As those of you who read my articles are aware, I have been concerned about a market correction (or worse) and have been reluctant to make changes to the Protected Principal Retirement Strategy portfolio.
In reviewing the portfolio holdings and evaluating them against earnings, net investment income and dividend/distribution coverage, I have made the decision to eliminate the position in TICC Capital (TICC).
Having purchased TICC at $9.76, we have thus far received two dividend payments in the amount of $.29 each. At Friday's closing price of $10.12 and counting dividends received, we have about a 10 percent profit.
The reason for liquidating this position is my concern that going forward its net investment income (NII) is not going to cover the dividend payment. In addition, TICC is continuing its practice of large secondary offerings.
From its recent quarterly earnings announcement I noticed that NII was $.25 and the dividend declared for the quarter was $.29. This is the second consecutive quarter that NII failed to cover the dividend. For the quarter ending in September 2012, NII was $.24 and the dividend was $.29. The net asset value was $9.90/share.
Looking at TICC's key metrics, we note that the current dividend/earnings per share ratio is 101 percent, the dividend/net asset value is 117 percent, and the price to net asset value is 101 percent.
I am looking at possibly replacing TICC with one (or two) of the closed-end funds that I have been carefully tracking.
EXG is a global fund that also uses an options strategy to enhance capital appreciation. The fee is low (1.05 percent), it presently pays a monthly dividend of $.0813 for a yield of 10.5 percent. EXG sells at a discount of 10.45 percent to its net asset value. Its stock price appreciated about 20 percent in 2012, and is up almost nine percent year-to-date. Its holdings are weighted toward Europe, particularly Germany and Switzerland (stable for now at least), and it owns large-cap stocks.
INB owns a global portfolio (49 percent U.S. stocks) that includes large-cap stocks, master limited partnerships, utilities and real estate. It also uses covered calls and options strategies to enhance returns. INB pays a quarterly dividend of $.28 for a current yield of 10.4 percent, and it sells at a discount of 6.42 percent to net asset value. Baseline fees are a bit higher than those of EXG (1.60 percent). In 2012, its share price appreciated by just over 23 percent and it is up over seven percent year-to-date. The international portion of its portfolio is divided between developed European and Asian countries (including Japan).
It is my intention to sell the TICC position on Monday (barring unforeseen circumstances). At this time I am uncertain as to which (or both of the closed-end funds I will use to replace it.
My gut feeling is to initiate a small position in EXG first, and then possibly follow it with INB.
I have followed with great interest the recent fortune of our portfolio's two U.S. royalty trust holdings - Sandridge Permian Basin (PER) and Chesapeake Granite Wash (CHKR). Perhaps "fortune" is the incorrect term to use at this time. I am spending time this weekend to assess the future distributions (particularly subordination thresholds and remaining drilling obligations) of each in order to decide if, and when I might add a small amount of each to the Protected Principal Retirement Strategy portfolio in the immediate future. Hopefully, I will be in a better position to relate the results of this investigation early next week.
Additional disclosure: The information presented in this article does not constitute either a buy or sell recommendation for any of the stocks mentioned.