DNP Select Income Fund Inc. Section 19(a) Notice
- None.
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Insights
The announcement of a distribution amount per share of common stock is a critical piece of information for investors, as it directly impacts shareholder returns. The distribution is comprised of net investment income, net realized long-term capital gains and return of capital. The high proportion of the distribution coming from return of capital, which accounts for 70% of the December distribution and 36% of the cumulative distributions, may raise questions regarding the sustainability of the payouts, as it suggests that a significant portion of the distribution is not covered by investment income or realized capital gains.
The annualized current distribution rate of 9.81% as a percentage of net asset value (NAV) is notably high, which could be attractive to income-focused investors but also implies a potential risk of eroding the fund's capital base if such high payouts are not supported by equally robust returns. The cumulative total return on NAV of 8.23% for the fiscal year-to-date, compared to the cumulative distributions as a percentage of NAV at 0.82%, indicates that the fund's NAV has grown despite the distributions, which is a positive sign for the fund's performance.
Investors should be aware that distributions from funds can have different tax implications based on their composition. The net investment income and net realized capital gains are typically subject to taxes, while return of capital is not immediately taxable but reduces the investor's cost basis in the fund. This can lead to a higher capital gains tax when the shares are eventually sold.
It is essential for shareholders to understand that the use of return of capital for distributions can be a tax-efficient strategy in the short-term but may have long-term tax implications. The discrepancy between accounting principles and federal income tax regulations mentioned in the announcement is also a key point for tax planning, as it affects how investors report income and calculate their tax liabilities.
The distribution data provided is a fundamental aspect of evaluating the fund's performance and strategy. The average annual total return on NAV of 5.34% over the past five years gives a historical perspective on the fund's earnings potential. However, the high distribution rate relative to NAV should be carefully assessed against the fund's ability to generate income and realized gains.
Investors should consider whether the fund is achieving its returns through solid investment strategies or if the high distribution rate is being subsidized by return of capital, which could indicate that the fund is paying out more than it earns. This strategy may not be sustainable in the long run and could impact the fund's future performance and the value of its shares.
| Notification of Sources of Distribution |
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Distribution Period |
December 2023 |
|
Distribution Amount Per Share of Common Stock |
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The following table sets forth the estimated amounts of the current distribution, payable January 10, 2024 to shareholders of record December 29, 2023, together with the cumulative distributions paid this fiscal year-to-date (YTD) from the following sources. The fiscal year is November 1, 2023 to October 31, 2024. All amounts are expressed per share of common stock based on
Distribution Estimates |
December 2023 |
Fiscal YTD |
||||||
Sources |
Per Share Amount |
% of Current
|
Per Share Amount |
% of Cumulative
|
||||
Net Investment Income |
$ |
0.015 |
23 |
% |
$ |
0.039 |
30 |
% |
Net Realized Short-Term Capital Gains |
|
- |
- |
|
|
- |
- |
|
Net Realized Long-Term Capital Gains |
|
0.005 |
7 |
% |
|
0.044 |
34 |
% |
Return of Capital (or Other Capital Source) |
|
0.045 |
70 |
% |
|
0.047 |
36 |
% |
Total (per common share) |
$ |
0.065 |
100 |
% |
$ |
0.130 |
100 |
% |
November 30, 2023 |
|
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Average annual total return* on NAV for the 5 years |
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|
5.34 |
% |
||||
Annualized current distribution rate as a percentage of NAV |
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|
9.81 |
% |
||||
Cumulative total return on NAV for the fiscal YTD |
|
|
8.23 |
% |
||||
Cumulative fiscal YTD distributions as a percentage of NAV |
|
|
0.82 |
% |
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The Fund will issue a separate 19(a) notice at the time of each monthly distribution using the most current financial information available. You should not draw any conclusions about the Fund's investment performance from the amount of this distribution or from the terms of the Fund’s managed distribution plan.
The Fund estimates that it has distributed more than its income and capital gains; therefore, a portion of your distribution may be a return of capital. A return of capital may occur, for example, when some or all of the money that you invested in the Fund is paid back to you. A return of capital distribution does not necessarily reflect the Fund's investment performance and should not be confused with "yield" or "income."
The amounts and sources of distributions reported in this notice are only estimates and are not being provided for tax reporting purposes. The actual amounts and sources of the amounts for tax reporting purposes will depend upon the Fund's investment experience during the remainder of the fiscal year and may be subject to changes based on tax regulations. The Fund or your broker will send you a Form 1099-DIV for the calendar year that will tell you how to report these distributions for federal income tax purposes.
* Simple arithmetic average of each of the past five annual returns.
DNP Select Income Fund Inc. (NYSE: DNP) is a closed-end diversified investment management company. The Fund’s primary investment objectives are current income and long-term growth of income. The Fund seeks to achieve these objectives by investing primarily in a diversified portfolio of equity and fixed income securities of companies in the public utilities industry. For more information, visit the Fund’s website at www.dpimc.com/dnp or call the Fund at (800) 864-0629.
View source version on businesswire.com: https://www.businesswire.com/news/home/20240109297481/en/
Dianna P. Wengler or Donny C. Overton
Phone: (833) 604-3163
Source: DNP Select Income Fund Inc.
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