On Tuesday, Alpine Global Premier (AWP) announced a monthly dividend increase for the March-to-May period. I believe the 10% monthly dividend increase is best characterized as a small first step onto a very relevant path. The fund is still paying shareholder dividends at a much slower pace than the earned income for eventual shareholder distributions accumulates. The slower the start, the bigger the future dividends in June-to-December 2010 would be. This path infers a larger eventual 2010 premium, in my view.
My thesis is that AWP will trade at a premium in 2010. Before discussing the extent to which Tuesday’s announcement and follow-up verbal color serve as milestones, I want to point out an erroneous speculation on my own part. I speculated that Alpine would normalize its monthly dividend in one fell swoop. While AWP did begin raising dividends in the exact period I expected, and while the allocation of less income to early months merely leaves more income for later months, my speculation as to how the dividend increases would be carried out was still wrong.
The knee-jerk market reaction Tuesday demonstrated chagrin that the March-to-May period’s monthly dividend is still only a small fraction of what AWP’s asset class and dividend capture strategy is actually gathering monthly for eventual 2010 distribution. The intra-day chart suggests disciplined short-term traders exited; they should be frustrated that a more time-balanced share of earned income is factually not being distributed sooner.
I am never personally opposed to closing out a position if my thesis is no longer fully merited by facts or observations, or if other circumstances change. That is not the case here. My great investing frustration on the 12th was my own lack of intermediate or long term capital to allocate on the intra-day weakness.
What I have done is taken a step back to reassess the now broader collection of facts as relate to my thesis. My conviction in the intermediate-to- long term thesis is stronger based on the marginal changes to the dynamics which I expect to affect the year-end market value of AWP.
I have confirmed the ongoing nature of the dividend capture strategy with Alpine Such confirmation was critical in anticipating the income that needs to get fully distributed to shareholders as dividends eventually in 2010. Alpine also verbally demonstrated an interest to further increase the AWP monthly dividend again.
Supply and demand forces for certain groups of Closed-End Funds are not exorbitantly sophisticated. The heavy distribution / heavy premium peer-group (Alpine Funds AOD and AGD as well as GUT, PGP, CFP, CLM and CRF) trade largely on current yield. This statement is not an endorsement, merely an observation from my perspective.
My own hypothetical 76 cents of 2010 earned income for AWP could be segmented a number of ways. What is defined now is that only 15.9 cents will be distributed through June. Based on the 76 cents, an average of an eight to nine cent monthly dividend for July-to-December may be necessary to distribute dividends without another end-of-year special dividend. Does 8.5 cents per month sound like a forceful yield that would drive AWP to a meaningful premium?
Talking about Closed-End Funds moving to premiums is taboo, and readers should be extremely skeptical. A professional money manager could not act responsibly on such a published limited scope thesis without a broader understanding, among other due diligence. Free information is sometimes worth less than what was paid for it and nobody (myself included) should be above such skepticism.
Skepticism is an important principle to me. I’ve thrown some high level challenges at myself, including the governance issue of AWP creating a high distribution benchmark for 2011. Sometimes challenges collapse a house of cards. Other times, they cause me to realize the relevance of detail in certain surrounding puzzle-pieces and say “Eureka”. Discussion of high level challenges to my thesis is excluded from this article. This article is a limited-scope representation of my own thesis which may at any time be (or have been) disseminated privately with a broader scope by me.
Disclosure: Long AWP and a small position in CFP. No other positions in securities mentioned