RE:RE:Brompton updates shows UNIT NAV at 6.89 for LBSanthony3 wrote: how is FFN able to pay a 20% dividend?
It doesn't, that is what a shareholder can receive, but that is not what the fund pays out. This difference is due to leverage. The Class A shareholder is receiving capital gains on $16 or $17 which they can buy for $6 or $7.
Here is what LBS actually pays at different levels of NAV:
| Quarterly | Annually |
| Preferred | Class A | Preferred | Class A |
| $0.13625 | $0.30 | $0.545 | $1.20 |
| Total | $0.4363 | Total | $1.7545 |
| NAV | NAV Yield | NAV | NAV Yield |
| $25.00 | 1.75% | $25.00 | 6.98% |
| $20.00 | 2.18% | $20.00 | 8.73% |
| $19.00 | 2.30% | $19.00 | 9.18% |
| $18.00 | 2.42% | $18.00 | 9.69% |
| $17.00 | 2.57% | $17.00 | 10.26% |
| $16.00 | 2.73% | $16.00 | 10.91% |
| $15.00 | 2.91% | $15.00 | 11.63% |
Even at the lowest point, $15 the fund is paying out 11.63% which is sustainable on a total return basis. Of course if the market has a sustained dip the NAV will drop, but there will be times when return exceeds the required payout and NAV will rise. If the underlying stocks can return 11.63% per year plus enough extra for fees, the fund will be capable of paying over the long term even though some investors are receiving yields of 15% to 20% as that is relative to their purchase price and the effect of leverage.