{"id":46393,"date":"2024-02-10T14:02:07","date_gmt":"2024-02-10T19:02:07","guid":{"rendered":"https:\/\/prefblog.com\/?p=46393"},"modified":"2024-02-10T14:02:07","modified_gmt":"2024-02-10T19:02:07","slug":"exploring-the-hidden-risks-of-high-yielding-products","status":"publish","type":"post","link":"https:\/\/prefblog.com\/?p=46393","title":{"rendered":"Exploring the hidden risks of high-yielding products"},"content":{"rendered":"

Thanks to John Heinzl for quoting me in his recent piece Exploring the hidden risks of high-yielding products<\/a>:<\/p>\n

Covered call writing may work well in flat or falling markets, but in general it does more harm than good, critics say.<\/p>\n

\u201cI consider the \u2026 strategy to be a gimmick to snare the unwary,\u201d James Hymas, president of Hymas Investment Management Inc., said in an e-mail. \u201cI have never seen any evidence whatsoever that any single one of these covered call enthusiasts are any good at writing and trading options. And if you\u2019re not good at it you will give up more in foregone capital gains than you gain in option premia.\u201d
…<\/b>
In contrast, split preferred dividends are generally safe. In FTN.PR.A\u2019s case, however, there\u2019s an added wrinkle: The manager, Quadravest Capital Management Inc., has hiked the dividend on the preferreds three times in the past four years, by a cumulative 68 per cent. That\u2019s an enormous increase, and it\u2019s the reason the preferreds now yield north of 9 per cent, based on annualizing the most recent monthly dividend.<\/p>\n

\u201cI believe that Quadravest boosted the preferred share dividend to such a high level because they wanted to keep the preferred share price high\u201d to facilitate the sale of additional shares through the company\u2019s \u201cat-the-market equity program,\u201d Mr. Hymas said. The ATM, which the company renewed in December, allows Financial 15 Split to issue shares to the public from time to time at the company\u2019s discretion.<\/p>\n

But here\u2019s the thing: The dividend \u2013 which is currently about 7.7 cents a month or 92.5 cents annually \u2013 won\u2019t necessarily remain at its current level forever. The dividend rate is set annually at the discretion of the board and is subject only to a minimum yield of 5.5 per cent until 2025, when the split corporation is scheduled for termination on Dec. 1 of that year (subject to a further five-year extension).<\/p>\n

If Quadravest were to cut the preferred dividend to the minimum of 5.5 per cent (based on the issue price of $10) in December, 2024, investors who hold the shares from now until maturity in December, 2025, would have an effective annual yield of just 6.75 per cent, Mr. Hymas said.<\/p><\/blockquote>\n","protected":false},"excerpt":{"rendered":"

Thanks to John Heinzl for quoting me in his recent piece Exploring the hidden risks of high-yielding products: Covered call writing may work well in flat or falling markets, but in general it does more …<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[19],"tags":[],"class_list":["post-46393","post","type-post","status-publish","format-standard","hentry","category-press-clippings"],"_links":{"self":[{"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/posts\/46393","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/prefblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=46393"}],"version-history":[{"count":0,"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/posts\/46393\/revisions"}],"wp:attachment":[{"href":"https:\/\/prefblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=46393"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/prefblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=46393"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/prefblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=46393"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}