Dividend 15 – Timing is King

I can only speak for Dividend 15 (DFN) because I own it. I’m not here to recommend you buy it. But if you’re thinking about it, there are four things to consider:

  1. DFN paid distributions through the 08-09 recession.
  2. Do not expect any capital appreciation.
  3. Hold in TFSA only (tax purposes: not all payouts are eligible dividends)
  4. Wait for a pull back.

Let’s look at the chart again.

With a stock like this, the best time to purchase is after a sharp and significant decline in price. In 08/09 that decline lasted a year, but every other time since then it only took a month or so to rebound. I purchased DFN recently around the $9 mark, which was just after the drop and rebound in December 2018. A few weeks later, an overnight offering was placed for $8.75 – this means the fund offered more shares to insitutional investors at $8.75 a week or two after I purchased at $9.15, essentially costing me $0.35 on the dollar that I’ll need to recoup from distributions. My timing was off. Had I purchased near the bottom around $7, I would still be ahead with a dollar buffer for support.

How do I know where the bottom is?
Essentially you have to play the chart – wait for it to finish dropping and begin a multi-day rise in price. You can also consider the Net Asset Value of the stock. In a nutshell, that means subtracting all liabilities from assets and dividing it by the total number of shares. I prefer looking at the chart than NAV as I do believe DFN will continue to pay out even in a recession. This has not been true of FFN or some of their other funds.

You can find a lot of information on the drawbacks of split funds by searching online, and I’ve already mentioned a couple: no increase in stock price and the downside of overnight offerings reducing your position. However, if you wait for a significant dip in price, that’s the time to buy – wait for the stock to finish its downtrend and begin increasing again. It is a pure chart and technical play, nothing fundamental about it.

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