Since my investment objective is to generate a passive income stream from various investments, I tend to look at those securities (stocks, funds, ETF’s) that pay a healthy dividend. One interesting and promising approach to dividend investing is a mutual fund that sticks out from all the rest, the Alpine Dynamic Dividend Fund (ADVDX) managed by Jill Evans and Kevin Shacknofsky of Alpine Funds. It is a unique mutual fund in that a part of it’s strategy is something called dividend rotation, which allows for the funds 13.57% annual yield, far greater than any other dividend oriented equities in my portfolio. In addition to rotation, the fund also invests globally in stocks that pay special dividends by, again, applying the technique to buy the stock at the right time to collect the high dividend payout. ADVDX is a well run fund that has truly reinvented the process at going after all the dividend income they can.

This fund is also very well diversified with a split between U.S. and foreign stocks, a nice amount of large caps, mid caps and some small caps.

As of September 30, 2007, the fund’s top 10 holdings where:

• BHP Billitom Limited (BHP)
  
• Man Group
• Macquarie Infrastructure Trust (MIC)
• Temple-Inland Inc. (TIN)
• General Electric (GE)
• United Technologies Corp. (UTX)
• Textron Inc. (TXT)
• GateHouse Media, Inc. (GHS)
• Fluor Corporation (FLR)
• Principal Financial Group Inc. (PFG)

The fund pays dividends monthly and has an expense ratio (ER) of 1.18% and a minimum initial investment of $1,000.

What is Dividend Rotation?

Dividend rotation allows one to collect about six dividend payments in one year instead of four quarterly dividend payments one would normally get. This works by holding a dividend paying stock for 61 days in order to qualify for preferential tax rates (“qualified dividends”). After the dividend is paid the stock is sold and the money is rotated into another high dividend paying stock, to capture more then the normal quarterly dividend per year.

A good read regarding this fund is “A Conversation with Jill Evans” which you can find here.

Taking Income Responsibly

If you are not currently retired you should be reinvesting 100% of your dividends. This allows you to build shares over time thereby increasing your income. With this fund, if you are reinvesting 100% of your dividend income, your income will double approximately every five years. Not too shabby.

If on the other hand you are already retired I recommend a 75%/25% split where you reinvest 25% of your dividends and take 75% as income. Doing so allows oneself a high income stream along with an inflation guard over time of compounding income!

Know what you own and why!

Keep in mind that ADVDX is an income fund NOT a capital appreciation fund. If you are looking for your share price to go through the roof this fund is not for you. The only reason one should own this fund is for The Income Stream. If one owns this fund for the right reasons (The Income Stream), short term price movements (short of Armageddon) are relatively meaningless. When the funds NAV falls to a low level your reinvested dividends are buying you more shares then at a higher level thereby growing your income faster. With this fund I look at market downturns as buying opportunities and not panic driven reasons to sell. This product is designed for those who would rather have ‘more income today’ than yesterday, in spite of the fact the value of the shares generating that growing income stream are higher or lower.

Conclusion

I have owned this fund for about 2 years and am very happy with both the high income it is generating and the rate at which the income is growing. This fund represents a great concept whether one is ‘accumulating’ which creates high compounding growing income, or if one takes the income in cash, providing they take that income responsibly.

In current uncertain market conditions ADVDX has been beat up like most other funds, stocks and ETF’s, which in my eyes opens up a great opportunity to pick it up at a huge discount and lock in a 15%+ dividend return (If purchased in the $10’s in this current panic driven market). Since the fund is currently at a four year low I have been aggressively adding to my ADVDX holdings over the last several weeks and will continue to do so on any further weakness in the market.

If you are just getting started out with this fund and do not have a lot of money to invest, you can pick up the minimum $1000 initial investment and add to your holdings each day that the DOW is down 50-100 points. Buying on down days is a good way to dollar cost average into this fund.