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Updated 19-Apr-2025
Stripping the Dividend: AC/DC
We consider taking a standard share and splitting it into two new securities which both trade freely and independently:
Dividend Certificate (DC)
The Dividend Certificate entitles the holder to all future dividends.
Asset Certificate (AC)
The Asset Certificate is equivalent to a standard share without any dividend rights.
One AC and one DC can be redeemed for an underlying share. The split is otherwise permenant and not constrained by time or price, marking a departure from previous attempts to strip divis from underlying shares.
Investors seeking cashflow can earn a higher yield from the DC than holding naked shares, without the underlying share price risks. Investors focussed on growth can effectively trade with a natural leverage or precisely allocate towards dividends and capital as they see fit.
By way of arbitrage, the price of an Asset Certificate must approximate the price of a standard share less the market value of the Dividend Certificate.
Here we attempt to estimate prices the market might assign to each component.
DC Valuation Model
Simple yield disregards dividend growth. It aims for a 1yr target yield, net of costs.
Parameters
|
Dividend |
|
|
Risk-Free Rate |
|
|
DC Risk Premium |
|
|
Administration Costs |
|
Present Value of Growing Annuity, adjusted for administration costs.
Parameters
| P |
Initial Payment |
|
| r |
Discount Rate |
|
| g |
Growth Rate |
Dividend CAGR, capped at
|
| n |
Years |
|
| c |
Administration Costs |
|
DTC Rails - Trade settlement and dividend distribution through Depository Trust Corporation
Chia Rails - Trade settlement and dividend distribution through Chia blockchain
Results
Calculating...
| Company |
Share Price |
Valuation |
% of Underlying |
Dividend |
CAGR |
|
|
DC |
AC |
DC |
AC |
{{y}}
|
{{years[0]}}-{{years[years.length - 1]}}
|
| {{row.CompanyName}} |
{{row.SharesCCY}} {{row.Price | number:(row.SharesCCY == "¥" ? 0 : 2)}} |
{{row.SharesCCY}} {{row.DC | number:(row.SharesCCY == "¥" ? 0 : 2)}}
|
{{row.SharesCCY}} {{row.AC | number:(row.SharesCCY == "¥" ? 0 : 2)}}
|
{{(row.DC / row.Price * 100) | number:1}}%
|
{{(row.AC / row.Price * 100) | number:1}}%
|
{{row.CCY}} {{row.Divi[y] | number:2}}
|
{{(row.DiviCAGR * 100) | number:1}}% |
Notes
Regulatory basis for achieving the AC/DC split is through Single Share Voting Trusts. Amended S1 filings have been submitted to the SEC by Permuto Capital for three test trusts (MSFT, AAPL, AVGO) with approximately 80 trusts planned.
We've included all dividend stocks from our universe in the model above, though early trusts will be limited to large cap stocks with direct listings on US exchanges. Trusts will be restricted to holding no more than 5% of the float.
AC and DC instruments are expected to trade on both the NYSE and the Chia blockchain, with cost savings of the latter passed on to investors.
