Why has the share price fallen?

Dear Paul,
Could you please give me your view on the LIC, DJW ? The share price has fallen substantially in recent times, yet its dividend yield of 20c per annum has been maintained for many years, including during the GFC. It uses options to enhance its yield. In a recent commentary, it made the point that market volatility should enhance its already-high yield. Am I missing something here, given that the share price is at a 12 month low ? I am thinking of buying a holding in DJW.

 

A: I think the share price has fallen because:

  1. The market is down (it largely invests in the major companies);
  2. Underperformance; and
  3. It was trading at an unsustainable premium.

It is still trading at a premium. The last reported NTA was $3.12 on 31 March. Based on Friday’s closing price of $3.24 and my estimate of the NTA ($3.16), it is trading at a premium of around 2.5%.

Performance has been below its benchmark over the last 1 year and 5 years.

Given that it is still at a premium and its underperformance, I can’t get excited.


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