Speaker A
Today's video is going to be on Cornerstone and how it works. I've gotten a lot of comments on the drip and just how it works in general when the chart looks so destructive. So let's go into Cornerstone. It's what contributes to our
Learn how Cornerstone Funds (CLM & CRF) outperform the S&P 500 with a unique rights offering strategy and high-yield dividends over 10 years.
Key Takeaways
- Cornerstone Funds use a strategic buy-sell cycle around rights offerings to outperform the S&P 500.
- Maintaining a small position (3 shares) is essential to keep the special DRIP benefits.
- Total return charts reveal strong long-term performance despite price volatility.
- Rights offerings typically occur once a year when shares trade at a 30%+ premium to NAV.
- Active monitoring and timing are crucial for maximizing returns with Cornerstone Funds.
What the video covers
- Cornerstone Funds (CLM for S&P and CRF for NASDAQ) contribute significantly to monthly dividends, totaling $114,000 per year.
- The strategy involves buying shares before the rights offering, holding until the share price reaches a 30% premium to NAV, then selling most shares while keeping three to maintain the DRIP.
- Shares are sold at the rights offering announcement and repurchased after the offering, repeating the cycle annually.
- The funds typically trade at an average 30% premium to NAV, which signals the timing for rights offerings.
- Despite appearing destructive on traditional price charts, total return charts (e.g., Morningstar) show Cornerstone outperforming the S&P 500 over the last decade.
- The funds mimic the S&P 500's movement between rights offerings but show volatility around rights offering and dividend dates.
- The DRIP (Dividend Reinvestment Plan) is a special feature that must be activated by calling a broker, and requires holding at least three shares to maintain eligibility.
- Cornerstone is one of the largest closed-end funds with a four-star rating and pays monthly dividends that qualify for bank loans.
- The video encourages viewers to buy on pullbacks and monitor premium to NAV and rights offering announcements closely.
- The presenter invites questions and engagement in the comment section for further clarification.
Chapters
- 00:00Introduction to Cornerstone and Dividend Contributions
- 00:28CLM and CRF Overview and Performance Comparison
- 01:02Basic Cornerstone Investment Strategy Explained
- 01:33Rights Offering Timing and Selling Strategy
- 02:00DRIP Details and How to Maintain It
- 02:30Why Cornerstone Outperforms the S&P 500
- 02:58Long-Term Chart Analysis and Market Correlation
- 03:39Volatility Around Rights Offering and Dividend Dates
- 04:09Rights Offering Frequency and Premium Monitoring
- 05:03Special DRIP Activation and Broker Instructions
Full Transcript — Download SRT & Markdown
Speaker A
114,000 per year in dividends. 114,000 per year in dividends, and most of it is from Cornerstone. If you see this CLM right here, 3,300 in the month and 35, 3,300 in the month. One's the NASDAQ, one's the
Speaker A
S&P. CLM is the S&P and CRF is the NASDAQ. CRF NASDAQ, CLM S&P. So this is how Cornerstone works. Okay, and one more thing, let me show you the performance and value. We're up 16 dollars at one. S&P is up five,
Speaker A
and the Nasdaq's up 13. So obviously, Cornerstone is doing its job to help me outperform the market even though it looks destructive on its chart. So if we go into a CLM chart, you'll see that this is how you play it.
Speaker A
Okay, you simply buy before the rights offering, take it up to a 30 percent premium to NAV, and then sell. This is the simple system of Cornerstone. You again, you buy before the rights offering, you take it up to a 30 percent premium
Speaker A
to NAV. The share price usually runs at an average of a 30 percent premium to its NAV. So if you know that, then you'll know that that's when the rights offering gets announced. Usually,
Speaker A
when the premium is about 30 percent plus to NAV, if it's about 30 percent plus to NAV, they announce the rights offering. That's when you sell all of your shares. You keep three shares on, by the way, so
Speaker A
you keep your drip on. You want to sell all but three shares, and you just rinse and repeat this process. The same goes for CRF. So CLM again, buy it before the rights offering, take it out to a 30 percent premium,
Speaker A
wait for the rights offering announcement, sell as the announcement comes, buy back after the rights offering. So you could just say sell before the rights offering, buy back after the rights offering. Also, there's a drip here. So if you look at the drip on CLM,
Speaker A
which we get on the 7th or 10th of every month, you'll see here that it's dripped in an automatic 18 percent gain each time. So our dividends of 3,300 get dripped in here and give me the extra 500 that you see.
Speaker A
So this is the brilliance of Cornerstone. This is why it outperforms. If you go look at a Morningstar chart, you'll see that it outperformed the S&P over the last 10 years. Again, even though the chart looks destructive on E-Trade on a
Speaker A
normal chart, when you go into its total return chart, you see that it's blowing away the S&P. The index is the maroon line and Cornerstone is the blue line. So it made 50,000 over the last 10 years.
Speaker A
Again, when you go back into the chart of CLM and you look at it over a longer time frame, which we didn't show you yet, I showed you the five-year, but which looks like it's at a perfect low on a
Speaker A
five-year chart, but let's look at it on a max time frame. You see how this is just going into the ground. Most people are, you know, right to point out that this fund is just declining in price. Why
Speaker A
do I put so much money in this? Well, again, because look, if you look at a three-year chart, you'll see that it moves in line with the S&P, like right here. But after the rights offering
Speaker A
occurred, okay, it had some volatility of its own, but then it starts resuming its upward trend back to a 30 percent premium to NAV. But as it does so, it mimics the market. So the market probably looks like
Speaker A
this as this was coming up right here. And then every time the rights offering comes, it gets a little funky with the price action and it doesn't track the S&P as well. Also, on div dates, when the dividends are announced, the stock drops by
Speaker A
the dividend announcement. So that makes the performance look a little off compared to the S&P on a day-to-day basis, but on a six-month basis, it pretty much tracks the S&P one for one. It's just that after the rights offering is
Speaker A
done, then you lose that correlation because the tank comes. So it's like trading the S&P between rights offerings. Obviously, you have to be on the lookout for the rights offering and it comes about once a year and it
Speaker A
comes around this time or in springtime. I don't think it's coming yet because the premium to NAV is not enough. I watch the message boards of Seeking Alpha closely. So this is how you play Cornerstone. All right, you simply buy
Speaker A
before the rights offering, take the premium up to 30 percent of NAV, then wait for the rights offering. The rights offering might not come for a couple of months. Sometimes a premium gets up to 40 or 50 percent and
Speaker A
in value over the NAV. So you just simply wait for the rights offering announcement, then you sell it and you keep all the three shares. So you keep your drip on. The drip you have to call your broker and ask specifically
Speaker A
for. You don't just toggle the drip function. You have to literally call your broker, ask for the special drip in Cornerstone. So if you sell everything, you lose your right to that special drip. So keep three shares, sell everything but
Speaker A
three shares, keep your drip on, and just simply wait for the rights offering and you sell everything. You can actually send your shares in to Cornerstone and they will buy back for you around the NAV price. So this is, I mean, to me, Cornerstone is
Speaker A
the best vehicle in the world. It's one of the largest closed-end funds in the world and it has a four-star rating and outperformed the S&P. It pays me monthly dividends that qualify to banks for loans,
Speaker A
and yeah, I know on a chart it looks abysmal, but on a Morningstar chart, it's a different story. So you combine the fact that it tracks the S&P and NASDAQ except for the rights offering and ex-dividend dates. You combine that
Speaker A
performance with the fact that it drips at NAV for you and that's how you keep getting these stellar returns and that's how it's outperforming the S&P. So, by the way, one more thing, the S&P
Speaker A
had more earnings today and the S&P just is making a move lower, but I don't understand why it's moving lower when earnings are so positive from tech last night. This is just all steady ebb
Speaker A
and flow, steady as she goes. This is healthy. So keep staying positive, keep buying the pullbacks, look into Cornerstone more. If you have any questions on Cornerstone, feel free to reach out in the comment section below. Thanks a lot.
Topics:Cornerstone FundsCLMCRFS&P 500NASDAQrights offeringpremium to NAVdividend reinvestment planhigh yield dividendsclosed-end funds
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