Is DFN Stock a buy?

Investors looking to boost their dividend income could do well by owning Dividend 15 Split (Dividend 15 Split Stock Quote, Charts, News, Analysts, Financials TSX:DFN). 

It’s a closed-end fund on the Toronto Stock Exchange which aims at giving investors access to a number of dividend-paying Canadian stocks, with holdings in sectors such as financials, telecom and energy — typically spaces with high-yield names.

DFN has been pretty steady over the past half-decade, minus a drop in early 2020 that marked the COVID-related, market-wide pullback. Since early 2018, the stock has returned about negative 27 per cent, with the past 12 months seeing a return of negative 15 per cent. 

But the movement in share price is not really the point of owning something like DFN, where dividends are the name of the game.

“These are hybrids. They’re creations by the big brokerage companies, usually the ones owned by the banks, like Wood Gundy and Nesbitt Burns and RBC Dominion. And what they attempt to do is enhance yield by splitting off the growth portion of the stock from the yield paying part of the stock. And generally they’ve been quite successful at that,” said portfolio manager David Baskin on a BNN Bloomberg segment last year.

“It’s a way to enhance your yield. But you have to understand that usually you’re giving up growth opportunities,” he said. “There are fees involved both in creating it and running it, which make it somewhat less attractive. We don’t own them here. But for a retail investor who wants to increase their yield, it’s not a bad idea.”

Formed in 2004, DFN is managed by Quadravest Capital Management, which manages 12 funds in total with total assets under management of about $4.5 billion. Over the past few years, DFN completed a number of share buybacks, while the overall aim of the Class A Shares are to pay out to investors regular monthly cash dividends targeted at $0.10 per share.

By weight, DFN’s primary holdings start with Royal Bank, TC Energy, BCE, Manulife, TD, Sun Life and BMO, with 15 holdings in total and all of the securities representing between four and eight per cent of the net asset value.