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Hello Fools,

If you're familiar with the BDC's on the scorecard (AINV, PSEC) you'll know that, because the investment thesis is predicated not so much on capital appreciation, but rather on the fat dividend income (and ideally, even on increasing dividends), that we need an adjustment methodology for dividends on our scorecard. The preferred method is a 'time-weighted-return', where the dividend received (or interest, in the case of CEG-PA) is reinvested in the company/security at the opening price post-dristibution.

For example, here's the adjustment history for AINV:

Here's how I put it in the original AINV dividend accounting explanation.

"What we are doing is an isolated form of time-weighted return here. This means that we are virtually reinvesting the dividend received (as of the ex-dividend date), into AINV at the opening price the morning after the stock goes ex-dividend. We first calculate a multiplier for our cost basis to reflect the dividend received and reinvested, and then calculate a dividend-adjusted cost price."

So, CEG-PA had their interest payment on 15-Dec-08. The ex-dividend date is assumed to be 12-Dec-08

Here's the math behind all of this:


Recommendation Date: 10-Nov-08

With First Dividend:
Multiplier of Original Price = 1 /(1 + (Dividend / Ex-Div Price)

With Subsequent Dividends:
Multiplier of Original Price = Previous Multipler /(1 + (Dividend / Ex-Div Price)

Net Result Today:
Ex-Dividend Next-Day Multiplier of Scorecard
Date Dividend Open Price Original Price Stock Price
10-Nov-08 1.000000 $22.20
12-Dec-08 $0.5390625 $22.30 0.976397 $21.68

The scorecard will be updated today.


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