Income Portfolio Additions
I have been looking for a couple of securities to round out my Income Portfolio. Currently the portfolio consists of only 7 stocks: 3 energy LPs (or Canadian royalty trust), 2 oil tanker stocks, a REIT and a bank. To give some balance and hopefully a little stability to the portfolio I am now adding a CEF and an ETF. Both pay monthly distribution, always a nice factor, and give some opportunity for future capital appreciation.
First up is the ETF: PowerShares Preferred Financial Portfolio (PGF: 21.42 -0.01 -0.05%). This fund tracks an index of preferred shares of financial institutions. PGF is about 40% each in the preferred stock of insurance and banking. The balance of about 20% is diversified financial services. The current distribution yield is right at 7%. Financial companies have had a terrible last year (self inflicted!) but many good companies have been driven downward at the same time. I think PGF is a good place to invest for income and the possibility of price appreciation if/when the financial sector recovers.
The closed end fund (CEF) that has caught my attention is the Alpine Global Dynamic Dividend Fund (AGD: 18.98 +0.09 +0.48%). This fund employs several strategies to maximize tax advantaged dividend income. Here is an outline of their stated strategies (paraphrased):
- High dividend value stocks: High yielding companies that management feel are undervalued. Global approach to find opportunities.
- Dividend “capture” strategy: Rotation in and out of high yield stocks to capture extra dividends paid in different months and special one-time payouts.
- Growth potential: Attractive yielding companies with potential for earnings and dividend payout growth. Again, a global approach to selection.
Some positives for the fund are that they do not use leverage or sell covered calls to enhance the yield. All payouts have been earned income, not returns of capital. Also, AGD definitely has a global approach; only 22% of assets were U.S. based companies. Current yield for AGD is 10.2%. If someone is planning on investing with a tax advantaged account, they may want to look at the similar, Alpine Total Dynamic Dividend Fund (AOD: 17.15 +0.08 +0.47%), which cares not about finding tax advantaged dividends and yields and attractive 12.4%.
I do have a couple of concerns about the fund. First, it currently trades at a 13% premium to NAV. Historically, the fund has traded at a premium, but this is at the high end of the range. The other concern is the NAV errosion: Is it due to market conditions or the result of faulty trading activity in the dividend capture strategy? Adding AGD to this site’s Income Portfolio give me the opportunity to watch for buying opportunities if the price/NAV premium narrows.
Note: I currently do not have a position in PGF, AOD or AGD.
Filed Under Income, InternationalComments
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