IF You Own NOIEX, ‘Northern Income Equity Fund’, Be Warned Of A HUGE $3.74/share Distribution On Dec. 18, 2014.

Anura Guruge, June 8, 2013.



by Anura Guruge

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Click to ENLARGE. From ‘marketwatch.com’.

Doing financial research, as with that of research papal history, is one of my many hobbies. Come November of each year I like to poke around trying to find ‘unusual’ distributions since knowledge of such ‘windfalls’ could come in handy — as was the case in 2012 when we saw a ton of ‘Special Dividends‘, e.g., $5.15 by AOL, $7.00 by COST etc. Well depending on your outlook (or more to the point your tax liability) 2014 could end up being one heck of a year for year end, Cap. Gain distributions. Everywhere I look, and I do go looking in quite a few places, all I am seeing are above average numbers — in general quite a bit up from those of 2013.

But, what I saw for NOIEX startled me. If you follow this stuff you will know that they all claim that the numbers are estimates made in October, most opting for a date around October 17.

The first number I saw for NOIEX, in early November, was $3.97731. That is $3.97 (nearly $4) PER share. That is a LOT per share especially when the 2013 distribution was $0.56. That is a full 7x increase. Me being who I am, I called up Northern Trust and asked them whether it was typo. The person I spoke to had no idea. I find that a lot. Most of the reps have no detailed understanding of the various funds. I bookmarked the page and kept an eye on it. Last week they issued a new set of estimates the NOIEX number had fallen to $3.74. I spoke with Northern Trust yesterday and today to get a better handle on it. This morning I got an Indian gentleman. Given their usual tact his first words to me was that this must be a mistake. I agreed. But, he went and checked. He even called me back, to my surprise, a few hours later. Yes, it looks like $3.74 THOUGH this, even though we are only two weeks away, is still an estimate. The Fund Manager could end up only dolling out $0.37.

But, IF they do distribute $3.74 per share as is now stated that could be interesting and problematic. You could end up owing a fairly large chunk of tax on it. BUT worst still the NAV WILL DROP, and I have had that confirmed, by that $3.74. Yes, market conditions on the day will factor in, but right now, $3.74 is baked into today’s $16.70 NAV of NOIEX. With the way this market seems to be going NOIEX could be at $17.00 on December 16. Then the next day, ex-Div, the NAV will have $3.74 taken out. So barring market moves which could either increase or decrease the NAV, it will fall to $13.26. YES, you got the dividend and the number of shares you own stay the same but that will be a shock when you see that NAV plummet.

So just a heads up. Don’t take my word. IF you own NOIEX go look it up. Call them up.

IF you don’t want that huge dividend, with its tax implications, you can, of course, wait until Dec. 15 and sell all your shares and then deal purely in capital gains/capital loss.

In comparison (or contrast) BJBHX, which is currently at $10.25, has an estimated year end distribution of $0.2871 (compared to last year’s $0.11). The Yacktman Fund is giving out a full dollar per share compared to $0.67 last year. Told ya.