TSX:EIT.PR.A - Post by User
Comment by
OptsyEagleon Feb 11, 2007 2:25pm
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Post# 12210825
Let's Look at both ways then
Let's Look at both ways thenI have been attempting to educate investors on how Closed End funds operate and why I believe Enervest will not cut distributions. Some of this you will find in my post:
14020558
so I will not repeat myself.
All I know is that if EIT does not cut distributions, you most likely stand to earn 13.4% per year in dividends and probably at least 7% to 8% in growth in share price as investors regain their comfort zone and the discount reduces to about -5%, its historical average. As the businesses they own grow, more money will be made.
For arguments sake then, let's say Enervest does decide to cut distributions. What effect would that have. Well currently EIT trades at a -13.7% discount to it's NAV. It pays out $.84 per year and trades at $6.28 per share (NAV=$7.28).
As I have indicated in my post numbered above, they earn about $.62 per share net of their MER, from dividends on their holdings. So, lets say they cut their dividend to that number.
Well if investors do not react negatively, then an investor will be earning 9.9% yield with a -13.7% discount to NAV.
Now, I am assuming that if one was going to sell on the concern about this event, they must be worried about a price drop. So the question arises, how far should one expect this to drop. Let's look at some numbers. If it drops $.25 per share then it's new yield will be 10.3% and it will trade at a -17.1% discount. In 5 months an investor would have this loss back in dividends alone. Now, could it drop more. Well I suppose it could. Maybe it will drop $.50 per share. Now you have an investment yielding 10.7% per year (please feel free to compare this to any competitive investment offerings to get a feel for the appeal of this yield to new investors) and has a discount of -20.6%.
Now I could go on but please, how long do you really think that a well managed, highly diversified, high yielding investment like Enervest is going to trade at a -20.6% discount to NAV.
I list this information above because I am getting fairly tired of this dividend cut concern. So please, do your own due diligence, run your own numbers and never, never take advice from a money manager on TV about what he thinks of investing in his competitors fund.