by Eclectic12; 2017-05-23 at 01:54 PM. Reason: added article link

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    This is true ... but there's lot of other reasons as well.
    imho, the major reason that people just not aware about such equities.... until DFN thread was published on CMF, I didn't have idea that trhey exist, even though I was invested into individual stocks and ETFs

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    Quote Originally Posted by gibor365 View Post
    Quote Originally Posted by spdr1812 View Post
    Thanks Kelaa , so is it an ETF or a mutual fund ....
    It's ETF, and it should have MER ...
    I guess it depends on one's definition ... I'd call it more of a custom mutual fund. I'd have to dig deeper to be sure but what little checking I have done sounds like the fifteen were custom selected instead of following someone's index.


    Quote Originally Posted by spdr1812 View Post
    ... I just think its odd with a dividend staying at the level its at , for years and barely any movement on actual stock price , why not own for the income ...
    Most are not aware of it and if they do find it - are intimidated by the structure that is harder to value / follow. Those looking to park some money for a while with a better yield who understand it, might use it.

    This article is one of the few talking about it and even then, it warns people away from the capital shares.
    https://www.theglobeandmail.com/glob...article622696/


    If I hadn't put a % into the capital shares in addition to buying common shares in 2008/2009, I would have missed the 240% return (plus 60% in income) versus the common shares that went up about 110%, with about 20% dividend income.

    I wouldn't want everything in it but at times, it can be a nice, cheap multiplier. Some of the common shares at cheapest were about $29 a share while the almost low I bought at was under $4.


    Cheers

  11. #10
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    Quote Originally Posted by gibor365 View Post
    imho, the major reason that people just not aware about such equities.... until DFN thread was published on CMF, I didn't have idea that trhey exist, even though I was invested into individual stocks and ETFs
    There have been few articles ... as I say, the first one I read was in the '90's.
    Throw in that many people are struggling with common and preferred shares for run of the mill companies.


    But there are lots of split share corps out there.
    http://www.scotiamanagedcompanies.com/smc/home.do (five including a BNS split).
    http://www.quadravest.com/productsgallery (around eleven splits or so).



    The other wrinkle that intimidates people is the expiry date. Figuring out the prospects seems to be a challenge, without the possibility of a windup in four or six years time. Most I have held have voted to extend instead of wind up.


    Cheers


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