Many thanks to Steven Bavaria at Seeking Alpha for outlining his approach. His articles can be found on Seeking Alpha.
Here are some quotes from some of Steven's articles which form the basis this portfolio:
Capital appreciation comes at a price for the income-focused investor. Preference for cash-income over capital gains to both:
- Maximize the internal rate of compounding generally, and
- Minimize the prices paid for assets bought with re-invested funds
I think of my investment portfolio as essentially a "factory." Unlike a conventional factory, this one doesn't produce physical goods, but rather produces an income stream.
As long as my factory is growing each year and producing more income, I don't really care too much how the market values the factory.
Another author on Seeking Alpha using this approach is High Yield Investor:
With the DGI method the capital growth may actually obstruct income. This happens because shares become more expensive during reinvestment and wealth building is accomplished through share price appreciation. With a 4% yield and 6% growth rate the share price should appreciate 6% per year and new shares acquired at 4% yield will be fewer because price has increased.
The HYI method increases income because price remains low while reinvestment takes place. This time wealth building is accomplished through share count increases while price is relatively fixed. With a 10% yield and 0% growth rate the share price stays the same, and more shares are acquired over time.
High Yield Investor has created a portfolio of BDCs and MREITs. His articles can also be found on Seeking Alpha.
How will such a portfolio based on Canadian Split Share Corporations fare? How risky is high yield investing? One way to find out is to paper trade.
In line with this approach, here are the Splilt Shares that will be initially followed:
| Ticker | Name | Price | Yield |
| DF | Dividend 15 Split Corp. II Class A Shares | $5.59 | 21.47% |
| DFN | Dividend 15 Split Corp. Class A Shares | $10.16 | 11.81% |
| DGS | Dividend Growth Split Corp. Class A Shares | $7.03 | 17.07% |
| FCS.UN | Faircourt Split Trust | $5.10 | 14.12% |
| FFN | North American Financial 15 Split Corp. | $8.82 | 13.61% |
| FTN | Financial 15 Split Corp. Class A Shares | $10.03 | 15.07% |
| FTU | US Financial 15 Split Corp. | $0.65 | 0.00% |
| GDV | Global Dividend Growth Split Corp Class A | $11.00 | 7.52% |
| LBS | Life & Banc Split Corp. Class A Shares | $9.45 | 12.70% |
| LCS | Brompton Lifeco Split Corp. Class A Shares | $6.30 | 14.29% |
| LFE | Canadian Life Companies Split Corp. | $3.96 | 30.30% |
| OSP | Brompton Oil Split Corp. Class A Shares | $6.61 | 18.15% |
| PDV | Prime Dividend Corp. (Quadravest) | $7.40 | 10.70% |
| PIC.A | Premium Income Corporation Class A Shares | $7.85 | 10.35% |
| PRM | Big Pharma Split Corp. Class A Shares | $12.30 | 10.05% |
| SBC | Brompton Split Banc Corp. (Brompton Group) | $14.00 | 8.57% |
| SBN | S Split Corp. Class A Shares | $6.72 | 7.50% |
| TSE:BK | Canadian Banc Corp. Class A Shares | $12.31 | 11.21% |
| TSE:XMF.A | M Split Corp | $0.24 | 0.00% |
| TXT.UN | Top 10 Split Trust | $3.80 | 8.86% |
| XTD | TDb Split Corp (Quadravest) | $6.70 | 8.96% |
Here is the share count, cost, expected monthly income and percentage of total income. The income averages $230.66 monthly, due to PIC.A and TXT.UN paying quarterly. The % income is if all symbols paid what they were expected to pay. Actual % will vary due to some not meeting the NAV thresholds. Their percentages will decrease as the portfolio grows and their relative share decreases.
| Ticker | Shares | Cost Basis | Monthly | % Income |
| DF | 100 | $880.00 | $10.00 | 4.34% |
| DFN | 100 | $1,083.00 | $10.00 | 4.34% |
| DGS | 100 | $807.00 | $10.00 | 4.34% |
| FCS.UN | 200 | $1,196.00 | $12.00 | 5.20% |
| FFN | 100 | $870.00 | $10.00 | 4.34% |
| FTN | 100 | $1,029.00 | $12.60 | 5.46% |
| FTU | 100 | $89.00 | $10.00 | 4.34% |
| GDV | 200 | $2,300.00 | $13.78 | 5.98% |
| LBS | 100 | $996.00 | $10.00 | 4.34% |
| LCS | 100 | $715.00 | $7.50 | 3.25% |
| LFE | 100 | $637.00 | $10.00 | 4.34% |
| OSP | 100 | $615.00 | $10.00 | 4.34% |
| PDV | 200 | $1,590.00 | $13.20 | 5.72% |
| PIC.A | 200 | $1,546.00 | $13.55 | 5.87% |
| PRM | 100 | $1,415.00 | $10.30 | 4.47% |
| SBC | 100 | $1,442.00 | $10.00 | 4.34% |
| SBN | 300 | $1,335.00 | $12.60 | 5.46% |
| TSE:BK | 100 | $1,392.00 | $11.50 | 4.99% |
| TSE:XMF.A | 400 | $196.00 | $12.40 | 5.38% |
| TXT.UN | 400 | $1,780.00 | $11.23 | 4.87% |
| XTD | 200 | $1,304.00 | $10.00 | 4.34% |
| Totals | 3,400 | $23,217.00 | $230.66 | 100% |
With purchases dated December 27, 2017, the cost of the portfolio is $23,217.00.
After six months of receiving and holding distributions in cash, the results are:
| Capital In | Reinvested | Cost Basis | Returns | % | Annualized | ||
| $23,217.00 | $0.00 | $23,217.00 | Cash Return | $1,031.10 | 4.44% | 8.88% | |
| Yield on Capital Invested | 11.92% | Cap Gain/L | $1,254.00 | 5.40% | 10.80% | ||
| Yield on Cost Basis | 11.92% | Total Return | -$222.90 | -0.96% | -1.92% | ||
| Current Yield | 12.60% | ||||||
Of note in the Returns figures above are that while the yields are above 10%, the annualized cash return is below 10%. This is due to the fact that not all stocks received distributions which put a performance drag on the portfolio.
They are included to show that high yield does not always translate into income when certain conditions are not met. In the case of split share corporations those conditions are generally a NAV (Net Asset Value) above $15. Investors unaware of these conditions will find themselves with what they thought were high yield securities, but are in fact idle capital.
FTU and XMF.A received $0, DF and LFE received $10 each and OSP paid 3 months out of six for a total of $30. GDV was just launched by Brompton in June, so the first distribution is yet to be received.
DF and LFE were included in this portfolio, as they may resume paying in the near future. WFS.UN, YCM and BSD.UN have either never paid or haven't paid in many years, so were not included. FTU and XMF are included as wildcards. They will not likely pay distributions again, but they may be capital gains plays. In any case, they are longshots. FTU is scheduled to terminate December 1, 2018, XMF in December of 2019.
From this point forward, a weekly purchase will be made and distributions will be reinvested when available. Only those companies paying a distribution will be considered going forward which will increase the portfolio performance.
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