DNP Select Income: "Phenomenal" Total Return
09/05/2017 2:50 am EST
DNP Select Income Fund (DNP) is a closed-end fund (CEF). That means it’s organized as a publicly traded investment company by the SEC. And, like a mutual fund or an ETF, it’s a pool of investments with a manager overseeing the portfolio, notes Briton Ryle, editor The Wealth Advisory.
The main difference between a closed-end fund and an ETF is that the CEF issues a set number of shares and never creates more. The fund manager sees to the allocations and distributes dividend payments to shareholders on a regular schedule.
Like an ETF, shares can be traded on the open market. And they can grow or decline in value depending on the demand in the marketplace.
DNP was set up in 1987 with the goal of providing investors with current income and long-term income growth. And it’s done an excellent job of fulfilling those aspirations.
It’s traded within a very tight range of $8 to $12 since its inception. And it’s only dropped below $8 once in the past 30 years. That was during the Great Recession.
And even then, DNP didn’t fall nearly as fast nor as far as the rest of the market. And it kept paying investors a steady dividend each and every month. And that monthly dividend makes for some pretty fast compounding.
If you only focus on that price, its returns aren’t that impressive over the past decade. But, when you factor in those dividend payments, you get an entirely different picture. That’s called the total return. And DNP’s total return is phenomenal.
After the greatest financial recession of our lifetimes, DNP is still giving investors nearly 140% in profits. And if you were to start that chart from the depths of the Recession, the gains would be over 300%.
What’s even more impressive is the difference in time it would have taken to get back to a gain from the losses of the Recession without those dividends.
DNP shares hit their rock bottom on March 9, 2009. It wasn’t until November 11, 2011, that the stock price recouped its losses. But the total return hit the positive side of zero on December 14, 2009.
That’s a full two years earlier than the stock price return. In just nine short months, DNP investors saw their investment turn positive again. All thanks to the dividend payments.
And investors who started back in 1987? Well, they never saw a negative return on their position during the Recession at all.
At the depths of the collapse, those investors had a 233% gain. And they’re sitting on a whopping 1,241% profit right now. And it’s all because of those dividends. If that doesn’t show you the power of dividends, I’m not sure what will.
Those returns are impressive. But a fund is only as impressive as its manager. And DNP — or more so its manager — is doing a bang-up job. He’s consistently beating the benchmark, over the last year, the last 3 years and even over the past 10 years.
That’s an impressive track record. So, how does he do it? All but 8.8% of the investments in this portfolio are rated BBB or better. And the investments aren’t all lumped into one industry.
In fact, they’re very well spread out. There are some electric companies, some gas companies, and some water companies. There are REITs and communications companies. There are even oil storage, transportation, and production companies.
It’s a well-diversified portfolio, to say the least. The only thing it doesn’t have is junk companies. And it’s thanks to that diversification and the high standards a company must meet to get a spot in the holdings that DNP consistently beats the market and its benchmark index.
Bottom Line: DNP Select Income Fund is a “Buy” anywhere under $11.50. I have a 12-month target of $12 and a goal of 75% gains or better thanks to consistent dividends.