The Herzfeld Caribbean Basin Fund, Inc. Pays Quarterly Distribution
- The Fund provided a distribution of $0.135375 per share, with 20% paid in cash and 80% in shares
- The total distribution was $437,354.93 in cash and 664,103 shares
- The Plan aims to provide a fixed minimum rate of distribution each quarter
- The distribution may include returns of capital for the foreseeable future
The distribution announcement by The Herzfeld Caribbean Basin Fund, Inc. is a significant event for investors and the market, as it directly affects shareholder value. The distribution mix of cash and stock is particularly noteworthy. By limiting cash payments to 20% of the total distribution and paying the remainder in shares, the Fund is conserving cash while still rewarding investors. This approach can be seen as a strategic move to maintain liquidity and potentially invest in higher-yielding assets.
However, the decision to pay distributions in the form of return of capital rather than from investment income or capital gains is a critical point. Return of capital essentially reduces the value of an investor's original investment in the fund. Over time, this could erode the net asset value (NAV) of the fund if not offset by adequate portfolio performance. Investors should be mindful of the fund's expense ratio, which could increase as a result of a reduced asset base.
The current distribution rate of 15.52% relative to NAV is exceptionally high, which may be attractive to income-focused investors but also raises questions about the sustainability of such distributions. The fund's performance, with an average annual total return of 0.08% over the past five years and a negative cumulative total return for the fiscal year, suggests that the high distribution rate may not be supported by investment earnings alone.
From a market perspective, the Fund's managed distribution plan could influence investor perception and the market price of its shares. While the plan aims to provide a steady rate of distribution, the market may react to the underlying components of the distribution. The fact that the entire current distribution is categorized as a return of capital may be perceived unfavorably, as it might indicate that the Fund's investments are not generating sufficient returns.
Additionally, the impact on the Fund's market price post-distribution is uncertain. While the plan's objective is to provide regular distributions, investors may discount the value of the shares if they believe the distributions are unsustainable or if they prefer cash over additional shares. The market's reaction will be a key indicator of investor confidence in the Fund's strategy and future prospects.
For tax purposes, the nature of the distribution is consequential. Return of capital distributions are not taxed immediately as income but instead reduce the cost basis of the investment, which can affect capital gains tax calculations upon the sale of the shares. It is essential for investors to understand the tax implications of these distributions, especially since the Fund indicates that future distributions may also include returns of capital.
Investors enrolled in the Fund's Dividend Distribution Reinvestment Plan will have their distributions automatically reinvested in additional shares, which could complicate their cost basis calculations. This aspect underscores the importance of tax planning and record-keeping for shareholders.
MIAMI BEACH, Fla., Jan. 31, 2024 (GLOBE NEWSWIRE) -- The Herzfeld Caribbean Basin Fund, Inc. (NASDAQ: CUBA) (the “Fund”) today announced that the Fund has made the following distribution pursuant to the Fund’s Managed Distribution Plan (the “Plan”):
| Declaration Date | Ex-Date | Record Date | Payment Date | Per Share |
| 12/19/2023 | 12/28/2023 | 12/29/2023 | 01/31/2024 | |
The distribution for stockholders has been paid in cash or shares of the Fund’s common stock at the election of stockholders. The total amount of cash distributed to all stockholders was limited to
The price used to calculate the number of shares to be issued in lieu of cash is
| Total Cash | Total Shares |
| 664,103 | |
Stockholders who elected to receive the distribution solely in shares of common stock and stockholders who did not make an election will receive approximately 0.0514 shares of common stock for each share of common stock they owned on the record date of December 29, 2023. Holders of approximately
Stockholders electing to receive the distribution in all cash will receive cash in the amount of
The primary purpose of the Plan is to provide stockholders with a constant, but not guaranteed, fixed minimum rate of distribution each quarter (currently set at the annual rate of
Under the Plan, the Fund will distribute all available investment income to its stockholders, consistent with its investment objective and as required by the Internal Revenue Code of 1986, as amended (the “Code”). The amount distributed per share is subject to change at the discretion of the Fund’s Board of Directors (“Board”). If sufficient investment income is not available on a quarterly basis, the Fund will distribute long-term capital gains and/or return capital to its stockholders in order to maintain its managed distribution level. The Fund is currently not relying on any exemptive relief from Section 19(b) of the Investment Company Act of 1940, as amended (the “1940 Act”). The Fund may make additional distributions from time to time, including additional capital gain distributions at the end of the taxable year, if required to meet requirements imposed by the Code and/or the 1940 Act. Please note that for shareholders enrolled in the Fund’s Dividend Distribution Reinvestment Plan, the distribution will be reinvested in additional shares of the Fund as described in the Plan.
The Fund expects that distributions under the Plan will exceed investment income and available capital gains and thus expects that distributions under the Plan will likely include returns of capital for the foreseeable future. A return of capital may occur, for example, when some or all of a stockholder’s investment is paid back to the stockholder. A return of capital distribution does not necessarily reflect the Fund’s investment performance and should not be confused with ‘yield’ or ‘income.’ Any such returns of capital will decrease the Fund’s total assets and, therefore, could have the effect of increasing the Fund’s expense ratio. In addition, in order to maintain the level of distributions called for under its Plan, the Fund may have to sell portfolio securities at a less than opportune time.
The following table sets forth the estimated amounts of the current distribution and the cumulative distributions paid this fiscal year to date from the following sources: net investment income, net realized capital gains and return of capital. All amounts are expressed per common share.
| Current Distribution | % Breakdown of the Current Distribution | Total Cumulative Distributions for the Fiscal Year to Date | % Breakdown of the Total Cumulative Distributions for the Fiscal Year to Date | |||
| Net Investment Income | ||||||
| Net Realized Short-Term Capital Gains | ||||||
| Net Realized Long-Term Capital Gains | ||||||
| Return of Capital | ||||||
| Total (per common share) | ||||||
| Average annual total return (in relation to NAV) for the 5-year period ending on December 29, 2023 | |
| Annualized current distribution rate expressed as a percentage of NAV as of December 29, 2023 | |
| Cumulative total return (in relation to NAV) for the fiscal year through December 29, 2023 | -27.07 |
| Cumulative fiscal year distributions as a percentage of NAV as of December 29, 2023 |
No conclusions should be drawn about the Fund’s investment performance from the amount of the Fund’s distributions or from the terms of the Plan.
The amount distributed per share is subject to change at the discretion of the Board. The Plan is subject to ongoing review by the Board to determine whether it should be continued, modified or terminated. The Board may amend the terms of the Plan, suspend the Plan, or terminate the Plan at any time without prior notice to the Fund’s stockholders if it deems such actions to be in the best interest of the Fund or its stockholders. The amendment or termination of the Plan could have an adverse effect on the market price of the Fund's shares. On August 10, 2023, the Board indefinitely suspended the Plan until further notice. On November 22, 2023, the Board reinstated the Plan and announced its intention to declare a quarterly distribution in December 2023.
With each distribution that does not consist solely of net investment income, the Fund will issue a notice to stockholders and an accompanying press release that will provide detailed information regarding the amount and composition of the distribution and other related information. The amounts and sources of distributions reported in the notice to stockholders 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 its full fiscal year and may be subject to changes based on tax regulations. The Fund will send stockholders a Form 1099-DIV for the respective calendar year that will tell them how to report these distributions for federal income tax purposes. Stockholders should consult their tax advisor for proper tax treatment of the Fund’s distributions.
About Thomas J. Herzfeld Advisors, Inc.
Thomas J. Herzfeld Advisors, Inc., founded in 1984, is an SEC registered investment advisor, specializing in investment analysis and account management in closed-end funds. The Firm also specializes in investment in the Caribbean Basin. The HERZFELD/CUBA division of Thomas J. Herzfeld Advisors, Inc. serves as the investment advisor to The Herzfeld Caribbean Basin Fund, Inc. a publicly traded closed-end fund (NASDAQ: CUBA).
More information about the advisor can be found at www.herzfeld.com.
Past performance is no guarantee of future performance. An investment in the Fund is subject to certain risks, including market risk. In general, shares of closed-end funds often trade at a discount from their net asset value and at the time of sale may be trading on the exchange at a price which is more or less than the original purchase price or the net asset value. An investor should carefully consider the Fund’s investment objective, risks, charges and expenses. Please read the Fund’s disclosure documents before investing.
Forward-Looking Statements
This press release, and other statements that TJHA or the Fund may make, may contain forward looking statements within the meaning of the Private Securities Litigation Reform Act, with respect to the Fund’s or TJHA’s future financial or business performance, strategies or expectations. Forward-looking statements are typically identified by words or phrases such as “trend,” “potential,” “opportunity,” “pipeline,” “believe,” “comfortable,” “expect,” “anticipate,” “current,” “intention,” “estimate,” “position,” “assume,” “outlook,” “continue,” “remain,” “maintain,” “sustain,” “seek,” “achieve,” and similar expressions, or future or conditional verbs such as “will,” “would,” “should,” “could,” “may” or similar expressions. TJHA and the Fund caution that forward-looking statements are subject to numerous assumptions, risks and uncertainties, which change over time. Forward-looking statements speak only as of the date they are made, and TJHA and the Fund assume no duty to and do not undertake to update forward-looking statements. Actual results could differ materially from those anticipated in forward-looking statements and future results could differ materially from historical performance. With respect to the Fund, the following factors, among others, could cause actual events to differ materially from forward-looking statements or historical performance: (1) changes and volatility in political, economic or industry conditions, particularly with respect to Cuba and other Caribbean Basin countries, the interest rate environment, foreign exchange rates or financial and capital markets, which could result in changes in demand for the Fund or in the Fund’s net asset value; (2) the relative and absolute investment performance of the Fund and its investments; (3) the impact of increased competition; (4) the unfavorable resolution of any legal proceedings; (5) the extent and timing of any distributions or share repurchases; (6) the impact, extent and timing of technological changes; (7) the impact of legislative and regulatory actions and reforms, including the Dodd-Frank Wall Street Reform and Consumer Protection Act, and regulatory, supervisory or enforcement actions of government agencies relating to the Fund or TJHA, as applicable; (8) terrorist activities, international hostilities and natural disasters, which may adversely affect the general economy, domestic and local financial and capital markets, specific industries or TJHA or the Fund; (9) TJHA’s and the Fund’s ability to attract and retain highly talented professionals; (10) the impact of TJHA electing to provide support to its products from time to time; (11) the impact of problems at other financial institutions or the failure or negative performance of products at other financial institutions; and (12) the effects of an epidemic, pandemic or public health emergency, including without limitation, COVID-19. Annual and Semi-Annual Reports and other regulatory filings of the Fund with the SEC are accessible on the SEC’s website at www.sec.gov and on TJHA’s website at www.herzfeld.com/cuba, and may discuss these or other factors that affect the Fund. The information contained on TJHA’s website is not a part of this press release.
Contact:
Tom Morgan
Chief Compliance Officer
Thomas J. Herzfeld Advisors, Inc.
1-305-777-1660
FAQ
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