I have a small position in AOD just for the monthly dividend. But I confess, I can not figure out how AOD keeps paying this high dividend, when its holdings do not.
Has anyone on this board figured out how this all works and whether AOD is a worthwhile investment at the current price?
I do not have a long-term sentiment because I just don't know what this is.
Thanks in Advance
re_train - Alpine has an excellent homepage with good descriptions of the fund style ...but in-a-nut-shell:
The fund invests virtually 98% of its assets in common stock ..domestic and international. The mgr, Jill Evans, employs a "dividend capture" tactic with 1/3 -1/2 of the fund assets ...buying big dividend payers and then selling shortly thereafter to "capture" the dividend and move on to another issue...they also seek out "special" one-time dividend payers ...and have a core holding of value stocks ...typically 100 stocks or less in portfolio ...
Ok ...how can they be paying such a large dividend ?
Start looking at it this way ... when they started out ...a few years ago ...AOD was one of the largest closed end funds of all time ...huge interest in a mutual fund that paid a MONTHLY dividend at 10% per annum ...started at $20 per share ...with a 10% yield ...the bad market reduced its price to $10 per share ..with the same monthly yield ...so now the fund is priced at $10 ...with a 20% annual yield ...the market continues to decline ...stock price is below $5 per share with what looks to be a 30% yield ...Alpine cuts the dividend in March 2009 ...but they have little problem sustaining the $0.12 per share per month distribution ...the fund rallys from the mid $4 range to the current $8.80+ price ..and the yield is now in the 15-16% area ...funny how nobody questioned the 10% yield when the fund was priced at $20 per share ... they still use the same strategy ...usually announce dividends in a three month payment cycle ...so we can be sure of the income ...Alpine says that most folks reinvest the dividends ...and that has worked over the past nine months or so very well ..but many folks on this board own the stock at $20 ...and have been hammered by the declining price ..not expecting that a mutual fund could lose so much ..so fast.
The fund (AOD ) sells at a ricidulous PREMIUM to its underlying securities ...25% or so ...I urge you to look for closed ended funds selling at a mild discount to their underlying value ...because PREMIUMS tend to dissappear in nano-seconds ...and more practically ...Why pay premium ...when you can get "sticker-price" or less on something similiar ?
Summary - AOD may cut their dividend ...or not ... that will depend on the market conditions early next year ...and their respective success or failure in capturing special dividends and "flipping" the positions to capture more than 5-6 dividends per issue per year ... Quien sabe ?
This is a good fund ...put it on your shopping list and wait for a string of bad days in the market ...( probably a short wait ) ...look to BUY it at a discount to NAV ...5% is the target I try for ...that would be a good value..
hope this helps ... the fund is NOT doing anything leveraged or borrowed ... just straight value and dividend capture ...
We are some of those investors you refer to who bought in at 20.12 per share on 3 Aug 07. We hold 4975 shares. No one, including us, ever expected such a drop in the market. We do not blame AOD for this drop, nor do we intend to sell at this price. AOD is one of 15 funds we have and all of them took a hit. Two of those funds we own are worth more than we paid because we bought more of their shares when they were in the dumps, namely, PTY and PGP. We buy for long term and expect ups and downs in the market. The blame for this recession can be traced to sorry policies by the Feds and crooked politicians, Barney Frank and execs in Gov't real estate bond agencies. Banks were being forced by the Fed to allow mortgages to people who had no intent to pay them off or the mentality to understand the requirements of having a mortgage. We need to also let auto unions in the blame for our predicament, namely, their greed and never ending demand for more freebies for a job that does not even require any skill. Enough griping for one day. Good luck with your holdings.