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The Nuveen Tax-Advantaged Dividend Growth Fund (NYSE:JTD) seeks to provide an attractive level of current income and capital appreciation. While pursuing these goals, the fund tries to reduce and defer federal tax liabilities.

The fund's investment strategy consists primarily of owning a diversified portfolio of:

  • Mid-to-large cap equity stocks that have attractive dividend income and the potential for future dividend growth;
  • To a lesser extent, preferred stocks of mid-to-large cap companies.

Normally, the fund invests at least 80% of its assets in securities eligible to pay tax-advantaged dividends. To a limited extent, the fund writes call options on various equity indexes. The fund also uses financial leverage that may represent up to 33% of the fund’s managed assets.

JTD uses a managed distribution policy, and has paid $0.26 per quarter for the last two years. About half of the distributions have been return of capital, which is not necessarily bad in a taxable account, especially when a fund sells at a discount to net asset value.

As of 10/31/2011, this was the asset class breakdown:

Common stocks

69.4%

Preferred stock ($25 par)

20.7%

Other assets

6.6%

Capital Preferreds

2.2%

Corporate Bonds

1.1%

% of Foreign Holdings: 18.81%

% Large Cap, Mid Cap, Small Cap: 96.2%, 3.8%, 0.0%

The top five industries were:

Industry

Allocation (%)

Commercial Banks

6.94

Insurance

6.69

Oil and Gas

6.16

Pharmaceuticals

5.86

Electric utilities

4.70

JTD Nuveen Tax-Advantaged Dividend Growth Fund pays quarterly distributions.

  • Total Net Assets= $256 million
  • Total Common assets= $189 million
  • Quarterly Distribution: $0.26 ($1.04 annual)
  • Annual Distribution (Market) Rate= 9.19% Income Only Yield= 3.90%
  • Fund Baseline Expense ratio= 1.36% Discount to NAV= -12.65%
  • Portfolio Turnover rate= 36%
  • Effective leverage: 26.16% (Leverage borrowing cost= 1.24%)
  • Average Daily Volume: 36,000 shares average $ Volume: $450,000

The top ten holdings on Oct. 31 were:

Stock

Allocation (%)

VF Corp

2.25

Philip Morris Intl

2.14

Coca Cola

2.10

Yum Brand

2.08

Microchip Tech

2.06

Abbott Labs

2.05

Pfizer Inc

2.01

Accenture PLC

2.01

Chevron Corp

1.99

Nextera Ent.

1.89

Because of tax loss selling, this may be a good time to buy JTD right now. The discount to NAV is -12.65% which is well above the six month average discount of -10.20%. The 6 month discount Z-score is -1.83, which means that the discount to NAV is almost two standard deviations below the average discount over the last six months. The one year discount Z-score is even more attractive at -2.40 or nearly two and a half standard deviations below the mean one year discount of -9.95%.

Since JTD produces tax-advantaged distributions it can be a suitable holding in taxable accounts as well as IRAs. It is an easy way to add balanced dividend growth holdings to a portfolio. The expense ratio is a bit on the high side, but you do get access to attractive low cost leverage and some risk reduction from writing the index call options.

Disclosure: I am long JTD.

Source: Nuveen Tax-Advantaged Dividend Growth Fund: An Attractive Holding For Retirees