- Has paid a monthly 6.5 cps dividend since July 1997.
- Manager in place since 1998.
- Substantially below historical premium/discount to NAV.
DNP Select Income (NYSE:DNP) is a Closed-End Fund that has paid a 6.5 cent per share monthly dividend since 1997. It premium to NAV has fallen from a high of 39.7% in 2012 to its current 4.4%. Current investors are collecting a 7.5% dividend plus have potential price appreciation should the premium revert to the mean.
DNP has been around for 27 years and Nathan Partain has been the Fund Manager since 1998. In addition to running DNP, Mr. Partain is also the President and Chief Investment Officer of Duff and Phelps Investment Management.
DNP pays a monthly 6.5 cps dividend under its Managed Distribution Plan. Dividend coverage from Income has fallen from 88.7% in 2010 to 46.3% this year. Prior to this year, the deficit was primarily supplemented by distribution of capital gains. However, this year the Return of Capital component has grown to 37.1% from 13.8% in 2010.
A look at the Semi-Annual Report reveals that the annualized dividend payment will be about $213MM. This is 8.7% of its fiscal year-end assets of $2.45B. The problem, however, is that the portfolio only generates annualized income of $109MM, which results in a deficit of $104MM. The Fund raised $263MM from issuance of Mandatory Redeemable Preferred Shares and also has raised a net $45MM over the first six months of the fiscal year from its investment portfolio activities.
DNP invests primarily in the Utility Sector (60.8%) with the balance primarily in Energy (27.9%) and Communications (11.3%). Its three largest holding are NextEra Energy (NYSE:NEE), Sempra Energy (NYSE:SRE) and Northeast Utilities (NYSE:NU).
NAV growth over the last 5 years has been fairly steady with a gain of 8.6% in 2012 its worse year and a gain of 24.7% in 2009 being its best.
DNP is currently trading at a 4.4% premium to NAV. This, however, is at significantly below the weighted 5-year average of 18.3%. The highest premium was 39.7% in 2012 and the lowest was 1.8% earlier this year. If the premium reverts to the mean, this implies potential price appreciation of 13.5%.
Other Utility CEFs
UTG pays the lowest dividend of the 3 and its dividend coverage is in the middle. It trades at a discount to NAV and has the potential to rally 6.3% if it were to revert to the mean. Its weighted NAV return of 22.% is below that of UTF.
UTF is the safest pick of the 3. It's yield of 6.3% is 81% covered by investment income. It trades at the lowest discount at -12.5% although it is not too far below its weighted average. Its NAV return is the highest at 22.5%.
Conservative investors may opt for UTF, but more aggressive investors may choose DNP as its weighted NAV return is 2.4% below that of UTF, but it offers the greatest reversion to mean premium/discount compression.
|Fund||Yield||Div. Cov||Prem/Disc||Wgtd P/D||Wgtd NAV Return|
Sources: Morningstar.com, CEFConnect.com, Dividend.com
"Div Cov" is the amount of Dividend that is covered by Investment Income. "Wgtd P/D" is the weighted premium/discount over the last 5 years. "Wgtd NAV Return" is the weighted NAV Return over the last 5 years.
DNP is a steady payer with the potential for its premium to NAV expanding. Conservative investors will love the 7.6% dividend while aggressive investors may be rewarded with an expansion of the premium to NAV.