DBRS has announced that it:
downgraded its credit rating on the Preferred Shares (the Preferred Shares) issued by Global Dividend Growth Split Corp. (the Company) to Pfd-3 from Pfd-3 (high). The rating downgrade reflects the completion of a stock split of the Class A Shares (Share Split), negative dividend coverage ratio, extension of term and a projected grind of 8.4% per year over the next five years. Brompton Funds Limited (Manager) is acting as the manager for the Company.
The Company invests in a portfolio of equity securities of large capitalization global dividend growth companies (the Portfolio). As of April 30, 2026, the Portfolio was invested in 35 equity securities across 11 different sectors, including information technology (20.1%), financials (17.7%), industrials (13.5%), healthcare (10.8%), consumer discretionary (7.7%), consumer staples (6.1%), energy (5.7%), materials (4.4%), real estate (4.4%), utilities (3.0%) and communication services (2.2%). To qualify for inclusion in the Portfolio, each global dividend growth company must have (1) a market capitalization of at least $10 billion and (2) a history of dividend growth or the potential for future dividend growth.
As of April 30, 2026, 90.0% of the Company’s net asset value was denominated in currencies other than Canadian dollars. The foreign currency exposure is substantially hedged back to the Canadian dollar. In addition to, or instead of, investing directly in equity securities of global dividend growth companies, the Company may invest a portion of the Portfolio’s assets in exchange-traded funds that provide exposure to global dividend growth companies, including exchange-traded funds managed by the Manager.
The current issued and outstanding Preferred Shares and Class A Shares have a maturity date of June 30, 2026. On August 12, 2025, the Company’s board of directors approved a 5-year extension, setting the maturity date to June 27, 2031. In connection with such extension, shareholders may retract their Preferred Shares or Class A Shares on June 30, 2026, pursuant to a special retraction right.
The holders of Preferred Shares are currently receiving fixed cumulative quarterly cash distributions of $0.125 (or $0.50 annually) per share, representing a 5.0% per annum return on the issue price of $10.00. The Company announced that the distribution rate of the Preferred Shares will increase to 6.20% for the extended term from July 1, 2026 to June 27, 2031.The holders of the Class A Shares receive regular monthly noncumulative distributions targeted to be $0.10 per Class A Share to yield 10.0% per annum on the issue price of $12.0. No monthly distributions to the Class A Shares will be made if (1) distributions to the Preferred Shares are in arrears or (2) in respect of a cash distribution, the net asset value (NAV) of the Company falls below 1.5 times (x) the principal amount of the outstanding Preferred Shares.
On April 27, 2026, the Company announced a Share Split, Class A shareholders of record at the close of business on May 11, 2026 received 15 additional Class A Shares for every 100 Class A Shares held. Class A shareholders will continue to receive the same regular monthly non-cumulative cash distributions (currently $0.10 per Class A Share) following the Share Split. As a result, the net asset value (NAV) per unit (one notional Unit: consists of one Preferred Share and one Class A Share) declined to $22.50 as of May 11, 2026 from $23.52 as of April 30, 2026.
The downside protection available to the Preferred Shares was 55.2% as of May 11, 2026. The dividend coverage has continued to deteriorate over the past three years, and is currently negative, at approximately -0.02x. The negative dividend coverage indicates that the current dividend income earned by the Company is not enough to fully cover the targeted distributions on the Preferred Shares, which increases the reliance on the Manager to generate a high yield to meet distributions and other expenses without having to liquidate portfolio securities. To supplement the Portfolio income, the Company may engage in securities lending or covered call and put options writing on all or a portion of the shares held in the Portfolio. Without giving consideration to capital appreciation potential or any source of income other than the dividends earned by the Portfolio, the Preferred Share distributions together with the current distributions on the Class A Shares will create a projected grind on the NAV of the Portfolio of approximately 8.4% per year over the remaining term. However, the grind in the portfolio is mitigated by a 1.5x NAV test.
Considering the level of downside protection, Share Split, negative dividend coverage ratio, extension of term and a projected grind of 8.4% per year over the next five years, Morningstar DBRS downgraded the credit rating on the Preferred Shares issued by the Company to Pfd-3 from Pfd-3 (high).
The main constraints on the credit rating are the following:
(1) Volatility in stock prices, along with changes in the dividend policies of the underlying issuers, may result in significant reductions in the Preferred Shares’ dividend coverage or downside protection from time to time.
(2) Dividends and interest received on the Portfolio are currently unable to fully cover distributions on the Preferred Shares.
(3) The Company relies on the Portfolio manager to generate additional income, through option writing, to meet distributions and other trust expenses without having to liquidate Portfolio securities.
(4) Stated monthly distributions on the Class A Shares will likely create a grind on the Portfolio. This risk is mitigated by an asset coverage test of 1.5x that ensures sufficient levels of downside protection to the holders of the Preferred Shares.
Morningstar DBRS’ credit ratings on the applicable classes address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. Where applicable, a description of these financial obligations can be found in the transactions’ respective press releases at issuance.
The Capital Unit split and dividend reset was reported on PrefBlog.