Wednesday, December 28, 2011

DRW Misses Dividend

Click on the image to enlarge.

DRW was one of my favourite dividend paying ETFs. It filled a niche in my portfolio allocation and delivered an outstanding yield, something in the neighbourhood of 14 percent. I've been considering purchasing another 100 shares since DRW seems to have found a new, and much lower, comfort level. I was going to do a little averaging down in hopes of enjoying a good yield while waiting for DRW to recover some of its lost financial ground.

Today I have to question that move. DRW appears to have skipped its December dividend. I found this explanation on the Internet.

"DRW holds PFICs (Passive Foreign Investment Companies) in its portfolio. PFICs must mark to market each year (in Q4) and realize a gain or loss in those PFIC shares. PFIC loses are offset against PFIC gains, and then against portfolio income. The PFIC losses for DRW this year wiped out the gains and Q4 dividend income, therefore, no dividend distribution . . . "

Check the chart taken from the WisdomTree website. This is not the first dividend missed this year. In fact, according to the chart quite a number of WisdomTree ETFs failed to deliver their expected dividend back in Q2.

Is the ship sinking? No, I don't think so, but it has changed course. I've had investments before that did not performed as hoped and sometimes being patient, holding and waiting, brought its own reward. I'm holding until Q2 of 2012. I will re-evaluate DRW at that time. At the moment, there is a red flag on any buying play associated with this once loved ETF.

This is an excellent example of why one does not put too much into one investment. At this point, I only have 1.7 percent of my portfolio in DRW. This is .2 percent more than my allocation. DRW has actually performed a hair better than planned since I last updated my allocation model.

If I jump ship, I won't lose too much. My disappointment in DRW will not lose me any sleep.


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