I do not understand the point of this post, I took it as a negative that DNP is not "earning" what they pay in dividends? While the fund paid out in 2014 78 cents or 8.5% of the NAV at the start of the year, it's actual performance was far in excess of that, and in excess of the S&P 500's 14% for 2014 as well.
11.5% of the payout is about 9 cents of the 78 cents of payout and payout of capital is to be expected from time to time.
If there are unrealized capital gains, this would be the most tax efficient way of paying income to an income seeker in an effort to keep taxes to a minimum no? At the start of 2014 the NAV was $9.20 though the fund was selling at $9.80, it ended the year at $10.56 with a net asset value of $9.80. Present NAV is $10.05, after 13 cents of year to date distributions.
Since 1997 when it embarked on this strategy, paying out 9% of the present market price at the time of $8.63 it has paid for 18 years at that rate, and still have the market price rise 22% after that, it is quite a feat to be able to successfully manage that through the turbulent times of 1999 - 2003 and 2008 - 2009 without affecting distributions and I think that steady payout holds value in stopping many people from panicking and selling when they would have to sell shares to fund retirement with their stock portfolio down 50 percent. While the S&P 500 fund averaged 7.6% over the past 10 years DNP has averaged 7.9% while managing the monthly payouts as well, I think quite highly of this company and what they have accomplished. I realize there are Utility index funds that can be shown to have earned 9.0% in that time frame. I believe there is real value in being able to show nervous investors that their income can be maintained in a monthly payout ratio and that their payout will be earned over time.
9% is far more than a distribution rate I could ever recommend, but I think DNP has shown it is possible to maintain this straight distribution. Had a retiree in 1997 retired and invested one million dollars in DNP and spent the Trinity $40,000 through the year and adjusted that spend forward for the average inflation per US government and then each Dec 31st reinvesting the difference between spend and actual distributions from DNP, the retiree would have started with $90,383 in distributions and buying 5,838 more shares the first year. That retiree after 18 years of withdrawals would now have withdrawals of $60,359 for 2015 but total shares now would be 160,008 for total distributions of $220,367 and a market value of investments after all withdrawals would be $2,966,481. I realize this does not include taxes but tax rates are extremely individualized.
If our retiree had decided to be very aggressive taking a large risk on have to cut inflation adjusted spend in the future for the sake of the present and take six percent or $60,000 in withdrawals, the withdrawals would now be $90,359, distributions $149,396 and portfolio still would have doubled to $2,011,096 for a decline in the withdrawal rate to a more reasonable 4.5%.
If you look more near term at a 2007 retiree taking $40,000, original distributions of $72,222 would now be $99,103 while withdrawals are now $46,932 and the portfolio would have a value of $1,334,083. At $60,000 in 2007 current withdrawal would be $70,398 with distributions of $79,446 and a portfolio value of $1,069,462.