Within in pages of the Annual Report 2007 you will find that the fund seeks to maintain a "level distribution policy". The fund increased the dividend last year. It would be strange for them to contradict themselves (almost) by turning around and lowering it. Just because the stock or NAV may swing down, that has NOTHING to do with the day to day operations of the fund. A few things to remember...
This is a fund and it holds positions in around 80 - 90 various companies.
The fund is weighted toward healthcare sector and states that it is not directly exposed to any residential subprime mortgages. It says it does not own [residential] homebuilders or home lenders.
The money that is used to pay the div comes from two areas: current income (divs received by fund) and capital gains. Total distributions to investors came to $90.2 mil in 2007. In 2006 it was $60.6 mil. Now remember that money came from divs they collected and cap gains that were "realized", okay?
So moving forward...At year end, they were holding $37.2 mil + in undistributed LT "realized" cap gains. Compared to 2007, that’s 41.2% of the monies used to payout the 2007 divs. The div is at about $1.84/shr. There are about 33,316,439 shares out. That equals $61,200,965 in proposed dividends for an entire year. What this means is, at the beginning of the new fiscal year 2008, the fund was ALREADY HOLDING 60.8% of this year's potential dividends! Additionally, at that time, they were sitting on $39.9 mil in "UNREALIZED" gains. Now admittedly, the unrealized gain number could just be a phantom number. Meaning, if they never pulled the trigger, they may have never captured those "unrealized" gains, but it is still food for thought. Okay, that covers the cap gains portion of our div.
Next, keep in mind that the fund is constantly getting dividends itself because it is holding various reits and preferreds. So, as the fiscal year progresses, ordinary income continues to flow in, this eventually gets paid out to us investors. Ordinary income for 2006 was $32.3 mil. In 2007 it was $40.4 mil. Take some time to look up 10 or 20 of the various holdings inside the fund. Just do it randomly and you will find that these positions are paying their regular dividends. Thus, the fund is receiving its ordinary income cash flows.
Remember back in March the fund declared Apr, May, June divs. Many funds just take it a month at a time or Q to Q. To me, the level dist. policy, multi-month div declarations, cap gains achieved, ordinary income flowing in, heavy weighting toward healthcare sector, no residential subprime, all point to our dividend being secure. This will become fact in the next couple of weeks when another round of divs are declared.
Hope this info helped anyone as needed.
As suggested I dug in and searched NRO's holding for their dividend payouts, consistency, etc. They all are doing the same or better than last year. I am a new owner of NRO and am considering now adding to my position. Thanks for your insightful notes...and here is my question. Do any of you have concerns about the Lehman affiliation here? I have tried calling IR at NRO, but can't get through.
JeanAnne in New orleans
Although I agree with your conclusion, your analysis would be more accurate if you utilized consolidated NRO/NRI figures, which the 2007 NRO report doesn’t show. Thus, things may not be as rosy as you numbers suggest, but they are certainly not as bad as some imply with dividend cut talk. The total number of outstanding shares is probably closer to 72 million and NRI had a much higher dividend payout than NRO before the consolidation of their financial resources in 2008.
In addition to most of NRO/NRI holdings either maintaining or increasing their dividends, the consolidated cost of auction rate preferred dividends is currently below 4% even if the auctions fail. This is actually lower than the average cost during the first six months of the year. Also, administrative expenses should have been reduced as a percentage of total assets after the NRO/NRI merger. Therefore, consolidated cash flow should be better today than it was when Q1 and Q2 dividends were declared, making a Q3 dividend cut unlikely in my opinion.