AMZA was founded back in 2014 and for a couple of years now has settled into a 52 cent per quarter distribution. The fund has traded down to around $9.75 per share recently and seems to have bottomed out from a price that was once over $20. Much of that decrease in stock price has been the huge downdraft in the underlying stocks held in this fund, namely Master Limited Partnerships know as MLP's. These oil and gas partnerships that mostly specialize in transporting energy via pipelines has taken a huge hit in the last three years due to the sell off in oil and gas prices. So it not unreasonable that the fund has dropped to what is now about net asset value or the trading value of the stocks held in the fund. We believe the sell off is unwarranted since so much of the pipeline industry is not subject to oil and gas prices only fee based transportation charges Thus we believe there is opportunity for capital appreciation of the stock price.
The fund run by one of the smartest MLP guys in the business, Jay Hatfield, who has taken advantage of the sell off in MLP stocks and their corresponding percentage increase in distributions which goes up when the stock price goes down. So the fund makes good dividend/distribution income and using the closed end fund status to borrow money at low rates to buy about 30% more MLP stocks at high distribution rates to make even more income. Now add in the fact that MLP's are trading at rock bottom prices so the administrator of the fund is also selling options on the stocks held in the fund to juice the pay outs. To most people that sounds scary, but to seasoned traders it is plain smart since the chance of MLP"s to drop further in price is almost negligible. That makes for easy option income. Thus the 21% dividend.
Now note we posted distributions and not dividends with the MLP"s in that MLP"s have those dreaded K-1 tax forms. Go ahead and look that up if you wish but part of the beauty of this closed end fund is that they convert the distributions to a simple 1099 tax form for your tax preparation pleasure. The fund also runs dirt cheap for a closed end fund doing so much trading, borrowing, and investing at 1.30% which is about half most other funds like this one. Well frankly there is NO fund like this one, so it is really cheap. Now be aware some of the dividend will come in the form of capital return which is tax free. Not principal return, but capital return which just lowers your cost basis in the shares when you sell them.
We have recently bought into this fund with a small position and gained the first payout in July. We will add to that position at some point prior to the October payout since the price has declined a bit more since we first bought. Now this is not for investors who can stand to take a loss, nor is it good for those who might not sleep at night with their money invested. It is for those who want to risk some money and roll the dice a bit. When we buy in next we will still be below 1% of our assets, so be careful here, but consider the opportunity.
Let's also state here one more time single stock investing is not for people who have not fully participated in their company 401-k plans to the fullest possible extent which is about $18000 for most people and fully invested in a Roth IRA which is about $5500 for most people. One should invest with max pre-tax or Roth post tax dollars in these excellent retirement investing vehicles prior to putting money at risk in single stock selections. Put your retirement money in index stock funds and keep adding each payday. If you have money outside such options then single stock selections can be considered.
