Dividend Growth Split Corp. massive yield on a falling price

Aug 28th, 2015 – 1 Comment

Selling pressure preceded the market selloff in August


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Lou Schizas is an equities analyst, investor, entrepreneur, professor and television and radio personality – and a true believer in the happiness-inspiring powers of capitalism.


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DGS LOGO

Hi Lou!

I’m wondering, if you could, please, look at DGS. I have  held this stock for a few years,
like the dividend, but it’s not easy to love this stock. Lately, it been going down and down.
Is there any hope for it to reverse it’s trend?

Thanks a lot for your help.
Happy Capitalism!
Regards,

Jana

Hey Jana,

Thanks for the assignment. This will be the first time that I examine the charts for Dividend Growth Split Corp. (DGS TSX) which is a closed end equity mutual fund. Your holdings are what are considered the Class A shares of the underlying portfolio of dividend paying shares. The other component, hence the term split, are the preferred shares. Both shares trade separately on the TSX and confer upon the shareholder certain characteristics.

In your case holding the Class A shares you are entitled to receive a steady monthly distribution when the net asset value is above a specified threshold (as well as participating in a levered way on the return of the portfolio securities). The distributions are funded by capital appreciation, additional income earned from a covered call writing program and any excess dividend income earned in the underlying portfolio that is over and above what is needed to fund the Preferred share dividends.

The portfolio consists of 20 stocks with 64.7% invested in financials, 15.3% in telecom services, 9.7% in energy, 5% in consumer discretionary, 4.9% in utilities, and 0.4% in cash and short term securities.

A probe of the charts will help form my opinion of DGS.

 

DGS

The three-year chart certainly explains why you have you have been finding it hard to love this stock- it’s going the wrong way on the appreciation side but on the dividend side – its a door buster – 16.93%. A classic case of being torn between a high yield and capital loss. For my money I always side with preservation of capital above all other considerations.

The retreat in the value of DGS started in May of 2015 as it moved away from its 52-week high of $9.98. By the end of the month the shares breached support along the 50 and 200-day moving averages and were trying to hold support at $8.00. A death cross formed in mid July signalling that investors could expect continued selling. By the end of July 2015 the stock broke below $8.00 in torrent of selling.

 

 

 

DGS2

The six-month chart highlights the sell signals generated by the MACD and the RSI in mid July. The gap down in August has to be seen as a reaction the volatile trading pattern that has shaken markets around the world in the last weeks. The dramatic decline resulted in an oversold situation that attracted buyers which took DGS on a three day ride to the upside.

With an established downtrend, a death cross, and resistance along the moving averages I would be re-examining my investment thesis. At this point it would appear that we might see resistance come in at $7.25. I would not expect a trend reversal in the near term.

 

 

Next time I will investigate the charts for Dorel Industries Inc. (DII.B TSX) for Inger.

 

Make it a profitable day and happy capitalism!

 

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