Why I Like The Alpine Dynamic Dividend Fund (ADVDX)
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.
Popularity: 68% [?]
November 18th, 2009 at 2:10 am
How did that work out for you? As of 11/09, you have lost more than half your money and the income stream has declined and is unsustainable at over 20%.
December 7th, 2009 at 7:20 pm
cgbearister:
Considering that the article was written well before the big stock market crash of 2008, I did not do so bad. I do not know how you came to the conclusion that the income stream has declined, it did not. I am now earing more income from my investment in ADVDX then ever before. This is due to the constant reinvestment of dividends and at the much lower share price each reinvested dividend payment buys me more shares then it would have at the higher share price, thereby increasing the rate of growth of the monthly income stream. I am also not sure why you would assume that the dividend is unsustainable and would have to dissagree with you on that assumption.
Now it is true that the value of the investment has declined substantially since the stock market crash, but I have offset it quite a bit by purchasing large amounts of shares at lower prices (during times of panic) to balance out my average cost of each share. Plus the huge dividend has also helped in maintaining the value of the total investment. If a security you own goes down in price 50% but during that time earns you an additional return of 25% of your initial investment which is re-invested in the same security did you lose 50%? I think not.
Furthermore I am not really concerned with the total value of the shares as I do not need this money to live on. I am more concerned with the income it generates and the rate of growth of that income stream. As I stated in the article, if one owns this fund for the right reasons (The Income Stream), short term price movements are relatively meaningless. This is a long term investment for me and I am sure that 20 years from now the share price will be much higher. I do not judge my long term investment strategy by what happens in a given year, I have a much longer outlook on things and confidence that the right strategy will be successful over time.
Speaking of share price, I would actually prefer it if the share price stayed low as this increases the number of shares the same dividend payment buys and over a long period of time has a huge effect on both your monthly income stream and the total value of your investment.
In conclusion I will say that I still own and like this fund and that I am still adding to my position on a regular basis. ADVDX is diversified, uses dividend capture and management seems very comfortable with their strategy. I think that the long term future for this fund is positive. Is this investment right for me? Yes. Is it right for everyone? Most definitely not. We all need to do our own due diligence and insure that our investments are appropriate for our risk tolerance level and investment strategy. Also keep in mind that you should never put all your eggs in one basket and this is just one out of many stocks and funds that I own in my passive income stock portfolio.
March 29th, 2010 at 12:38 pm
The current 22% appears too good to be true.
How are they able to pay dividend @ 22%, while most of the individual holdings do not pay more than 5%? Just by the ‘rotation’ mentioned in the original article?
Is it truly a dividend? Or capital distribution disguised as dividend? Or a ponze scheme of taking new buyer’s money to pay the those who already own?
April 6th, 2010 at 11:06 am
P.Jonnal:
It’s safe to say this is no ponze scheme or anything shady of the sort.
If you take a closer look at the way ADVDX pays it’s dividends you will see that there is currently a $0.07 per share monthly dividend and a larger dividend which is payed out quarterly. The $0.07 monthly dividend is all income from dividends collected via the rotation strategy and the larger quarterly dividend includes the regular $0.07 per share dividend income, additional dividend income from global stocks which pay a special dividend and the capital gains from selling the stocks after the 61 day holding period. Since ADVDX engages in short term investing as opposed to the longer term buy and hold approach, we can expect a high turnover ratio of the fund. According to Morningstar, ADVDX’s turnover ratio is 192%.
I was actually expecting a dividend cut early last year during the financial crisis, but no cut came which tells me that the fund managers must be doing something right.
For disclosure reasons let me say that I still own quite a bit of ADVDX which is currently the largest single security in my portfolio, and I am still adding shares to my position on a regular basis no matter what the markets do.
Another good question would be, what will happen to ADVDX after January 2011 when the “qualified dividends” go the way of the 8-track? This is due to the shifted political climate in which the Democrats currently control the presidency and both houses of Congress. Their socialist leanings are never good for business, investors or our economy, but unfortunately they never learn. With the Democrats getting rid of the Bush tax cuts, the “qualified dividends” will be gone and we will ALL be paying a much higher tax on dividend income since it will be taxed as ordinary income. It is unfortunate that the Democrats do not realize that if people are allowed to prosper it will ALWAYS trickle down to every part of our economy and benefit us all, but I guess that does not go well with their idealistic income redistribution model.