Cornerstone Aims Higher
November 29th, 2006 by Grant in: Investing, Stock ThoughtsI was starting to get worried that Cornerstone Strategic Value Fund (CLM: chart, Y!) would not be able to maintain its dividend due to the 50% premium to the net asset value (NAV).
Seems I was worried over nothing.
Today, CLM released news that they will raise the monthly distribution to $0.093 per share, up from $0.087 per share. There is additional information in the release that indicates the board of directors seeks to return 21% of the NAV to shareholders over the course of the following year.
“Under the updated policy, the Distribution Amount for the calendar year 2007 has been calculated based on an annual total of 21% of the net asset value of each Fund at the end of October, 2006 (”Distribution Percentage”) divided equally over twelve monthly distributions for such calendar year.” -Source
As of October 31, 2006, the net asset value for CLM was $5.32, meaning the total return for the year is just under $1.12 per share.
There is some caution from the board, however that a significant portion of the past quarters distributions are a return of capital, not a traditional dividend.
“Given the current economic environment and the composition of each Fund’s portfolio, a substantial portion of each Fund’s distributions made during this current calendar quarter is expected to consist of a return of the investor’s capital. Accordingly, these distributions should not be confused with yield or investment return on the Fund’s portfolio.” -Source
It appears that CLM is trying to reinforce the long term value of the stock, stressing to the shareholders that the DRIP is the most advantageous avenue to take when the stock is trading at a premium to the NAV. Those enrolled in the DRIP have their monthly distributions reinvested at the NAV, not at the current market price.
I like the reassurance the stock will continue to return my money to me, but I’d still like to see that net asset value continue to rise.
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November 29th, 2006 at 7:30 pm
This is making it much more difficult to stay on the sidelines with this one!
ROC or not, as long as they keep paying out, I might take a bite.
November 29th, 2006 at 7:44 pm
It’s worth looking at, Schasto. Just don’t put all your eggs into the CLM basket!
-Grant
December 1st, 2006 at 11:16 pm
i second Grant…awesome site btw.
December 3rd, 2006 at 4:03 pm
Dang.. wish I new about this CEF before everyone else. Although it seems like a good investment, it’s trading just a little too high for me. But, it’s definitely going on my watch list.
I own EQS, and it has been a good investment for me too.
December 3rd, 2006 at 4:38 pm
I agree, Guzzo, CLM is f a bit pricey, trading at ~50% premium to NAV.
BUT! They keep paying out the dividend. I can’t figure it out.
I’m not sure I’d buy a whole heap of shares, but it’s comforting to know that my dividends are being reinvested at the NAV.
If anything else, you can let the dividends reinvest themselves at the NAV, and then turn around and sell the reinvested shares for a 50% profit right off the top.
Just a thought, but tread carefully!
-Grant
December 3rd, 2006 at 10:58 pm
I agree with Mike, CLM is a bit over the top based on the net asset value. I’m not sure I like his EQS but I’m glad he’s doin well with it.
As far as the CLM DRIP, you really can’t beat it! Better keep an eye on that dividend though. If they ever lower it, it’ll be mass exodus to the sales line!
December 14th, 2006 at 2:31 am
Food for thought on this stock here:
http://biz.yahoo.com/seekingalpha/061211/22139_id.html?.v=2
December 14th, 2006 at 9:06 pm
Great find, CB! I can see how this one is starting to play out.
-Grant
December 25th, 2006 at 5:38 pm
Yeah, that was a great find. There must be some financial benefit or fiduciary duty for the author to remain anonymous. You can bet that if I did such a in-depth analysis, that I would be taking credit for it.
I was more lucky than skillful with EQS. I’ve only owned it for about a year or so, but my cost basis after all distributions is just above $5.00/share.
Merry Christmas everyone!