Wednesday, December 23, 2009

If Investing Based On Yield, Know What Makes Up The Yield

As a follow up to my post yesterday, Jim Cramer Does Not Disclose Complete Picture On Blackrock's Dividend Achievers Trust Yield, investors purchasing an investment for its yield or income payout need to know what comprises that yield.

As noted in yesterday's post, Blackrock's Dividend Achievers Trust (BDV) distributes a payout every quarter. This quarterly payout includes more than the income from the underlying investments. This type of payment is often referred to as a managed distribution. Many online sources include the entire distributions amount in the yield calculation. Some of the distribution can be a return of an investor's capital.

Investors can get a list of closed end funds that make payouts that are in excess of the income generated by the underlying investments at the Closed End Fund Association's (CEFA) website. The CEFA lists some forty CE funds that have manged distributions. For reference, these distributions are know as Section 19 payments.

Several years ago, the Gabelli Funds prepared a paper on the pros and cons of managed distributions. The paper can be read below.

Closed End Funds Managed Distribution Policy: What Is It?

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