Today's press release on the fund's second quarter results shows the fund earning 0.24 a quarter, or 0.08 a month. The dividend is currently 0.085 a month. There is a slight surplus in undistributed earnings. That won't last long. So as reported in the press release the fund is distributing about 11.76% more than it earns. This is about where it was back in February.
From these results it would appear that a dividend cut may be coming. On the other hand the figures may not be what they appear to be. The DHF fund I owned was showing an income greater than their dividend and yet they unexpectedly cut their dividend last week for no apparent reason (that I could see). I had the same experience with several Nuveen funds that showed surpluses and then unexpectedly cut their dividends. And some funds I used to own, especially the PIMCO stuff (PHK, PGP) have gone for months with a negative undistributed income without cutting their dividends. They show it as return of capital. It is difficult for an outsider to figure what is actually happening with a fund. What I'm trying to write is that it looks like a dividend cut may be coming but nothing is certain until we actually see it.
I think you are absolutely wrong. None of the dividend is being paid from capital, they are earning what they are paying out. From the fund card dated 9/30/12, it only shows results to 5/31/12 for this fund. the NII is 0.24, the monthly dividend is 0.085 * 3 (three months in a quarter) is 0.255. Which means they are about half a penny short every month. Hardly a concern.
As far as I understand the fund must file a sec19 in the month that capital is used to pay dividends, and this fund has not done this.
I have owned the comparable fund NCV since early 2008. These funds flucuate a lot, but you still get the dividend. I am imagining the dividend will but cut at some future point, but that might be years away. I don't think I have missed a dividend since I purchased over 4 years ago.
I think you have captured the situation pretty well but one comment I would make is that the fund currently has about 3% of its assets in cash which of course could be deployed for income. Having said that, it doesn't appear that this would be enough to get the NII where it needs to be. Also, I don't see how they can go from $0.0229 UNII on 2/29 to $0.0112 3 months later when they are missing earning the div by $0.005/month???
The press release for the September dividend just came out. No change in the dividend. Ex date in August 9th, payable date is September 4th (Monday Sept. 3rd is Labor Day). Another month, another dividend.