I can hear the bell ringing now. The Offerring is 1-for-8, priced at a 10% discount to market, BUT: with a minimum price of 112% of NAV. That's just amazing. These people are very smart.
Also,note Monday's Section 19(a) Notice: > 50% of the July distribution was return of capital.
The bell is ringing. Still, I don't see a dividend cut being forced until the Fed allows short term interest rates to rise to a normal level, and that may not be until 2014. Nonetheless, I don't expect the days of 30%+ premium to NAV to continue. But, I have been wrong before on this one. Who knows.
This rights offering will dilute our investment. However, in my opinion it will recover quickly. It will all depend on how well they do with the new funds. If you look back on the history of this fund they have been very consistant and well managed.
No matter what they do with the new money, whenever rates begin to head back up, the NAV will have to drop. A drop in NAV will create selling pressure that will push the stock much lower. That will happen even with the current portfolio. Remember there is an inverse relationship with interest rates to the value of income stocks and bonds - when rates go up the value of the stock or bond goes down and vice versa. They leverage 50% so the damage done when rates go up will be multiplied. The fund was managed very well for a good number of years but lately I question that. Really good managers would have cut the dividend long ago. Most of the folks getting the dividend really don't realize they are getting some of their own money back just about each and every month lately. Those who love it probably also don't understand that falling interest rates over the past five year or so have shored up the NAV. DNP, as good as it has been, is on thin ICE and I believe this rights offering, as someone above said, is a ringing of the bell. Time to get out!!!!!