Wednesday, December 31, 2008

* Alpine Total Dynamic Dividend Fund (AOD) Update

In December 2007, I began looking at the Alpine Total Dynamic Dividend Fund (AOD). This is a closed-end fund with an investment objective to invest in equity securities that provide high current dividend income. The fund attempts to optimize both dividend income and long-term growth of capital. This is a very diverse and flexible fund. It employs a global, multi-cap, multi-sector, and multi-style investment approach. The fund combines four research-driven investment strategies – Growth, Value, Special Dividends, and Dividend Capture Rotation.

One of the reasons I found AOD appealing was its international exposure. Unfortunately, the international diversity has not helped it performance. In the last year, the fund has declined dramatically more that the market. My original December 2007 purchase was at $18.93 and recently the stock has been trading under $6. On the plus side, the fund has not cut its dividend... yet.

With a yield just under 40%, no announced dividend cut is good news for shareholders. I doubled my position in October 2008 when the fund was trading at a 20% discount to the underlying securities. I have enjoyed 3 months of its high yield. However, I am significantly overallocated in AOD so I began reducing my position in December. It is my plan to gradually bring its allocation in line over the next 4-5 months. So what's happening with the fund now?

On December 22nd the Board of Trustees of the Alpine Total Dynamic Dividend Fund (NYSE: AOD) declared regular dividend of $0.18 cents per share for the month of January. The amount is unchanged from prior dividends. However, declaring only one month's dividend was new. Historically AOD declared monthly distributions for three months at a time. The release stated:

Given the nature of the current market environment, the Board thought it prudent to
shift to a monthly (versus quarterly) frequency of distribution declarations. Chief Investment Officer Steve Lieber explained, “Economic conditions, government interaction and dividend
policies are all in the midst of rapid change. During normal times we would have enough visibility to comfortably project out three months, but these are far from normal times.”

Lieber went on to describe the Funds’ management view, “We have several strategies available which have contributed to our efforts to sustain the distribution at current levels.” Lieber continued, “We look forward to a reversal of the momentum of capital erosion in the world’s equity markets and a return to stable conditions.”

The release also announced the regular quarterly closed end fund conference call via a new webinar format on Tuesday, December 30th. I listened in on the call and picked up the following items:
  • The fund is diversified in 125 companies and 20 countries.
  • Leverage is available to the funds, but they are currently not levered
  • Have opportunistically purchased $112 thousand shares of AOD when share price is substantially below the NAV
  • Jill K. Evans, AOD fund manager, is cautiously optimistic for 2009
  • 80% of companies held raised their dividend, 12% were flat, 6% were flat
  • Of the four strategies employed within the fund, the dividend capture strategy with a flat return was the best
  • The fund has assumed a "safe" position by moving most of its investments to the U.S. and focusing on strong and undervalued companies.
  • 40% of the companies invested in have a single digit P/E
Alpine's Real Estate (AWP) fund slashed its dividend to $0.03/share. The fund manager responded that AWP has less flexibility since it must be 80% invested in real estate at all times. When asked how much of AOD's dividend is from earned income, Evans responded 100%.

I still think AOD will be forced to cut its dividend in 2009, but I don't believe it will be as dramatic as AWP. The management team is smart and they understand why investors bought the fund to begin with. The appear to be prudently managing the fund to perserve dividend income without unnecessarily increasing the fund's risk level - exactly what I am doing in my personal portfolio.

Full Disclosure: Long AOD