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FIRST OPPTY FUND Message Board

  • falmouthharbor falmouthharbor Aug 17, 2006 2:22 PM Flag

    Phill/Bob

    The only concern I have is that in past years they had enough income to pay the dividend without having to sell more stock to get cash.
    But in the end of year statement for last
    December they earned much less than the dividend payed out.I dont see anything that has changed to increase their net income. So they will have to sell interest paying loans they hold in order to get cash and thus reduce (Further) the Net Asset Value (NAV) of the fund. Eventually it will be reflected in a stock price drop.

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    • How do they generate income?

      • 2 Replies to phillipjmonkey
      • Income comes from the dividends from stocks and bonds of other companies they hold. Capital gains come from the sale of stocks that have appreciated. They have stocks they have held for years with large unrealized capital gains. In a year with little or no increase in NAV, they can still pay out a large amount of capital gains by selling some of these stocks. Both these distributions reduce the price of the stock by a like amount, so they are really just giving shareholders their own money back. The important thing is NAV has increased nearly 20% a year for 20 years, which is quite an accomplishment.

      • They generate income from dividends (about 1 percent) and sale of securities that have increased in value (capital gains). Any time they make a payout they classify it as a dividend payment or long-term capital gain. Every time they make a payment it reduces the net asset value. If they pay out $3 this year, even though their NAV is flat or even down a little, it will be because they have accumulated long-term capital gain in stocks that they have sold. Once they have no further long-term capital gain in any stocks, they won't make a large payment at the end of the year. However, years like this year where NAV hasn't increased are usually followed by years where it increases substantially, building up enough long-term capital gains to cover years like this. It can be confusing. Ideally the NAV goes up 20% and they pay a 20% return. At the end of the year after the payout the stock is where it was at the beginning, but you've gotten back 20%. In 10 years, if you reinvest your yearly payments, your $1,000 investment will be worth over $6,000.

 
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