The company announced at the close that it was dropping the dividend to 5.5¢ a month beginning with the July distribution. The June dividend was 12¢.
The close was $6.02, and in after-hours trading the price dropped to $5.70 (so far).
The lower dividend, annualized, is 12.11% of Wednesday's closing net asset value of $5.45 per share, 11.6% of the after-hours low (so far), and 11% of today's close.
My low "no-surprise" cut was to 8¢ per share, so this is lower than I expected. In the conference call, the company said that the dividend could be changed as events warrant. The 5.5¢ level was announced for three months: July, August and September.
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The Alpine Total Dynamic Dividend Fund (AOD) is treating Wednesday's low, $5.95, as support. The fund's managers plan a conference call at 4:15 p.m. Eastern.
| trend | adx | psar | pps | macd | macd trend | sto | sto trend | |
|---|---|---|---|---|---|---|---|---|
| AOD $5.96 |
The fund managers are sure to talk about exposure to the eurozone in light of the debt crisis in southern Europe.
The July dividend amount is certain to be announced.
Find the webcast here.
June's dividend was 12¢, or 1.8% of the closing price on the day of the announcement, May 21. If AOD adjusts July to the same percentage of the current price, the dividend would be 11¢.
Looking at it another way, prices for much of April were quite steady at around $9.30, and a 12¢ dividend would be 1.3% of that price. Applying to the percentage to the current price, the July dividend would be 8¢.
So I would argue that the market is pricing in a dividend cut of anywhere from 1¢ to 4¢. A 10¢ dividend declaration, 1.7%, would not surprise me at all.
Either way, we're talking a whopping big dividend: 1.8% is 21.6% annualized; 1.7% is 20.4% and 1.3% is 15.6%.
Another reason for thinking that a dividend cut is possible is this statement from the May 21 press release announcing the June dividend:
Given the heightened concerns about global market volatility, with particular focus on European instability, AOD will declare one month of dividend distribution at a time for the near term. This reflects recent pressure upon the Fund’s substantial European holdings in view of the year-to-date decline of 24% in the EURO STOXX 50 Index, adjusted for U.S. dollars. Europe continues to be the largest source of dividend opportunities for the Fund.Or perhaps they'll retain the 12¢ dividend, which would be a happy price-boosting surprise.
All of this underscores the complexity of pricing for a closed-end fund like AOD, which I discussed on Wednesday.
A normal corporate stock is priced based on the expectation of the company's performance (in theory at least -- a huge amount of trading is pure short-term momentum speculation, call it "Little Mo'").
A high-yield closed-end fund like AOD is priced is based on:
- The performance of the component stocks, which are hidden from trader's except for occasional snapshots,
- Expectations for the regions in which AOD is likely to hold stocks,
- Expectations for relative interest rates, because of the high dividend,
- Expectations for the long-term price performance of the fund (Big Mo'),
- And to a certain extent, very short term price expectations (Little Mo').
That's a lot of moving parts, many hidden, and I don't think anyone, except possibly the fund managers, can make a decent stab at forecasting the future course of AOD. So, it's a strange bird: It fluctuates like a volatile stock, it carries a big dividend like a long-term bond, its fundamentals are an unknowable mystery.
So a trader really has two choices:
- Trade in and out based on the signals (which would have gotten me out, worst case, at $6.54 on Tuesday). This strategy cuts into profits because of trading fees, and runs the risk of missing out on monthly dividend distributions.
- Hang on to the shares during downturns, in the expectation that the price will eventually turn up, and in the meantime, collect those dividends. This has the disadvantage of sticking the trader with large capital losses if he or she needs the money and is forced to sell, or if the price never recovers -- always possible.
OK. The credit bubble burst. Housing, burst. Shockwaves reverberated. Markets collapsed. What lies ahead as we remerge from the wreckage.
Disclaimer
Tim Bovee, Private Trader tracks the trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment. No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.Abbreviations:
- psar - Parabolic Stop and Reverse
- adx - Average Directional Index
- pps - Person's Proprietary Signal
- ma20 - 20-day moving average
- macd - Moving Average Convergence-Divergence
- sto - Fast Stochastic
- trend: Determined by the 5-day moving average, green for up, red for down, yellow for sideways
- adx: orange for above 30-up, blue for 20-down, purple for in the middle. Red is most prone to whipsaws
- psar, pps, macd: green for bull mode, red for bear
- sto: green for overbought, red for oversold, yellow for the neutral zone.
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