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More of Your Income in Your Pocket With This Tax-Advantaged Fund |
Published: January 26,
2007
The bulk of the Nuveen Tax-Advantaged Total Return Strategy Fund (NYSE:
JTA) fund's $500 million portfolio consists of domestic and foreign dividend-paying stocks that qualify for the lower dividend tax rate. Top holdings include consumer products conglomerate Altria (NYSE: MO) and leading financial services firms such as mortgage lender Fannie Mae (NYSE:
FNM), Hartford Financial Services Group (NYSE: HIG), and Citigroup (NYSE: C). The fund also allocates between 15% and 25% of its portfolio to floating rate senior loans that generate additional income.
Dividend: With a monthly payout of $0.15 per share for the first two months of 2007, JTA's projected annual dividend payout currently sits at $1.80 per share. That gives the fund a yield of 6.9% at today's share price.
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JTA has an outstanding dividend growth record. It has more than
doubled its monthly payouts in less than three years since inception.
The fund follows a managed distribution policy to ensure stable monthly
distributions throughout the year. A hefty management expense ratio of
2.17% takes a bite out of total returns. Of that, just 0.8% represents a
management expense and 1.37% includes part of the fund's cost of
leverage.
The exact tax characteristics of the fund's distributions in 2006 have
not yet been published. From the information made available to date,
about 50% of the distribution may qualify for the 15% dividend tax rate,
48% for long-term capital gains also taxed at the 15% rate, and 2% as
short-term capital gains taxed as ordinary income. To reap the benefit
of JTA's tax-advantaged dividends, you might want to hold the fund in a
taxable brokerage account outside of a traditional IRA.
Nuveen maintains a dividend reinvestment plan, and distributions are
automatically reinvested in additional shares of the fund unless you
specify you wish to receive cash payments. You can phone 1-800-257-8700
for details.
Performance: Formed three years ago in January 2004, the
fund has delivered total returns (including share price gains and
dividends) of an average +19% a year since inception. To enhance
returns, JTA leverages about 32% of its portfolio value. That is, it
raises money by issuing short-term preferred shares. It then uses that
money to invest in longer-term assets that may offer higher returns.
As we noted earlier, the fund invests 15% to 25% of its portfolio in
floating rate senior loans. These loans help offset rising borrowing
costs since their yields move in the same direction as short-term
preferred rates. In other words, if short-term rates rise, then the
additional income the fund generates from these loans will help offset
the higher borrowing costs that rising short-term rates could create.
That said, senior loans are generally below investment-grade credit
quality, so they may carry moderate risk of default.
Valuation/Outlook: Shares of JTA have rallied in line with
the fund's growing dividend payouts. This dividend growth has been
driven by capital gains and rising income from the fund's underlying
portfolio holdings. With its diversified portfolio of some 150 blue-chip
U.S. and foreign dividend-paying stocks, the fund should be able to
maintain steady dividend payouts, even if the global economy were to
moderate and stock markets worldwide were to stabilize in the year
ahead. The fund is trading at a small premium to the value of its
underlying portfolio, and despite its strong performance over the past
year, the shares are still attractively priced.
Action To Take ---> With a
diversified portfolio and a managed dividend policy, JTA is a
medium-risk investment that should provide a stable income stream in
strong or weak markets.
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Editor's
Note: Carla Pasternak's model portfolios focus exclusively
on investment opportunities with ultra-high yields. In fact, in each
of her monthly High-Yield Investing newsletters she
provides readers with an entire portfolio of stocks, funds and
preferreds that are delivering annual dividend yields of +10% or
more. That's right -- in order to even be considered for
inclusion in this portfolio, an investment
must deliver cash payments of at least 10% per year. Visit
this link to learn more about Carla Pasternak's High-Yield
Investing newsletter.
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Good investing!
Carla Pasternak
Editor
High-Yield Investing
http://www.StreetAuthority.com
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Carla
Pasternak draws on a variety of financial backgrounds to make profitable
calls on income-generating stocks for her readers.
Carla has
been employed in the investment industry for more than two decades. In
addition to her work as a writer for several other nationally recognized
financial publishers, her previous experience includes a position as
President of a well-respected investor relations firm. She has also been
writing shareholder reports for public companies (annual reports,
speeches, corporate profiles, slide shows, etc.) since 1980.
A highly
successful investment analyst, Carla specializes in high-yield,
income-paying stocks. In that pursuit, she's always mindful to select
companies that not only pay rich dividends, but that also have the
potential to deliver strong long-term capital gains.
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not watching the market, she's teaching business courses at the college
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