Fund of the Month: Alpine Global Dynamic Dividend (AGD)
Fund of the Month: Alpine Global Dynamic Dividend (AGD)
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In this post we take an in-depth look at one of our favorite ETFs or closed-end funds.
Alpine Global Dynamic Dividend (NYSE: AGD, $23.43)
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Lead manager Jill Evans and her team begin with a rigorous top-down approach, meaning they evaluate the big macroeconomic picture — inflation, employment, interest rates, demographics, consumer spending, etc. — to identify trends and pinpoint the most promising industries.
From there, they go on a company-by-company search to find the most attractive stocks in those groups, relying heavily on managerial execution, balance sheet analysis, attractive returns on capital, and long-term growth potential.
At the moment, AGD's $550 million portfolio contains a well-rounded basket of nearly 100 stocks, comprising a balanced mix of both growth and value. Roughly one-quarter of those assets are invested here in the U.S., with the remainder mostly spread throughout Sweden, Australia, Finland and the United Kingdom. Most of those stocks fall in the mid-cap range, but the fund holds anything from tiny micro-caps to mega-cap giants.
Relative Returns: Like most closed-end stock funds, AGD primarily targets stocks with high, tax-advantaged dividends. Typically, that search leads to traditional income-oriented sectors like financials and utilities. While there is nothing wrong with those groups, investors should be aware that even if they own a number of different equity-income funds, most of them are fishing in the same pond — so they could be overexposed to these industries.
For those looking to minimize portfolio overlap, AGD is an ideal solution. The fund does have a modest weighting of energy and financial stocks, but most of the portfolio is tied up in the industrial, consumer cyclical and healthcare sectors. It also offers a sprinkling of telecom and IT stocks.
So instead of a portfolio dominated with widely-held companies like Citigroup (NYSE: C) and AT&T (NYSE: T), the top spots go to firms like Australia's Macquarie Infrastructure and Finnish power company Wartsila. Although these names might not sound familiar, the income they throw off can be understood in any language. After back-to-back dividend increases in recent months, the fund now offers generous monthly distributions of $0.17 — equating to a hefty yield of 8.7%.
Meanwhile, the fund's underlying portfolio hasn't exactly been standing still. In fact, AGD has delivered total returns of +27% over the past year, outpacing most of its peer group and trouncing both the S&P 500 and the MSCI EAFE Index.
Outlook: Generally speaking, foreign companies offer higher dividends than those found in the U.S. In fact, according to lead manager Jill Evans, overseas yields are roughly double those of the S&P 500. Having the flexibility to invest internationally should give the fund an edge over its domestic rivals.
We also favor the unique multi-pronged approach that Evans has honed as manager of the open-end Alpine Dynamic Dividend (ADVDX, $12.52). Along with a core growth & income strategy, this involves "cherry picking" companies announcing special one-time dividend distributions and rotating from company to company to "capture" more than the standard four payouts per year. Although it's too early to tell how much of that success will translate into gains for AGD shareholders, the early results are encouraging.
Finally, tax-conscious investors will be pleased to know that 100% of the dividends paid out last year qualified for the reduced 15% tax rate, so after-tax returns have been solid as well. Based on the fund's market-beating returns and our overall favorable outlook for global dividend-paying stocks, we have awarded AGD a Composite Score of 28 ("B+").
All things considered, those looking for a steady stream of tax-advantaged income with opportunity for above-average total returns will find Alpine Global Dividend a solid option.
Action to Take —> We like AGD's robust yield, as well as the unusual way that it is generated. Contrarian readers looking for something just a little bit different will find it here. We will keep an eye on this fund, and will check in from time to time to see how well Evans handles a variety of different market conditions.
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