In my Daily Paycheck newsletter, I buy income-generating securities for the long haul -- reinvesting dividends for compound growth and income. But when I see an investment with ridiculous fundamentals, coupled with a repeating trend, it gets my trader's heart beating.
And that's what I see when I look at the Gabelli Global Multimedia Trust (NYSE: GGT).
GGT is a closed-end fund specializing in global media companies. It has a solid portfolio of television networks and digital television service providers. Telecoms, which are usually stable cash-flow generators, account for about a quarter of the fund's holdings.
The "Mad Men" Fundamentals
Ad spending is on the rise and spiriting the profits of media companies. In the latest wave of earnings reports, CBS (NYSE: CBS) posted a +17% rise in ad revenue, while local ad revenue was up +23% at Comcast (Nasdaq: CMCSA) and +29% for News Corp's (Nasdaq: NWSA) FOX television network. Discovery Communications (Nasdaq: DISCA) saw international ad revenue soar +38%.
And the trend to spend -- at least on advertising -- will likely continue. The mid-term political ad spending spree is almost upon us. And consumer product and retail stores need to push their brands on still-cautious consumers. For instance, a recent article in The Wall Street Journal confirmed that General Motors was increasing its ad spending to pre-bankruptcy levels. GM's marketing chief said, "We have to build up the brands."
GGT holds all the big media players, coupled with some dependable cash-producing telecoms. And while it is a bit thinly-traded, GGT makes for a nice trade just on the fundamentals alone. But it's actually the dividend cycle that has the potential to make this a sweet short-term play.
The Anti-"Dividend-Capture" Trading Strategy
In the income world, many investors employ what is known as a dividend-capture strategy. They swoop in on a high-yielding security just before its ex-dividend date. Once they qualify for the dividend, they're gone with the wind.
The bigger the dividend payout, the more chasers in the hunt. A thinly traded security can see big price movements before its ex-dividend date -- often much bigger than the actual payout.
GGT suspended its dividend at the end of 2008 in an effort to preserve capital during the financial crisis. But in March of this year, the fund reinstituted a juicy dividend, which at current prices represents a yield of 10.7%.
And nothing gets a dividend chaser in the hunt faster than a double-digit yield.
GGT is small, with a market cap of roughly $100 million. About 25,000 shares trade on a good day. Needless to say, it won't take much interest to move this fund.
We dividend investors understand the ex-dividend "cycle" like the backs of our hands -- especially when it comes to double-digit yielding securities. Prices rise in the weeks prior to the ex-dividend date, then ebbs. I'm actually surprised more traders haven't taken advantage of the predictability of the swing.
The fundamental strength of GGT's holdings -- and the added push by dividend hounds -- makes this a perfect vehicle for an anti-"dividend-capture" play. And the beauty of this play is that you can go back and do it again -- quarter after quarter.
Of course, I'll be holding GGT for the long haul in my Daily Paycheck portfolio. But as I watch the price rise during the next few weeks, as I believe it will, I'll be pleased to know there are traders out there profiting from the cycle.
Action to Take --> Based on the analysis above, I believe GGT is a good trade to put on now, but traders will want to exit this position by September 10th -- before the next ex-dividend date. I would also recommend setting an initial stop loss at $7.04, just to be on the safe side.