Based on the closing Friday the price was $7.38 and the yield at $2.16 per year. This is a 29% yield. If the market were to rise mid 2009 to 10,000 DOW, then the stocks held by AOD would also rise 25% plus as did the DOW. So the "price of AOD" could be above $10.00. Now, at this level the $2.18 yld. is now 21%. No slight of hand but if the second half of 2009 and 2010 were to rise to 11,000 DOW, that means AOD stocks rise 40%. So, AOD at a premium could be $11 or more. This equates to a 19% yield. The answer to maintaining the dividend lies in the market going up.Where am I wrong?
If you reinvest the proceeds, then you're ignoring the monthly compounding factor. The APY would be found from (1 + 0.18/7.38)^12 - 1 = 33.53%.
<quote> The answer to maintaining the dividend lies in the market going up. <quote>
I'd like to offer up the possibility of the dollar going down. The fund runs about 2/3rd of its plays in foreign securities; those amounts will translate to larger amounts if/when the dollar falls. Also, the US market is one of the lowest yielding markets in the world, so the pickings are already "better" from foreign equities plays to begin with...
Next point is that the share price is entirely market driven, and very loosely connected to the NAV. If everyone gets disgusted and walks away from AOD tomorrow, the price could drop to near zero, but the assets managed by the closed end fund itself would remain unchanged.
Final point is that while the NAV has dropped over time, so have the markets that the net fund assets are working. The question is more along the lines of "If the fund originally had the capability of purchasing N shares of company X, then how many shares of X could the fund purchase today?" If the answer is the same, (due to the falling price of X) and X has yet to cut it's dividend, then the fund has a much capability to generate income as it did when it started.