Alpine Dynamic Dividend Review
As I stated before, my investment objective is to generate passive incomes from investments. To reach that goal, I am trying to build a portfolio with dividend-paying stocks and mutual funds/ETFs. Among my dividend generators, one that I particularly like is Alpine Dynamic Dividend Fund (ADVDX). I started investing in ADVDX in April 2006 and for the past year ending June 30, 2007, the fund has an annual yield of 13.28%, far greater than any other dividend oriented equities in my portfolio. At the same time, the fund’s dividend-adjusted share price also grew from $11.30 to $13.28.
What gives ADVDX the ability to deliver such a high yield is a unique approach the fund’s managers are taking in identifying and investing in high dividend-paying stocks, domestically and internationally. The fund’s investment strategy can be summarized as dividend capture, value and growth (semiannual report, PDF file). According to fund manager Jill Evans, the dividend capture strategy consists two parts and the first and most effective technique in generating dividends is called high-yield rotation (PDF file), which invests in stocks at the time when dividends are paid:
Tax law mandates that stocks be held for a minimum of 61 days after purchase (including the ex-date) for the dividends they generate to qualify or preferential tax rates (“qualified dividends”?). In High-yield Rotation, we look to purchase high dividend paying stocks and hold them for the minimum 61 day period necessary to achieve qualified dividends. We then rotate that money into other high dividend payers, aiming to capture more than our quarterly dividends per year.
As the fund engages in short-term investing as opposed to the buy-and-hold approach which could hold a stock for years, one can expect a high turnover ratio of the fund. Indeed, according to Morningstar, ADVDX’s turnover ratio is 192%. In addition to rotation, the fund also invest globally in stocks that pay special dividends by, again, applying the technique to buy the stock at the right time to collect high dividend payout. At the same time, the fund also keeps an eye on the stock’s total return. ADVDX’s strategy has produced amazing results since its inception nearly four years ago. From September 22, 2003 to April 30, 2007, the fund has an annualized return of 22.43%, compared to the 12.86% return of S&P 500 index. The following chart shows the hypothetical growth of ADVDX since its inception.
According to Morningstar, as of April 30, 2007, the fund’s top 10 holdings are:
- Atlas Copco
- Bank of America
- JM AB
- General Electric
- Macquarie Infrastructure
- Regal Entertainment
- Altana AG
- United Technologies
- Diamond Offshore Drilling
Currently, ADVDX has nearly 60% of its assets invested in mid- and small-cap companies. The fund pays monthly dividend and has an expense ratio (ER) of 1.18% and a minimum initial investment of $1,000.
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