Alpine Total Dynamic Dividend Fund: Diverse, Flexible with Smart Management

In December 2007, I began looking at the Alpine Total Dynamic Dividend Fund (AOD). This is a closed-end fund with an investment objective to invest in equity securities that provide high current dividend income. The fund attempts to optimize both dividend income and long-term growth of capital. This is a very diverse and flexible fund. It employs a global, multi-cap, multi-sector, and multi-style investment approach. The fund combines four research-driven investment strategies – Growth, Value, Special Dividends, and Dividend Capture Rotation.

One of the reasons I found AOD appealing was its international exposure. Unfortunately, the international diversity has not helped it performance. In the last year, the fund has declined dramatically more that the market. My original December 2007 purchase was at $18.93 and recently the stock has been trading under $6. On the plus side, the fund has not cut its dividend... yet.

With a yield just under 40%, no announced dividend cut is good news for shareholders. I doubled my position in October 2008 when the fund was trading at a 20% discount to the underlying securities. I have enjoyed 3 months of its high yield. However, I am significantly overallocated in AOD so I began reducing my position in December. It is my plan to bring its allocation in line gradually, over the next 4-5 months. So what's happening with the fund now?

On December 22, the Board of Trustees of the Alpine Total Dynamic Dividend Fund declared a regular dividend of $0.18 per share for the month of January. The amount is unchanged from prior dividends. However, declaring only one-month's dividend was new. Historically AOD declared monthly distributions for three months at a time.

The release stated:

Given the nature of the current market environment, the Board thought it prudent to shift to a monthly (versus quarterly) frequency of distribution declarations. Chief Investment Officer Steve Lieber explained:

Economic conditions, government interaction and dividend policies are all in the midst of rapid change. During normal times, we would have enough visibility to comfortably project out three months, but these are far from normal times.

Lieber went on to describe the Funds’ management view:

We have several strategies available, which have contributed to our efforts to sustain the distribution at current levels. We look forward to a reversal of the momentum of capital erosion in the world’s equity markets and a return to stable conditions.

The release also announced the regular quarterly closed end fund conference call via a new webinar format on Tuesday, December 30. I listened in on the call and picked up the following items:

• The fund is diversified in 125 companies and 20 countries.
• Leverage is available to the funds, but they are currently not levered.
• The fund has opportunistically purchased $112 thousand shares of AOD when share price is substantially below the NAV.
• Jill K. Evans, AOD fund manager, is cautiously optimistic for 2009.
• 80% of companies held raised their dividend, 12% were flat, and 6% were flat.
• Of the four strategies employed within the fund, the dividend capture strategy with a flat return was the best.
• The fund has assumed a "safe" position by moving most of its investments to the U.S. and focusing on strong and undervalued companies.
• 40% of the companies invested in have a single digit P/E.

Alpine's Real Estate (AWP) fund slashed its dividend to $0.03/share. The fund manager responded that since it must be 80% invested in real estate at all times, AWP has less flexibility. When asked how much of AOD's dividend is from earned income, Evans responded 100%.

I still think AOD will be forced to cut its dividend in 2009, but I don't believe it will be as dramatic as AWP. The management team is smart and they understand why investors bought the fund to begin with. They appear to be prudently managing the fund to preserve dividend income without unnecessarily increasing the fund's risk level - exactly what I am doing in my personal portfolio.

Full Disclosure: Long AOD.

Comments

[granger:]

Thank for the article.

Jan 01 01:07 PM

[henarl:]

I'm also long AOD. I bought 3000 shares at average of $17 when the yield was about 12 1/2%. Now that the yield is about 35% I intend to keep this position. I expect they will reduce the dividend and that will probably drive the share price down even farther and then I will buy another 2000 shares at the lower price if they don't lower the dividend too drastically.

Jan 01 01:48 PM

[Sapphire:]

I did some research on AOD a few months ago, called Alpine and talked to them, and came to the same favorable conclusions as the author. The management team is smart and is running the fund the way I'd manage my own portfolio if I had the time and talent. I also like that it does not include any return of capital in its monthly distribution.

I've been adding to it regularly, as I think it's a great value at with significant upside potential. This fund now trades at a discount but in the past has sometimes traded at a premium.

Jan 01 08:44 PM

[You're Kidding:]

I believe Dividend Capture Rotation is buying the stock, getting the dividend, and then selling out in minimal time, hopefully to make money quickly on the dividend itself, without the risk of owning the stock for very long.

If this is correct, then the strategy is a waste of time, because on the ex-dividend date, the exchange lowers the price of the stock the exact amount of the dividend, just before the open. After all, the company's value has just dropped the amount of the dividend, so why should new buyers not pay that much less for the stock?

Perhaps I am missing something here, but I don't think so. It appears that companies using this so called strategy, are really trying to con new business from naive investors. After all, who doesn't want free money? And, of course, it is out there for the easy picking somewhere, isn't it?

Jan 02 05:38 AM

[BULRUN100:]

YES!Your miss something do some research!


On Jan 02 05:38 AM You're Kidding wrote:

> I believe Dividend Capture Rotation is buying the stock, getting
> the dividend, and then selling out in minimal time, hopefully to
> make money quickly on the dividend itself, without the risk of owning
> the stock for very long.
>
> If this is correct, then the strategy is a waste of time, because
> on the ex-dividend date, the exchange lowers the price of the stock
> the exact amount of the dividend, just before the open. After all,
> the company's value has just dropped the amount of the dividend,
> so why should new buyers not pay that much less for the stock?<br/>
>
> Perhaps I am missing something here, but I don't think so. It appears
> that companies using this so called strategy, are really trying to
> con new business from naive investors. After all, who doesn't want
> free money? And, of course, it is out there for the easy picking
> somewhere, isn't it?

Jan 02 01:09 PM

[wlw145s:]

This article discribes dividend rotation/capture strategy nicely.

www.123jump.com/mutual...

To be effective the strategy requires the flexablility that AOD has. I will be excited to how AOD does as we move to a more "normal" market. I've been watching AOD since it IPO'd and I am impressed that they have been able to maintain the dividend for so long. I also expect a reduction in the dividend, but it should return as the market smoothes out. I'm a young investor so I was less concerned with value, however, since the fund is so depressed and is getting a near 30% annual yield at current dividend I've been snapping some up...

Jan 05 10:42 AM

[Thrift Maven:]

Yes, you are missing something. Very often, a stock will have a noticeable increase in price 1-3 weeks before it is to go ex dividend.
It is not necessary to actually capture the dividend to capture a worthwhile blip in stock value - sometimes more than the actual dividend.


On Jan 02 05:38 AM You're Kidding wrote:

> I believe Dividend Capture Rotation is buying the stock, getting
> the dividend, and then selling out in minimal time, hopefully to
> make money quickly on the dividend itself, without the risk of owning
> the stock for very long.
>
> If this is correct, then the strategy is a waste of time, because
> on the ex-dividend date, the exchange lowers the price of the stock
> the exact amount of the dividend, just before the open. After all,
> the company's value has just dropped the amount of the dividend,
> so why should new buyers not pay that much less for the stock?<br/>
>
> Perhaps I am missing something here, but I don't think so. It appears
> that companies using this so called strategy, are really trying to
> con new business from naive investors. After all, who doesn't want
> free money? And, of course, it is out there for the easy picking
> somewhere, isn't it?

Jan 16 10:52 AM

[chessexpert:]

I was looking at AOD. The fund gives great dividends but has fallen in value since inception. The Dow fell around 19%, while AOD fell about 58%. I can't quite see that the cumulative reinvested dividends make up the difference. Too bad. If someone can convince me that I missed something, I will take another look. But until that time, I have to conclude that this fund is not the way to go.

Nov 13 07:58 PM