Q: I want to give my take on DFN, a split share investment vehicle. I realize 5i and probably every other good financial advisor does not favor this vehicle and would not buy this for their clients. Yet people are buying this product every day.
Please let me know how sound these thoughts are or if you have anything to add.
As an investment DFN is a road full of potholes. For one thing, the dividend could be cut off completely for as long as two years, although DFN has never discontinued its dividend. Along with that, the share price could plunge 30% or more. As well, the share price will probably degrade over the years.
Who would benefit from DFN? Someone who absolutely needs the 11% dividend every month in order to pay the bills.
However, they need to be cushioned against the potholes. They need a mental cushion that will allow them to withstand sharp drops in the share price, as well as survive a disappearance of the dividend for possibly as long as two years.
Therefore, besides the right mental attitude, they need a cash back-up that would replace an absence of the dividend for two years. On a 100k investment they would need about 20k in cash to replace two years of cancelled dividends.
They also need to realize that at the end of the day, perhaps only half of their original investment may be passed on to heirs.
I can see people in their 70s and 80s who are prepared for the aforementioned potholes buying DFN, so there may be a demographic tailwind holding up DFN for the next several years. Thank you for allowing my view to be heard, and I appreciate your response.
Please let me know how sound these thoughts are or if you have anything to add.
As an investment DFN is a road full of potholes. For one thing, the dividend could be cut off completely for as long as two years, although DFN has never discontinued its dividend. Along with that, the share price could plunge 30% or more. As well, the share price will probably degrade over the years.
Who would benefit from DFN? Someone who absolutely needs the 11% dividend every month in order to pay the bills.
However, they need to be cushioned against the potholes. They need a mental cushion that will allow them to withstand sharp drops in the share price, as well as survive a disappearance of the dividend for possibly as long as two years.
Therefore, besides the right mental attitude, they need a cash back-up that would replace an absence of the dividend for two years. On a 100k investment they would need about 20k in cash to replace two years of cancelled dividends.
They also need to realize that at the end of the day, perhaps only half of their original investment may be passed on to heirs.
I can see people in their 70s and 80s who are prepared for the aforementioned potholes buying DFN, so there may be a demographic tailwind holding up DFN for the next several years. Thank you for allowing my view to be heard, and I appreciate your response.
