Saturday, September 10, 2011

What is the Dividend 15 split, and how does it work? Pt.4

Yesterday, I talked about the 'Dividend 15', and how I believe they speculate dividends to make the unusually large yields they offer.

Today, I'll talk about some of the reasons I would not invest in the 'Dividend 15' personally.

Jack, why wouldn't you invest in the Dividend 15! it's a 10% yield!

I'll tell you.

1) Fees.

The 'Dividend 15' is a mutual fund. Mutual funds have fees. I dislike fees alot.

That ~10% yield is eaten up by the following:
0.1% - Manager Administration Fee
0.5% - Manager Service Fee
0.65% - Investment Company Fee
(20% of all profits over a 12% annual increase if NAV >$25) - Fee for good performance

This means that essentially, our yield becomes ~8.8%, which is still pretty excellent. But the icing on this cake is still rancid.

2) Split investment funds are dangerous

I have been reading alot about 'splits' like 'Dividend 15', and how they aren't paying out dividends so much as paying out capital from new investors to old - Much like a Ponzi scheme.

Some more people rightly concerned about such investments here.

3) No Special dividends for the jumper.

When you jump around to garner dividends, you will nearly always miss out on any special dividends that are paid. These dividends are not scheduled, so you cannot time them like regular dividend payments. And special dividends are very often generous, skewing the yearly yield upwards quite a bit.

4) I can speculate for myself, thanks.

If I was feeling like speculating, I'd rather do it myself. Plus, in all honesty, I don't feel like jumping around with such companies. I'd rather they hold my money and pay me well, for a long time. Call it a bit of foolish faith.

Ok Jack, I get it - If it's probably too good to be true, it probably is.

Damn right.

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