Canadian Banc Corp's 14.11% Yield: A Safe Harbor in Volatile Markets

In a world where stock markets gyrate and dividend cuts loom, Canadian Banc Corp (BK.TO) stands out as a beacon of income stability. Its unique 15% VWAP-linked dividend mechanism and covered call strategy create a defensive shield for investors seeking both high yield and resilience. At a current forward yield of 14.11%, the stock offers a compelling entry point—provided you understand the mechanics behind its structural reliability.

The Dividend Mechanism: A Formula for Stability

Canadian Banc Corp's Class A shares deliver a monthly dividend calculated as 15% of the volume-weighted average price (VWAP) of the stock over the prior month's final three trading days. This formula ensures dividends fluctuate with market conditions but remain tethered to a consistent yield framework. For instance, the June 2025 dividend of $0.13700 per share was based on a May VWAP of $10.96, yielding precisely 15% annually.

However, the forward yield of 14.11% (as of June 2025) reflects the stock's recent price appreciation, not a reduction in dividend payouts. When share prices rise, the yield drops temporarily—creating a buying opportunity. Conversely, if the stock declines, the dividend's fixed VWAP link ensures it doesn't shrink proportionally to the price drop, acting as a yield floor.

Why the 15% Floor Matters

The dividend policy, launched in November 2021, guarantees shareholders a minimum annualized yield of 15% based on VWAP. This contrasts sharply with traditional dividend stocks, where payouts often drop during market stress. For example:
- In 2023, when Canadian bank stocks fell, Canadian Banc's dividend decreased only as much as its portfolio's VWAP—no abrupt cuts.
- During the pandemic, Harley Davidson slashed dividends by 95%, while Canadian Banc's policy ensured payouts remained tied to market conditions, not management discretion.

Covered Calls: A Double-Edged Shield

Beyond dividends, Canadian Banc employs a covered call strategy on its portfolio of six major Canadian banks (e.g., Royal Bank, TD, Scotia). Selling call options generates premium income, boosting total returns while capping upside exposure. This strategy:
1. Reduces volatility: The premiums act as a buffer during market dips.
2. Locks in gains: By selling calls at higher strike prices, the fund captures profits even if bank stocks stagnate.

Historical data shows this hybrid approach has delivered $23.81 per share in Class A dividends since inception, plus $11.16 per share for preferred shareholders—a combined $34.97 per share in distributions by May 2025.

Is the 14.11% Yield a Red Flag—or an Opportunity?

The current 14.11% yield is not a sign of weakness but a reflection of recent price appreciation. Here's why this is a buying signal:
- Undervaluation risk: If share prices correct lower (as they often do during yield fluctuations), the dividend's VWAP link would push the yield back toward 15%.
- Defensive exposure: Canadian banks form the core of the portfolio, and their stable earnings (even in recessions) underpin the dividend.

Contrasting Historical Volatility

Pre-2021, Canadian Banc's dividends were more erratic, tied to quarterly earnings. Post-policy, month-to-month volatility has smoothed, with dividends fluctuating ±2–5% rather than ±10%+. For example:
- In 2022, dividends ranged from $0.0918 to $0.1890, but the 15% yield rule maintained income predictability.
- By 2024, the range narrowed to $0.1314–$0.1505, showcasing improved stability.

The Investment Thesis: Act Now

Buy BK.TO for:
1. High income: A 14.11% yield is rare in today's market, and it's poised to rebound toward 15% if prices normalize.
2. Defensive exposure: Canadian banks are recession-resistant, and the covered call strategy mitigates downside risk.
3. Structural reliability: The VWAP formula ensures dividends don't vanish during turbulence—a stark contrast to growth stocks.

Risks to Consider

• Bank underperformance: If Canadian banks face loan losses or rate cuts, dividends could decline.
• Premium income dilution: Overly aggressive call selling could limit upside.

Final Call: A Rare Blend of Income and Safety

Canadian Banc Corp's 14.11% yield isn't a flaw—it's a mispricing. The dividend mechanism, paired with its bank portfolio and covered calls, offers a rare combination of high yield and defensive resilience. With the stock trading at a slight discount to its 15% yield floor, now is the time to act.

Recommendation: Accumulate BK.TO for income-focused portfolios. Pair it with broad market hedges (e.g., inverse ETFs) to weather volatility while collecting that fat 14%-plus yield.