Q: XTD is a split share corp that invests in shares of TD bank. TD has had some issues but is now seen as somewhat undervalued, with good potential upside. XTD, currently at $4.00, pays a 15% dividend, monthly, as long at the net asset value is above $12.50. It is currently at 12.95. The risk would seem to be the risk that the TD stock underperforms. Would appreciate your thoughts.
GUY
GUY
5i Research Answer:
Yes, that is the risk. The corp. uses leverage to enhance yields on its class A shares. Its five year return is negative 1.94%, so it is hard to endorse it on that alone. It has already skipped two dividends this year, and missed 10 payments in 2020. Dividends simply stop if NAV is not above the stated level (i.e. they are not reduced, they go to zero). With the above notes, fees on this structure, and assets of only $13M, we cannot in any way endorse it.