Alpine Reaches for Yield

Do you remember the Leonard Nimoy show from 25 years ago, In Search Of? Nimoy's "other" show would doubtless have been intrigued with the search being undertaken by Alpine Investors' new closed-end Alpine Global Dynamic Dividend Fund (AGD - commentary - Cramer's Take): the search for yield.

This new investment vehicle will maintain Alpine's reputation as an innovative company. There are a lot of moving parts in the fund's strategy, but its most prominent component is a system of capturing "extra" dividends. It is a method the company first used in the Alpine Dynamic Dividend open-end mutual fund.

The basic idea is this: For a dividend to qualify for the 15% tax rate, the stock must be held for at least 60 days. In a year, there are six 60-day periods. Companies usually pay their dividends quarterly. The fund will trade in such a way that the same piece of money will capture six dividends in a year by trading two different stocks instead of capturing four dividends by holding one stock.

The open-end version of this strategy is domestic stocks only and has almost three years of track record.

Alpine Dividend Strategy

Click here for larger image.

Source: Alpine Woods Capital Investors

This above graphic illustrates this dividend strategy.

As the chart below -- which captures total return -- shows, the results of the strategy are compelling. With the new closed-end fund, Alpine will include foreign stocks, too, mostly issues eligible for the 15% tax rate. In an interview on CNBC, Alpine CEO Sam Lieber said that the fund will target a yield of 8% to 8.5%.

Source: Morningstar

With a yield like that, your first thought might be that the company will need a lot of leverage (a common tool for closed-end funds) to realize that figure. According to the prospectus (available on the Alpine Web site), the fund is allowed to leverage up to 10% of its assets, which is small by CEF standards. The prospectus also states that the fund will not be leveraged at its inception.

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Roger Nusbaum is a portfolio manager with Your Source Financial of Phoenix, Ariz., and the author of Random Roger's Big Picture Blog. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Nusbaum appreciates your feedback; click here to send him an email.