High yield fund at a discount

Posted by Tim

July 1, 2008

I added the Alpine Global Dynamic Dividend Fund (AGD: 8.71 +0.94 +12.10%) to this site’s Income Portfolio primarily to get some exposure to higher yielding international stocks. I like the fund for several reasons:

It gives exposure to high-yielding international stocks.
They do not use leverage or pay out capital to sustain the dividend.
They use a dividend capture strategy to collect extra dividends during the course of the year, enhancing the yield.
High dividend yield, paid monthly.

However, this closed end fund has not been performing well since the start of the year, with further acceleration downward over the last couple of months. I chalk this up to a couple of reasons: They have a significant international exposure, which has generally underperformed for the last couple of months. And, primarily, many higher yielding stocks will be financials, which have bet hit as hard through out the world as well as on the U.S. markets.

A final point hurting the share price has been the erasure of the share price premium to NAV. For the last several months the shares have carried approximately a 10% premium to the NAV. By yesterday, the premium had been erased to a slight discount. This is the first time since May 2007 that the shares have traded at a discount to NAV. I am not sure this means anything other than a buyer is not paying a premium for the shares.

At this price level the shares are yielding over 13%. During a recent investor conference call, the management team indicated the current dividend could be carried through at least the end of the year. Over the last few months, I have become painfully aware of trying to catch the bottom of stocks falling this rapidly, but it appears at this yield (assuming it holds) the bottom should be near for AGD and you are being paid well for the speculation.

Note: I currently do not have a position in AGD.