TIP SHEET: Alpine Fund Seeks Dividends For Growth, Protection

Dividends are always gratifying, but portfolio managers Bryan Keane and Andrew Kohl say they hold some added significance as 2012 gets under way amid a murky economy.

"In order to be able to pay out dividends, [companies] have to have strong cash flow," said Keane, who along with Kohl helps oversee the Alpine Accelerating Dividend Fund (AADDX), a small fund with about $3.1 million in assets. "That makes them a bit more defensive" and resilient at a time of broad uncertainty.

Keane and Kohl aren't banking on the overall outlook clarifying in the near-term, describing themselves as cautious on the economy at the start of the New Year as Europe's sovereign-debt crisis and other issues continue to play out.

But they contend plenty of good opportunities exist in the stock market nonetheless, while stressing that an emphasis on dividend-paying companies can provide investors with some protection against downside risk. In addition, their strategy of focusing on stocks they view as poised to fatten payouts or, in a few cases, initiate them for the first time, is aimed at juicing the Alpine Accelerating Divided Fund with a growth element.

"We want strong cash generators, reasonable valuations and some growth" potential, Kohl said.

The fund, based in Purchase, N.Y., and rated three stars out of five by Morningstar Inc., has generated a one-year return of 1.92% through Wednesday, according to Morningstar, outpacing a return of negative 0.46% for its large-cap blend category but underperforming a 2.70% return for the Standard & Poor's 500 index. The fund has a three-year annualized return of 12.56%, compared with 12.68% for the category and 13.52% for the S&P 500 index, according to Morningstar.

Keane and Kohl chalk up the underperformance relative to the S&P index largely to the fund's international exposure, saying they started reducing its holdings in Europe and Brazil around the middle of last year.

Less than 10% of the fund's assets currently are in international stocks, they said, down from 15% to 20% in 2010. About 85% of assets are in U.S. stocks, with the remainder in cash.

"The fund is more U.S.-focused [now] because of the uncertainty" in the global economy, Keane said.

Regardless, Morningstar analyst Christopher Davis said the fund appears to have done a solid job of finding some smaller, relatively fast-growing companies with good balance sheets to invest in alongside larger stalwarts. But Davis, who doesn't formally follow the Alpine fund, said investors should be aware that it is relatively concentrated, holding only about 65 stocks, and thus potentially volatile, and he also noted that its expense ratio of 1.35% is high.

Stocks Kohl and Keane said they like at the moment include BlackRock Inc. (BLK), whose shares were trading recently around $178.78, off 0.7% from Wednesday's close. The shares slumped 6.5% in 2011.

Kohl said the financial management company, which is a top provider of exchange-traded funds, has had substantial success gathering assets, which bodes well long term, and he also likes its valuation and dividend, currently above 3%.

BlackRock "is very committed to returning capital to shareholders," Kohl said.

He and Keane said they also like apparel company VF Corp. (VFC). The stock, trading recently around $134.91 a share, down 0.4% from Wednesday's close, climbed nearly 47% last year.

VF, with well-known brands such as Wrangler jeans, North Face jackets and JanSport backpacks, has been generating solid global growth, they noted, and it also has been increasing its dividend.

Likewise, the pair cited Visa Inc. (V), calling the charge-card payment processor's dividend yield relatively low but poised to climb.

"We think there is plenty of room for that dividend to go higher" because of the company's strong cash generation, Keane said.

Visa shares, trading recently around $101.78, up 0.6% from Wednesday's close, climbed 44% in 2011.

(Bob Sechler is a writer based in Austin. He can be reached at 512-258-1690 or bob.sechler@dowjones.com)

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