Q: Your thoughts on this new ETF ...Harvest Premium Yield Canadian Bank ETF. It's info sheet indicates it "is designed to deliver twice monthly cash distributions with an opportunity for long term growth. This ETF provides investors access to a portfolio of leading Canadian bank equities with strong fundamentals and growth potential."
I know it is new but the dividend of 7 cents twice a month (pls confirm my number is correct) is very compelling ... However, less so if the payout is simply going to be 50% or more as ROC.
I know it is new but the dividend of 7 cents twice a month (pls confirm my number is correct) is very compelling ... However, less so if the payout is simply going to be 50% or more as ROC.
5i Research Answer:
It is true that HPBY pays a twice-monthly cash distribution of $0.07 per unit, implying around a 14% annual yield. The vast majority of HPBY’s holdings are in the Big Six Canadian banks, currently around 65% of the equities. In addition, the fund also uses strategies to drive income through covered calls, leverage, and some return of capital. With consistent ROC, investors are essentially getting their money back, and in flat/down years, that would be a large component supporting the yield.
Overall, this is partly financial engineering, not just pure yield. We think investors can still hold it in the portfolio, but with limited exposure. Investors can view it as a leveraged bet on Canadian banks.