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This relates to the Money System mentioned towards the back of Unscripted , and how to perform due diligence on quality of cash flows.
This will compare two examples (at least one is mentioned in the book): BlackRock MuniYield Arizona (MZA) and Aberdeen Asia-Pacific Income Fund Inc (FAX). Both are closed end funds that pay dividends monthly.
My question relates to the different types of distributions and whether this can give insight to the overall health of the fund.
This first screenshot is the allocation of monthly distributions (dividends) to the shareholders of FAX. There's a balance of income, gains, and return of capital.
The second screenshot is the allocation of MZA. All of the distribution amount is considered Income.
From a tax perspective, return of capital is great since it's typically tax free (i.e. your own capital being returned to you).
However, seeing so much capital being returned in FAX makes me question the overall health of the fund. Is it not performing as well as anticipated? Is the reason so much of this is "return of capital" that they are not making as much profit as needed?
Conversely, seeing all of MZA's distributions categorized as Income makes me conclude that it is doing as well as, or better than, expected. As in, all of its holdings are performing very well so there's no need to return any capital.
I don't have much experience with this so I may be completely missing something.
Anyone more experienced than me care to weigh in?
This will compare two examples (at least one is mentioned in the book): BlackRock MuniYield Arizona (MZA) and Aberdeen Asia-Pacific Income Fund Inc (FAX). Both are closed end funds that pay dividends monthly.
My question relates to the different types of distributions and whether this can give insight to the overall health of the fund.
This first screenshot is the allocation of monthly distributions (dividends) to the shareholders of FAX. There's a balance of income, gains, and return of capital.
The second screenshot is the allocation of MZA. All of the distribution amount is considered Income.
From a tax perspective, return of capital is great since it's typically tax free (i.e. your own capital being returned to you).
However, seeing so much capital being returned in FAX makes me question the overall health of the fund. Is it not performing as well as anticipated? Is the reason so much of this is "return of capital" that they are not making as much profit as needed?
Conversely, seeing all of MZA's distributions categorized as Income makes me conclude that it is doing as well as, or better than, expected. As in, all of its holdings are performing very well so there's no need to return any capital.
I don't have much experience with this so I may be completely missing something.
Anyone more experienced than me care to weigh in?
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