DBRS Confirms Dividend Growth Split Corp. Preferred Shares at Pfd-3

DBRS Limited (DBRS) confirmed the rating of the Preferred Shares issued by Dividend Growth Split Corp. (the Company) at Pfd-3. The scheduled redemption date for both classes of shares issued is November 28, 2019. In September 2018, the Company announced a term extension for an additional period of three to five years. The new term details and the proposed rate for the Preferred Share dividend will be announced at least 60 days prior to November 28, 2019. The board of directors may extend the term of the Company and the shares by successive terms of up to five years, provided that shareholders are given an optional retraction right at the end of each successive term.

As of June 30, 2019, the Company held a portfolio of common shares listed on the Toronto Stock Exchange (the Portfolio) issued by 24 Canadian dividend-paying companies, each with a market capitalization greater than $2.0 billion. Following the updates to the investment objectives and strategies of the Company in August 2018, the following changes took place:

(1) Expansion of the investable universe of high-quality dividend growth companies from which the Portfolio Manager can select by expanding the financial metrics that may be used to analyze the Portfolio constituents, including forward-looking metrics;
(2) Investment of up to 20% of the Portfolio, from time to time, in global dividend growth companies; and
(3) Permission to the Manager to rebalance and/or reconstitute the Portfolio more frequently than annually, at its discretion, so that the Company could respond to security or market developments on a timely basis.

Dividends received from the Portfolio are used to pay fixed cumulative quarterly dividends equal to $0.525 per annum (p.a.) to each Preferred Shareholder. Holders of Class A Shares receive monthly distributions targeted at $1.20 p.a.

As of August 29, 2019, the downside protection available to the Preferred Shares was 33.7%. The downside protection had experienced some reduction in the beginning of the year but regained the losses since then. The dividend coverage ratio is approximately 1.0 times. The confirmation of the rating of the Preferred Shares at Pfd-3 is based on the current downside protection available and the minimum downside protection provided by an asset coverage test, which does not permit any distributions to holders of the Class A Shares if the net asset value of the Company falls below $15.00.

The main constraints to the rating are (1) the Company’s dependence on the value and dividend policies of the securities in the Portfolio and (2) the reliance on the Manager to generate a high yield on the Portfolio to meet distributions and other trust expenses without having to liquidate portfolio securities.

Notes:
All figures are in Canadian dollars unless otherwise noted.

The principal methodology is Rating Canadian Split Share Companies and Trusts, which can be found on dbrs.com under Methodologies & Criteria.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link under Related Documents or by contacting us at info@dbrs.com.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.

DBRS Limited
DBRS Tower, 181 University Avenue, Suite 700
Toronto, ON M5H 3M7 Canada