Dividend Growth Split : Interim Report – 2022

TSX: DGS, DGS.PR.A

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Dividend Growth

Split Corp.

Interim Report 2022

Large-capitalization portfolio of primarily Canadian equities with high dividend growth rates and high yields.

VALUE

INTEGRITY

PERFORMANCE

THE FOUNDATION FOR EXCELLENCE

Dividend Growth Split Corp. - Interim Report 2022

MANAGEMENT REPORT OF FUND PERFORMANCE

August 17, 2022

This Interim management report of fund performance for Dividend Growth Split Corp. (the "Fund") contains financial highlights but does not contain the unaudited interim financial statements of the Fund. The unaudited interim financial statements follow this report. You may obtain a copy of the audited annual or unaudited interim financial statements, at no cost, by calling 1-866-642-6001 or by sending a request to Investor Relations, Brompton Funds, Bay Wellington Tower, Brookfield Place, 181 Bay Street, Suite 2930, Box 793, Toronto, Ontario, M5J 2T3, or by visiting our website at www.bromptongroup.com or SEDAR at www.sedar.com. Shareholders may also contact Brompton Funds by using one of these methods to request a copy of the Fund's proxy voting policies and procedures, proxy voting disclosure record, Independent Review Committee's report, or quarterly portfolio disclosure.

THE FUND

Dividend Growth Split Corp. is a mutual fund corporation managed by Brompton Funds Limited (the "Manager"). The Fund has Class A and Preferred shares which trade on the Toronto Stock Exchange ("TSX") under the symbols DGS and DGS.PR.A, respectively. The Class A and Preferred shares are RRSP, DPSP, RRIF, RESP and TFSA eligible. The Preferred shares are rated Pfd-3 by Dominion Bond Rating Service Limited ("DBRS").

Preferred shares of the Fund receive fixed, cumulative quarterly payments. Payments are usually in the form of eligible Canadian dividends, which are taxed at a lower rate to individuals than interest income. Preferred shares have a priority claim ahead of the Class A shares on the Fund's assets in the event of termination. However, the Net Asset Value of Preferred shares generally does not benefit from growth in value of the underlying stocks. Class A shares capture the movement of the underlying stocks, but in a more magnified way than if an investor owned the underlying portfolio of securities directly. This magnification of return is commonly known as "leverage", which is provided by the Preferred shares.

INVESTMENT OBJECTIVES AND STRATEGIES

The Fund's investment objectives are:

1. to provide holders of Preferred shares with fixed, cumulative, preferential, quarterly cash distributions and to return the original issue price of $10.00 per Preferred share to shareholders at maturity; and
2. to provide holders of Class A shares with regular monthly cash distributions, targeted to be at least $0.10 per Class A share, and the opportunity for growth in Net Asset Value per Class A share.

The Fund invests in a portfolio consisting primarily of equity securities of Canadian dividend growth companies. In addition, at the Manager's discretion, the Fund may hold up to 20% of the total assets of the portfolio directly in global dividend growth companies or indirectly through exchange-traded funds for diversification and improved return potential. Covered call options and cash-covered put options may be written from time to time in respect of the equity securities of the issuers included in the portfolio to generate additional distributable income for the Fund and to reduce volatility. Investments will generally be equal weighted at the time of investment and after rebalancing the portfolio, but the Fund may hold non-equal weight positions.

In order to qualify for inclusion in the portfolio, at the time of investment and at the time of each periodic reconstitution and/or rebalancing, each dividend growth company included directly in the portfolio must (i) have a market capitalization of at least CDN$2.0 billion, and (ii) have a history of dividend growth or, in the Manager's view, have high potential for future dividend growth.

In addition, the Fund will hedge substantially all of its foreign currency exposure to the holdings in the portfolio back to the Canadian dollar, if any.

RECENT DEVELOPMENTS

Market Conditions

Fiscal and monetary policy responses to increased levels of inflation have led to higher interest rates and to fluctuations in securities prices. In addition, global political tension and military events in Ukraine and Russia have also caused increased volatility and disruptions in global financial markets. The Fund's Net Asset Value reflecting the value of the Fund's portfolio based on the most recent valuation date can be found on the Fund's webpage at www.bromptongroup.com.

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Dividend Growth Split Corp. - Interim Report 2022

RISKS

Risks associated with an investment in the shares of the Fund are discussed in the Fund's 2021 annual information form, which is available on the Fund's website at www.bromptongroup.com or on SEDAR at www.sedar.com. There were no changes during the period ended June 30, 2022 that materially affected the risks associated with an investment in the shares of the Fund as they were discussed in the annual information form.

RESULTS OF OPERATIONS

Distributions

Class A share distributions declared in the first six months of 2022 amounted to $0.50 per share, reflecting five monthly distributions of $0.10 per share for the months of January to May. For the same period in 2021, Class A share distributions amounted to $0.40 per share, reflecting four monthly distributions of $0.10 per share for the months of March to June. The Net Asset Value per unit (each unit includes one Class A share and one Preferred share) of the Fund was less than $15 per unit for the month of June 2022 and for the months of January and February in 2021. Consequently, there were no distributions on the Class A shares for those months. Preferred share declared distributions were $0.275 per share in the first six months of 2022, compared to $0.275 per share in the same period in 2021. Since inception, the Fund has distributed $14.99 per Class A share and $7.67 per Preferred share.

The Fund has a distribution reinvestment plan which allows participating Class A shareholders to automatically reinvest monthly distributions, commission free, in additional Class A shares of the Fund. Pursuant to this plan, during the six months ended June 30, 2022, 225,056 Class A shares were acquired in the market at an average price of $7.02 per Class A share.

Income and Expenses

The Fund's investment portfolio generated income of $0.24 per Class A share in the first six months of 2022, compared to $0.26 per Class A share in the first six months of 2021. Expenses were $0.08 per Class A share in the first six months of 2022 unchanged from the same period in 2021. Any issuance related costs were borne by new subscribing shareholders through the payment of premium issue price over the current Net Asset Value.

Net Asset Value

The Net Asset Value per Class A share was $5.00 per Class A share at June 30, 2022 compared to $6.47 at December 31, 2021. This reflects 22.7% or $1.47 per Class A share decrease, which was contributed by the Fund's portfolio constituents performance during the period. The Net Asset Value of the Fund is determined by taking the total assets of the Fund and deducting the Fund's liabilities. For the purpose of calculating the Net Asset Value of the Fund as a whole, the Preferred shares are not considered a liability of the Fund.

The aggregate Net Asset Value of the Fund was $722.2 million at June 30, 2022 compared to $727.7 million at December 31, 2021, reflecting a decrease of 0.8% or $5.5 million. The decrease was due to the net investment loss of $34.1 million, $23.3 million Class A share distributions, $12.7 million Preferred share distributions. These were partially offset by $64.6 million, which was net of premiums/discounts, agent's fees and issuance costs in connection with the follow-on treasury offering.

Investment Portfolio

The Fund's investments at June 30, 2022 include 38 Canadian equities and one exchange-traded fund investment, which is managed by the Manager to enhance global diversification. In comparison at December 31, 2021, the Fund held 34 Canadian equities and one exchange-traded fund investment, which is managed by the Manager. The exchange-traded fund, Brompton Global Dividend Growth ETF, provides exposure to global dividend growth companies. As of June 30, 2022, the underlying ETF's units represented 9.6% of the Fund's Net Asset Value. The Fund's total percentage of ownership interest in the underlying ETF's units is approximately 86.6%.

The Fund had net realized and change in unrealized loss of $42.8 million during the first six months of 2022. The Fund's top performing sector during the period was the Energy sector, which generated a net realized and change in unrealized gains of $32.5 million. This was offset by the net realized and change in unrealized losses incurred by the Fund's holdings in the Financials sector, $26.9 million and the Industrials sector, by $16.9 million.

There are 4,776 outstanding option contracts as of June 30, 2022, which represent 6.0% of the equites portfolio. During the first six months of 2022, the Fund wrote call options on an average notional of 3.2% of the Fund's portfolio. As of June 30, 2022, the Fund generated $1.7 million premiums from its call options written and has generated $0.7 million net realized and change in unrealized loss. This loss represents the premiums received less the amounts paid to close out the options at expiry.

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Dividend Growth Split Corp. - Interim Report 2022

Portfolio Sectors
	% of Portfolio	Realized	Change in	Total
Net Gains (Losses) by Sector (millions)	Unrealized
as of 30-Jun-22	$	$	$
Communication services	9.8	-	(4.6)	(4.6)
Consumer discretionary	5.9	(0.5)	(0.2)	(0.7)
Consumer staples	5.4	0.6	2.1	2.7
Energy	17.7	2.2	30.3	32.5
Financials	23.6	8.0	(34.9)	(26.9)
Industrials	11.3	2.4	(19.3)	(16.9)
Materials	6.5	4.2	(8.1)	(3.9)
Real estate	1.5	(0.5)	(4.2)	(4.7)
Utilities	8.7	0.1	(3.1)	(3.0)
Brompton Global Dividend Growth ETF	9.6	(0.4)	(16.2)	(16.6)
Options	-	(0.6)	(0.1)	(0.7)
Total	100.0	15.5	(58.3)	(42.8)

Liquidity

To provide liquidity for shareholders, the Class A shares and Preferred shares of the Fund are listed on the TSX. Investors may also retract their shares at Net Asset Value, less applicable costs, in accordance with the Fund's retraction provisions for each class of share.

RELATED PARTY TRANSACTIONS

Related party transactions consist of services provided by the Manager pursuant to a management agreement. See the Management Fees section below.

MANAGEMENT FEES

Pursuant to a management agreement, the Manager provides management and administrative services to the Fund, for which it is paid a management fee equal to 0.60% per annum of the Net Asset Value of the Fund, plus applicable taxes. The Fund does not pay any management fees on investments in funds managed by the Manager. The Net Asset Value of the Fund is determined by taking the total assets of the Fund and deducting the Fund's liabilities. For these purposes, the Preferred shares are not considered a liability of the Fund. The management fee is used by the Manager to cover its costs to obtain the Fund's assets, the cost to administer the Fund, the cost of investment management services and for profit. During the period ended June 30, 2022 management fees were $2.2 million.

FINANCIAL HIGHLIGHTS

The following tables show selected key financial information about the Fund and are intended to help readers understand the Fund's financial performance for the fiscal periods indicated. This information is derived from the Fund's unaudited interim and audited annual financial statements. The information in the following tables is presented in accordance with National Instrument ("NI") 81-106 and, as a result, does not act as a continuity of opening and closing Net Assets per Class A share. The increase (decrease) in Net Assets from operations is based on average shares outstanding during the period, and all other numbers are based on actual shares outstanding at the relevant point in time.

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Dividend Growth Split Corp. - Interim Report 2022

Net Assets per Class A share1
				December 31
	June 30, 2022
For the period/year ended	2021	2020	2019	2018	2017
$	$	$	$	$	$
Net Assets, beginning of period/year2	6.47	3.99	5.20	3.56	7.12	7.10
Increase (decrease) from operations:3
Total revenue	0.24	0.54	0.54	0.57	0.67	0.69
Total expenses	(0.08)	(0.24)	(0.10)	(0.12)	(0.13)	(0.30)
Preferred share distributions	(0.27)	(0.56)	(0.54)	(0.53)	(0.52)	(0.56)
Realized gains (losses)	0.33	0.83	(0.16)	1.10	(0.56)	0.16
Unrealized gains (losses)	(1.25)	2.63	(0.78)	1.48	(2.13)	1.01
Total increase (decrease) in Net Assets	(1.03)	3.20	(1.04)	2.50	(2.67)	1.00
from operations
Distributions to Class A shareholders:2,4
Return of capital	n/a	1.00	0.20	0.80	0.90	1.20
Total distributions to Class A shareholders	0.50	1.00	0.20	0.80	0.90	1.20
Net Assets, end of period/year2	5.00	6.47	3.99	5.20	3.56	7.12

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Financial information was prepared in accordance with International Financial Reporting Standards.

Net Assets per Class A share and distributions per Class A share are based on the actual number of Class A shares outstanding at the relevant time.

The increase (decrease) in Net Assets from operations per Class A share is based on the weighted average number of Class A shares outstanding over the fiscal period.

Allocations for tax purposes for the period ended June 30, 2022 are not available until year end.

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