14% Income Fund Goes Ex-Dividend

By Travis Johnson, Stock Gumshoe, March 12, 2010

I continue to hear from many readers that dividends are of big interest lately — the market’s surge over the past year has made a lot of folks very nervous about the future, given fairly high valuations on most stocks and the outperformance of “junkier” stocks (small caps, unprofitable growth companies, etc.).  I’ll admit to being pretty interested in stability and dividends at the moment myself, so the latest teaser from Bryan Perry caught my eye.

Bryan Perry runs the 25% Cash Machine, a newsletter that had very weak ratings from my readers last Spring but that has seen some more friendly comments in more recent months — perhaps because of this general refocusing on “safety” and dividends, who knows, but for whatever reason it’s now in the top ten on the list of income letters at Stock Gumshoe Reviews.

He spent a lot of the past year or two touting a closed-end fund, Alpine Total Dynamic Dividend (AOD), a fund which essentially tries to double up on income by trading in and out of dividend-paying stocks — and that one still continues to pay a nice dividend, though it has also seen a pretty horrific collapse in its net asset value over the last couple years, this one is definitely built to churn out the dividend income, not to maintain or grow the asset value — over the past year, with awesome performance from the markets, the net asset value of the shares has stayed fairly steady between $6-7, so it’s clear that much of the market’s performance was effectively put into shareholders pockets with the monthly dividend (.12 per month, so 1.44/year).  That’s not surprising for a fund that trades in and out of its positions so heavily, with turnover at something like 600%. 

AOD has proven that they can keep generating the income pretty well, though it scares me to see funds like this trade at huge premiums to the net asset value — right now AOD trades at over $9, which means you’re paying a premium of close to 35% to buy the shares … or, put it another way, that you’re prepaying for what you expect will be two more years of those dividends when you buy the shares.  Might happen, but you need to hope that their dividend capture trading continues to work, especially if it’s a flat or down market and their ...

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