The waiting for the dividend announcement is going to be anti-climactic. If you want to know what the "real, sustainable" dividend is simply multiply the NAV by 12.5%. Many say that NAV is not relevant to the dividend and as to what Alpine can declare this is correct. But as to what is sustainable look at history. A 12.5% return over a long period of time is quite good and that is a total return figure. Now, AOD can pay a 12.5 cash flow because they have many options available to generate income. As discussed before they can sell options,buy preferreds,use leverage,buy back stock at a discount,increase the capture portfolio. If they do some of these things they can generate a 12.5% cash flow with stable to slightly rising NAV. But for all of us who are dependant on the dividend we have to be realistic. If they pay out a 20% dividend it will be no different than putting 50,000 in a savings account and withdrawing 10,000 per year while your savings is earning 2%. Yes you have a 20% cash flow coming out of your account but it will end in a little over 5 years because you aren't earning 20%. Now, i know about the specials but these simply reduce NAV by the amount of the special and while technically earned it is very similiar to withdrawing money out of a savings account. While Alpine may keep the dividend around 1.68, a22.5% reduction, don't spend all of it because thhe very best we can count on being sustainable is about .875 per year so reinvest the difference and face reality. Good luck to all AOD holders.
Making 30% on capital is not as impossible as some posters here believe. Leverage and option writing does it for many hedge funds. Borrowing at 5% (present Prime) and buying 7% dividends produces a 40% roi. Covered calls can juice returns even more. I do these consistently regardless of market direction and see no reason why AOD cannot do the same.
True. But they also have less assets than before compared with the rest of the market. Not saying it's impossible just need to make 30% on NAV going forward to do so. That's a taal order. Good luck.
I disagree! They do not need to earn 30% as you suggest. All they need to do is receive the same income from stocks they held 3 months ago. If 80% of those stocks are still paying
their dividends then a minor cut could be in order. The fact that the NAV dropped from $20.00 to $5 is the culprit. A $2.18 divvy at
$20 NAV is 10.9%. If the stocks they held all
fell 50% but are still paying their dividend it
looks like AOD must earn 30% but not true. If they earned the same $2.18 the rate at $5 NAV is 43.6%. As you see, they don't need to raise
30%. I own DUK at $20 yielding 4.6% 3 months ago. Today DUK is $14.5 yielding 6.3%. In owning DUK I need not have to earn more money
but maintain the position. At today's depressed stock prices if you had $50,000 in stock 6 months ago and held the same stocks today worth $30,000 and they all keep paying
their divvys, your earnings have not changed.
But calculating the yield from here gives the
impression that "they can't earn that much" but
in reality dividend paying stocks that continue
to pay is the answer.
I have two answers for that: CASH and writing call options.
I believed serious trouble to be brewing and personally took the max defensive position in April 2007-ALL CASH. I am always too conservative, although in retrospect 2007 wasn't a bad year to sit out and make a sweat-free money market rate. But then I got really freaked out in April '08 and advised my family to go all cash too and those that did were spared the carnage. My Dad did not sell or reduce his significant AOD position, because to him, this was his monthly paycheck. And with such steady income he became lulled into the belief that AOD was more like relatively "SAFE" bond investment.
btw AOD has the stated ability to be invested in 100% cash, too late now. Yes I know this is hindsight, but they tout their bottom up top down research...they should have seen that the emperor was wearing no clothes.
Re Call Options: What an incredible missed boat this was. It's a great strategy in a down market, collect income and the calls expire out of the money. If the market goes up, writing calls is not a great thing as it will limit NAV upside. I believe that we have a ways further down to travel, so calls should still work to juice NAV for awhile.
As for leverage, I don't see this as an option to juice yield. There is no auction rate preferred market (the method by which borrowings would be accomplished) so
Myson - No argument with your logic; the real question is how many of the holdings will have to cut their dividend and by how much. But that is a different issue from just saying that 30% or whatever high number is unsustainable without taking into account how you got there, and then from there projecting a new dividend level.
I agree with your analysis of the market, valuations and securities. However, the fact of the matter is that whatever AOD holds and however long they have held it they have to make 30%+ on the CURRENT value to earn 2.16 a share. Now if they still hold all the stocks they always did and those stocks continue to pay out the same dividends as they always did and those companies are earning their dividend then there will be no cut. But AOD is not experiencing this situation. They have lost more than the market in general and the underlying companies (some of them such as SFI which they held) have eliminated their div. What I am saying is straight math and not a gut feeling. To maintain the div AOD has to earn 30%+ on their current portfolio of securities at todays prices. It's math pure and simple. If you want to make arguements as to how they can do this that is viable and possible (not probable) but math is math it's not positive negative or a gut feeling. I hope AOD does very well and can make 30% because to keep my dividend at 2.16 and sustain it the have to make an income on the portfolio of 30%+. Of this there can be no arguement. I wish them the best but am planning for reality.
I wasn't disagreeing with your analysis and explanation between dividend rate vs. dividend amount. I questioned your view on a slight reduction in dividend amount when the stock market EVENTUALLY turns higher.
Stocks turn higher on increased earnings outlook albeit not immediately, as you said. BUT at that point in time, when companies anticipate or enjoy higher increased earnings, they wouldn't cut their dividends.
IF ANYTHING, they would increase them. Any dividend cuts would occur now while their earnings are reduced.
Again, I agree that dividend increases would not occur in the short term but divvy cuts WOULD, on reduced earnings.