Longevity nod goes to Dividend 15

For people over a certain age, longevity is generally considered a desirable quality.

When i t comes to the world of structured products — a world that, judging by the volume of new issues each year, seems to be shrinking — the longevity award goes to Dividend 15 Split Corp.

If nothing else, the issuer is a survivor given that it is the offspring of four previous issuers, all of which were managed by Quadravest Capital Management, and three of which have either been wound up or merged.

At wind- up time, nearly 100 per cent of the shareholders of the three funds – known as Streams 1, Streams 11 and Streams 111 – voted to merge with Dividend 15. Presumably it survived because one group of investors are motivated to receive the income flow (paid at the rate of $ 0.10 a month, or a 10-per-cent yield, a payment that has never been missed) and another by the possibility of capital gain. Typically, institutional investors own the preferreds while retail investors own the capital shares.

Because of all the mergers and acquisitions activity surrounding Dividend 15 Split, the issuer, based on the votes of its shareholders, has extended its termination date to at least December, 2019. After that date, the board can extend the termination date for “further terms of five years each.” At wind- up time, shareholders can also ask to get their money back if they desire.

And as a result of those mergers — and given that the issuer raises new capital every so often — Dividend 15’s market cap is now about $ 750 million. In the spring of 2015, it raised $94 million and added another $ 48 million last June.

This week the company, which was incorporated in 2004, but whose predeces- sor companies date back to 2001, filed a prospectus for a $ 64- million offering. The offering is split equally between 3.056 million preferred shares and 3.056 million Class A shares.

The proceeds from the offering will be used to invest in a portfolio of 15 Canadian companies. Apart from a few exceptions the stocks that the managers are allowed to invest in are very similar to the list that it was given in 2004.

Dividend 1 5’ s growth to $ 750 million has been steady, given that it started with $ 243 million on its initial public offering nearly 13 years ago.

It is considered the country’s largest split- share company. That progress is also unusual given that split- share issues, where one group of investors buys the income security and another buys the capital security, tend to drift toward zero market cap.

Dividend 15 is one of small number of listed issuers whose strategy is based on investing in a group of stocks where income is boosted by selling covered call options, an approach that limits the downside, but also caps the upside.

Such structures were popular among retail investors almost 20 years ago, but faded from the scene because the structure overpromised and under- delivered.

So what’s next? As things stand, investors can sit back and wait until 2019 to see what the manager — who gets paid an administration fee, a service fee and a management fee — decides.