So I begun to look into this CEF due to its high yield and judging from the yield of its top holdings there is no way it could get a 20% yield without leverage, and yet it doesn't. It also claims to be paying dividend solely on dividends of the stocks it holds, not return of capital. I read the conference call and it said it uses a dividend rotation strategy, as an example cited: buy a stock yielding 6% before ex-dividend date, hold it just long enough to qualify for dividend tax treatment, sell it and find another such stock: 6% * 4 times per year = 24%.
As anyone investing should know there is no free lunch and this example cited don't make any sense to me. The price of the dividend paying stock would have fallen by an adjusted amount to account for the dividend payment, unless the managers picks stocks that always bounce up shortly after the ex-dividend date and overcome the effect of dividend payment adjustment shortly after. If this is the strategy, I don't think it can be done consistently.
What am I missing?
more historical banter for you doubting BAGHOLDERS.
this is when i was still long AOD. before the market tanked in fall 08. you can see i'm not real excited as i note any future money will NOT go into AOD.
then of course i sold a few months later.
I think what you are missing here is this. The percentage of the dividend is based directly on the price of the security if the dividend is a set figure. Ex. if the dividend is $2.16, which it has been all along (.18x12),and the price of the security is$10, the per cent is 21.6%. @ $15, the per cent is 14.4%, @ $20, the is 10.8% etc,and the security is not priced at NAV,it's what the market will bear.
When a symbol pays a dividend the trading price of that symbol is marked down the amount of that dividend. The problem is in a down market is that the amount of mark down is not recouped.
The rotation strategy has severe problems in a down market as the mark down is never recouped even with compounding. This firm has tried to aggressively trade with only a portion of the portfolio allocated to dividend rotation. The trading record of this firm was even worse.
I sent a letter to Leiber that was returned to me so here it is on an open basis;
Sam Alfred Leiber
122 East 42nd Street
New York, New York 10168
September 18, 2008
As it relates to AOD;
Supply of shares has so outstripped demand that AOD now trades 20% plus below liquidation value.
If you wish to preserve the fund I would suggest that you begin to repurchase shares in small amounts at the bid. You could either keep or distribute underlying assets depending on your cash objectives. Such action would increase the asset value per share and at the same time it would reduce the float thereby improving supply-demand.
As described in your prospectus, the idea behind the fund was to remain in fundamental value and to transfer from stock to stock within the same sectors. A rapid churning-trading of stocks cross-sector resulted in outsized losses compared to the market. The fund was not supposed to be trading stocks as if it was a hedge fund. Representations in the prospectus were clearly violated to investor detriment.
I believe it to be your fiduciary responsibility to take remedial action with time being of the essence.
I would prefer not to be in the position of forcing objectivity. It would simply be easier to take constructive and proactive action. Within three days however, I expect communication from your company outlining a constructive remedial plan.
Very clear explanation of AOD,my hope is the NAV and price will increase when the market eventually returns to previous levels.It's not a given the stocks go down significantly after a divy especially in a bull market. At that time we will know if rotation strategy works.If not they will continue to rotate in and out of stocks paying 6% thus maintaining the divy but for me a loss of principal.
700billion divided by 190 million adults in USA = a $3684 divy check for all of us... why give it to a wall street firm going belly up...sound like a pig in a poke to me..i rather the govt send all 190 million adults in usa a divy check for $3684 because i dont think the bailout plan will work..only a bandaid on the dying fincial sector..