Cornerstone's Monthly Dividend Payments: Don't Be Fooled

On September 4, the Cornerstone Total Return Fund (CRF) declined 19% to a closing price of $10.00 per share. Friday it was down another 4% to $9.60. Regardless of these wild gyrations in market prices, there remains one clear trend - Cornerstone’s net asset value (“NAV” – the real per share value) has been declining steadily for years. But don’t take my word for it, just take a look at this chart:

click to enlarge

About a month ago I wrote about how Cornerstone was in liquidation and how that was problematic not only for shareholders but also for the board of directors of the fund, as board members have (in violation of state laws) unilaterally decided to liquidate without shareholders' consent. To date they have paid out approximately 67 percent of fund assets through monthly distributions, which many investors have mistaken as income versus what it really has been – a return of their own capital.

After this past week’s poor market performance, Cornerstone's NAV is worth only $6.05 per share. What this means is that even at a market price of $9.60 per share, this fund is still 58 percent higher than it should be.

With a 40 percent dividend cut coming in 2009 it is clear that this closed-end fund’s future is bleak. The policy of paying out unsustainable distributions can only fool people for so long. Annual dividend cuts will help to enlighten shareholders that Cornerstone’s so called income is just a mirage.

Comments

[waynej:]

I am sure that whoever wrote the 'analysis' above is feeling very proud of themselves for educating us poor dummies that just don't know anything. Well, most of us understand what is going on, believe it or not, we can understand that the NAV is going down and that this cannot continue long term. For now, we watch and enjoy a very nice monthly dividend (some of were even smart enough to not buy until after the price declined substantially due to a previous self-serving analyst's revelations). The feeling of power derived from this type of analysis and the effect on the stock price must be so intoxicating that you spend the majority of your time just looking for other earth shattering discoveries of this type.

Angry, yes, I am very tired of MEDIA manipulation of data for readership and advertising purposes. This Analysis is not to inform (that has been done numerous times over the last few years), but nothing more or less than Chicken Little seeking attention.

Spend your analysis time and energy on things that could benefit your readers for a change.

2008 Sep 08 12:00 PM

[notsosmart:]

LOL

2008 Sep 08 04:03 PM

[richandmer:]

To Wayne: Sounds like the downward trend is effecting you in more ways than just financially. If I were an investor looking for information on CRF, I would be thankful for all of the info he provides.

2008 Sep 08 05:02 PM

[Dividend Gr...:]

What i find amazing is that while the actual NAV has declined steadily over the years there was a disconnect between fundamentals and the market up untill late 2007..
Is this CEF investing in non-liquid stocks?

2008 Sep 10 02:35 PM

[grinninbrit71:]

Amazing how the long's still call these large payments "dividends" They are large, but mostly return-of-capital... meaningless other than to confuse people that are willing to invest but not willing to take accounting 101 to understand that most complex of terms called "income."

Angry at the media ? Why because they haven't educated the public enough on the words Income or Ponzi ?

In the classical sense this isn't Ponzi because assets match liabilities. But at the same time one of the "Cornerstone's" of Ponzi schemes is the payment of an aggressively large distribution which is not "income" but rather return-of-capital. Greed then runs rampant. Of course in a true Ponzi scheme, that information isn't typically advertised to investors. This is the genius of this fund. Just go ahead and fully disclose all over the place that its return of capital, but investors will have enough greed to overlook that tiny fact....... So amazingly simple!

Interesting question from "Dividend Growth Investor" as to whether this fund is investing in il-liquid securities to have traded at such wild premiums and for so long. Amazing is yet again, right on! Pure S&P large cap vanilla holdings. For something with vanilla holdings to hang so inefficiently over the edge of the cliff for YEARS indicates either illegal manipulation/market relationships or just terrible design of the market and its regulations. That guys mad at the media and not the SEC for letting this sadness develop? Of course, again, the genius here is that all was fully disclosed, makes it hard for the SEC to care !!!!!!

Greedy songbirds will chirp to no end. And the songbird isn't the original poster, but anyone who ever suggested to a fellow citizen to buy this at a massive premium, selling them on this muck.

2008 Sep 14 05:47 PM

[I bought at...:]

At least you get income from this one! Not like your so-called growth stocks which pay the investor zero yield! Maybe you should complain about that! But no! You cry about the one stock out there that pays a decent return (over 30% per year)!

2008 Sep 19 04:44 PM