Alexander Votes for Value

12/17/2004 12:00 am EST


Gary Alexander

Senior Writer, Navellier & Associates

When a top-tier advisor like Gary Alexander issues a recommendation for a new fund managed by a top-performer like John Buckingham, investors should take notice. Here, Gary looks at a new fund offering from the Al Frank familythe Dividend Value Fund.

"The Al Frank Fund (VALUX) has been a big winner for us, gaining over 55% since it became my first featured Buy in my first issue back in July of 2003. It’s a fund that’s far off the beaten track. The fund is relatively small, but is run by the best value stock screener I know, John Buckingham. The fund may be named after his late mentor, Al Frank, but Buckingham has been the chief stock picker from the start. In addition to our ongoing recommendation for this fund, we are now adding a recommendation for the newly launched Al Frank Dividend Value Fund (VALDX). This value fund, with a focus on dividends, is a natural extension of the growth-oriented fund.

"This fund fits in well with my current market assessment. Income investors are now living in the best of all possible worlds right now. For short-term cash, rates have doubled in the last six months, albeit from only 1% to 2%. At the same time, bonds have risen in price slightly due to lower long-term rates. In addition, many stocks have raised or added dividends, which are now taxed at a lower rate. I’m not enamored of every move President Bush has made, but last year’s tax cut at least corrected a lot of inequities in the tax code—especially by ending the double taxing of dividends, and lowering the prohibitively high tax rates on capital gains and dividends.

"In the last year, big companies have responded by pouring out more cash to investors—just like the good old days, when dividends made up the lion’s share of many stock investors’ income. Dividends paid by all S&P 500 companies rose from $146 billion in 2003 to $172 billion this year. In addition, another $10 billion in special (one-time) dividends have been paid, including a huge $3 billion Microsoft dividend. By bidding up the prices of stocks that pay dividends, investors also padded their capital gains. The $36 billion in higher dividends in 2004 was soon dwarfed by the $2 trillion added to equity values since the tax cut of June 2003. We’re going to take advantage of this trend now by buying the new Al Frank Dividend Value fund.

"We believe the new fund will be less volatile than the parent fund, since dividend paying companies have lower volatility. In addition, Buckingham is also going for capital gains. Besides looking at a stock’s dividend yield, he will also use all his other proven stock-selection screens, including lots of cash on the balance sheet, a low P/E, and a sound and growing business. That means he will include some technology stocks and small-cap stocks, which dividend investors traditionally avoid. The Al Frank Dividend Value Fund debuted at $10 a share on September 30, and it is already $10.77. Don’t chase it; buy below $11."

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