I FIRST BOUGHT DNP IN 1987. AS OF 1-1-08 I INVESTED 35,407 IN
CASH AND REINVESTED 31,183. TOTAL 66,590.
68,157 CURRENT ( 2008 ) STOCK VALUE
32,750 RETURN ON CASH INVESTED
5,020 ANNUAL DIVIDENDS
192% RETURN ON CASH INVESTED
102% RETURN ON CASH AND DIVIDENDS INVESTED
14.2% ANNUAL DIVIDEND OF CASH INVESTED
7.54% '' '' '' '' AND DIVIDENDS INVESTED
AND I AM STILL REINVESTING
hi .. do you copy/paste this? glad you are doing well but you have posted this many times.. hope you are not hyping. I own this and plan to keep it. but these boards can be BS if you arent vigilant.
Wow, sounds like me. I have had DNP in my portfolio since 1983. Same opinion, the only concern is the fact they can't support the dividend at it's current rate for too much longer. Hopefully the economy picks up and they can continue to pay based on earnings.
By the way if your looking for Tax Free returns take a peak at their DTF stock.
Repeat: i think the wheels come off this bus when short term interest rates go from close to zero, to a lot higher than they are now. I have no idea when that is -- could start in June, or it could be years off. But the fact is, they currently borrow $1 billion to support at LIBOR + < 1%. That's (nearly) free money. They use the short term bank borrowings to buy long duration assets, like utility stocks. As of yesterday, the NAV per share for DNP was $6.62 -- that means if they sell all the assets of the fund, pay off the fund's debt, and then distribute the cash to shareholders, each share gets paid $6.62. The stock trades at $8.98, though, a 35.7% premium to what the assets are worth.
Of the $0.78 per DNP share paid out in cash distributions during the past 12 months, the company has reported that only approx. $0.49 was from net income earned on the portfolio, and the balance was shareholder funds returned. The real yield on this security, therefore, is only 5.4%. House of cards, in my opinion. But the whole thing will keep going until the Fed raises rates, then . . . look out below!
If you started with 35K in 1987 and ended with 68K 22 years later with dividends reinvested, the compounded return is approx 3%. This assumes no taxes paid on distributions.
Please explain your figures.
A 7.5 % return would go from 35K to 170K in 22 years.
Do I think that gets repeated?lol.... probably not. Which of course has absolutely nothing to do with how DNP performed in '09.
But since we're not there-but here, it was impressive of you to pick a past date near DNP's yearly low and say you think you would have been positive on it!
I could say that good companies use low interest loans to fund capital improvents, infastructure, etc., which makes them more profitable in the future. Or simply that as the market rises, DNP's core stocks rise, and the NAV and price change, as they always have. But you would probably disagree, so we'll have to agree to disagree.
What we can do is remember this post- end of the year, 09, and see what happens.
You say the dividends are 'not sustainable', I say they will be as they have for the last 27 years. Also, keep in mind, if the stock does not move one penny from here, I will have beat the Dow in an average year. If it moves up, It will be a trade/buyback opportunity. If it moves down, I will auto reinvest more shares.
Check back in Dec. '10.
I know it's hard to believe, but this is not sustainable. The way DNP sustains a dividend payout substantially higher than the cash income earned from investments is two fold:
1) leverage -- they borrow $1 billion ($400m ARPs and $600m bank line) at what currently is an artificially low rate, and reinvest in higher yielding stocks, principally utility stocks. I am uncertain, but I believe the remaining ARPs will be redeemed by 10/31/2010, when a technical exemption provided by the SEC expires. Currently, approximately 40% of assets are supported by borrowed funds.
2) return of capital -- currently only about 60% of the dividend is earned from net interest income, the balance is paid from NAV as a return on capital.
These factors could continue for a long time, even a very long time. However, they will not continue forever. Eventually, the accomodative monetary policy gets reversed, and short term interest rates will rise. When that happens, the cost of the $1b of borrowing will rise, and net interest income will decline. Inverted yield curve would be a disaster for DNP.
ROC also can be used to sustain the dividend for an extended period, however, with leverage maxed out, this only can be done by liquidating assets (or selling new shares!).
I think the best way to treat DNP right now is with a boxed position -- if you can get the short off. On day 1 of the Fed's next rate rise, sell the entire long side. On that day, the long duration assets (i.e. utility stocks, etc) will be caving in and NAV will dive. In the meantime, just watch, and wait, although, my goodness that flickering flame is sooo tempting . . .
You are correct. Net Asset Value on this fund is a little over $6.28 and the current payout is over 12.4% on net asset value. They can't safely earn that much even with leveraging. It is time to sell now before some of the institutions that own this fund figure out that the dividend is not sustainable and that they are getting some of their own money back each month. There will be some wholesale dumping well before interest rates rise.
Better take another look at ROC. I believe (I could be wrong!) that the reason we see ROC monthly is because the SEC will not let them add in capital gains until the end of the year. I too have held for a long time. Don't remember an ROC in any year. What would your evaluation be without ROC?