Alpine Dynamic Dividend Review

alpine dynamic dividend fund 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.

advdx

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
  • PepsiCo
  • 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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9 Responses to “Alpine Dynamic Dividend Review”

  1. Jeremy |  Jul 26, 2007 at 10:16 am

    Thanks Sun, this is fantastic! I am all about investments with high yields or dividends. During the accumulation stage of investing it is amazing to see how quickly the reinvested dividends can grow. Then down the road when you need to start taking money you can begin taking the dividends as income.

    I guess I’ll have to take a look at this one a bit and see if it has a place in my portfolio. Thanks!

  2. Moneymonk |  Jul 26, 2007 at 11:40 am

    You cannot go wrong with General Electric. It’s good to know there is useful information out there. Thanks for sharing. Seems like another good income stream

  3. Novice |  Jul 26, 2007 at 11:48 am

    Sun, I am not sure whether I fully understand this fund. What if other funds try to copy the same strategy ( dividend capture & rotation) eventually they would start pushing the stocks higher before the planned buy and lower before planned sell.

  4. Brad |  Jul 26, 2007 at 4:18 pm

    Sun, do you invest in this fund directly or through a broker? Is it in a taxable account? You’ve really piqued my interest here.

  5. Sun |  Jul 26, 2007 at 10:05 pm

    Novice: Yes, if everybody starts to use the same technique, then the technique and the fund will get killed. However, I feel that the technique is the result of the fund’s investment objective, i.e., to generate maximum dividend. I don’t think that every fund will have the same objective, even for some income funds that invest in dividend paying stocks. Many fund take the buy-and-hold approach and invest in companies that have long dividend growth history. That investment objective may determine that they are going to use the same strategy ADVDX is using.

    Brad: I bought the fund last year from Fidelity when they don’t charge commissions (now I believe they do). No particular reason. I just want to reduce the number of accounts I have (I usually buy mutual funds from the fund company directly). It’s in the taxable account since I want to have the flexibility to purchase more shares. However, most of the fund’s dividend distribution qualifies for a lower rate (15%). So it’s not too bad.

  6. Brad |  Jul 27, 2007 at 9:40 am

    Sun–

    Thanks. It seems like Capital Gains would be a real problem too, with all of that turnover. Is that not the case? I looked into Alpine and it seems I could open a Roth IRA with them, so I’m exploring that option, especially if they have automatic dividend reinvestment.

  7. Sun |  Jul 27, 2007 at 11:21 pm

    Brad: This is what I found from their annual report:

    “For the six months ended April 30, 2007, ADVDX paid $0.98 in dividend income, with nearly all of the distribution estimated to be qualified for the maximum taxable rate of 15%.”

    And when I check my 2006 1099 form, all the dividend distributions are qualified dividend, not capital gains. So even with the high turnover ratio, the taxes aren’t that bad to hold it in a taxable account. If you invest directly with the fund company, you will get the dividend reinvest option. The fund is worthless if the dividends are taken as cash.

  8. Taylor |  Aug 06, 2007 at 12:02 pm

    Not only do I own a slug of advdx, I’ve recently discovered a unique ‘income fund’(conservative allocation fund)for pre and retirees, IMSIX.

  9. Sun |  Aug 06, 2007 at 11:01 pm

    Taylor: I will take a look at the fund you mentioned. I didn’t know that fund, but with a yield at 6.7%, it sure looks interesting.