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Adams Express' New Distribution Policy Well Intentioned but Poorly Executed

|Includes:The Adams Express Company (ADX)

As Winston Churchill remarked, "The Americans will always do the right thing... after they've exhausted all the alternatives.

Apparently, The Adams Express Company's (NYSE:ADX)  Board hasn’t exhausted all its possibilities.

Its current commitment to target a distribution of 6% of the trailing month-end stock price as of October 31 through the use of a special year-end distribution is a silly piece of logistics.

Apparently, ADX will continue to make quarterly distributions at its current rate of $0.05 per share and for its annual year-end distribution it will distribute the balance to fulfill its 6% commitment. 

So, if I’m interpreting this correctly—and I hope I’m not, this is no different than its current distribution schedule with the exception of targeting a 6% total distribution to the average trailing 12 month end stock price--which is only slightly higher than the 5.2% total distribution the past two years from net investment income and capital gains.

Now, all the Board has accomplished is “gaming” the stock price for the year-end special distribution. 

Why wouldn’t the Board consider a managed/level distribution program that would incorporate the CEFs long-term capital gains history into the quarterly distributions? They certainly have enough history to come-up with this calculation. This would have a tendency to maintain a higher stock price year long as quarterly distributions would be level. 

If the Board’s goal is to narrow the discount, they probably accomplished this objective around the special year-end distribution period. Then after the ex-dividend date the stock will go back to its one of the CEFs market segments highest discounts.

The Board needs to establish a level quarterly distribution policy if it wants to accomplish its goal of permanently narrowing the discount.

This new policy is well-intended but poorly executed.

Joe Eqcome 
Stocks: ADX