Dividend Growth Split Corp: A Steady Stream of Income in Volatile Markets

In an era of market turbulence and shifting interest rates, income-focused investors are increasingly drawn to closed-end funds (CEFs) that combine dividend consistency with capital appreciation potential. The Dividend Growth Split Corp. (DGS.PR.A) has emerged as a standout option, recently declaring its CAD 0.10 monthly dividend for Class A shares—a streak maintained since January . This article dissects why this leveraged CEF could be a core holding for income seekers, despite its risks, and why now is the time to act.

The Case for Consistency: Distributions That Outlast Market Cycles

The Dividend Growth Split Corp has delivered unwavering monthly distributions of CAD 0.10 per Class A share since 2023, a rare feat in today's volatile markets. These distributions are structured as Return of Capital (ROC), which reduces the adjusted cost base and offers tax efficiency—a strategic advantage for long-term holders. While ROC can erode capital if NAV declines, the fund's NAV preservation mechanism acts as a safeguard: distributions halt if the NAV per Unit dips below CAD 15.00 post-payment.

This discipline is critical. Over the past decade, the fund's Class A shares have delivered a 10.7% annualized total return based on NAV, outperforming the S&P/TSX Composite Index by 4.1% annually. Even during the 2022 downturn, when NAV fell 13%, the fund's leverage structure and disciplined risk management helped it rebound strongly, as seen in its 54.8% one-year return as of August 2024.

Portfolio Powerhouse: Anchored in Dividend Champions

The fund's large-cap Canadian equity focus—with 80% invested in firms like Dollarama (5.5%), Constellation Software (5.3%), and Brompton Global Dividend Growth ETF (9.5%)—provides a high-dividend growth backbone. These companies are not only stable but also exhibit consistent payout growth, a hallmark of the fund's strategy.

The portfolio's global diversification (up to 20% in foreign equities) adds resilience, while the at-the-market (ATM) equity program (renewed in January 2025) ensures liquidity and capital flexibility. This program allows the fund to issue up to CAD 100 million in new shares, enabling it to capitalize on undervalued opportunities without over-leveraging.

DRIP Advantage: Compounding for the Long Run

Investors who enroll in the Dividend Reinvestment Plan (DRIP) gain a powerful compounding tool. With no brokerage fees, every CAD 0.10 dividend is reinvested automatically, amplifying returns over time. Consider this: a CAD 10,000 investment in Class A shares would yield CAD 120 in annual dividends, all eligible for tax-efficient reinvestment. Over five years, this could grow to CAD 16,000+—a compelling case for passive income growth.

Leverage Risks and NAV Safeguards: The Fine Print Matters

No discussion of this fund is complete without addressing its leverage risks. The fund's preferred shares act as a debt layer, boosting returns but amplifying volatility. If preferred dividends fall into arrears, Class A shareholders face distribution cuts. However, the fund's 5.4% annualized return on preferred shares since inception and its track record of avoiding arrears (even in 2022's downturn) suggest robust risk management.

Moreover, the fund's top-heavy portfolio (89.4% in top 25 holdings) reduces diversification risk, while its focus on market leaders with $2 billion+ market caps ensures stability. The NAV's 10-year resilience (despite short-term dips) underscores this balance.

Why Act Now? The Risk-Reward Sweet Spot

The CAD 0.10 dividend is more than a number—it's a signal of confidence. With the fund's renewed ATM program and its NAV safeguards, investors gain access to a high-yield vehicle that's been stress-tested. For income-focused portfolios, this fund offers:
- Tax-efficient, compounding dividends via DRIP.
- Exposure to Canada's top dividend growers, a sector poised for recovery post-pandemic.
- Leverage discipline that prioritizes NAV preservation over reckless growth.

Risks remain, notably the ROC's capital erosion potential and leverage volatility. But for investors with a 5+ year horizon, these risks are manageable. The fund's 11.6% 10-year annualized return and its outperformance of preferred share benchmarks (2.5% annually) make it a compelling core holding.

Final Call: DGS.PR.A—A Dividend Investor's Anchor

The Dividend Growth Split Corp isn't just a fund—it's a strategic income engine. Its CAD 0.10 dividend, coupled with NAV safeguards and a portfolio of dividend champions, positions it as a must-own for income-focused investors. With the ATM program fueling liquidity and the DRIP enabling compounding, now is the time to secure this rare blend of safety, yield, and growth.

Act now: Allocate to DGS.PR.A and let its consistent distributions and disciplined strategy work for you.

Investment decisions should consider individual risk tolerance and financial goals. Past performance does not guarantee future results.