The warrants have a 1:1 conversion ratio to the underlying stock, but are issued at around 35-40% of the price of the underlying share with a maturity of just over one year. Investors can obtain the normal gains or losses available to warrant holders, while also receiving dividend payments over that time horizon, enhancing the yield of the warrant.
“In contrast to traditional warrants, we believe the dividend accumulator warrants will be used by share investors to gain a prudent amount of medium-term leverage to potential share price appreciation while receiving full dividends equivalent to the underlying shares,” said Matthew Long, associate director of equity derivatives at Macquarie.
The warrants are based on so-called 'instalment' warrants available in the Australian market, which also pay a dividend to investors, but are structured slightly differently because of the higher tax environment in Australia. Instalment warrants made up 45% of total Australian warrants turnover in 2001.