CLM: What To Do About The Rights Offering (NYSEMKT:CLM) (2024)

CLM: What To Do About The Rights Offering (NYSEMKT:CLM) (1)

Cornerstone has two high-yielding, high premium, closed-end funds. The funds are preparing another in a series of recurring rights offerings. Here, I try to infer from the behavior of Cornerstone Strategic Value Fund (NYSE:CLM), the larger of the two CEFs, if participating in the rights offering is an advisable strategy.

Should You Exercise Rights from Cornerstone?

The Cornerstone closed-end funds (CLM and CRF) are again planning to expand through rights offerings. In general, these are not funds that I expect to hold or would recommend. But as I learned when I delved into them a few years ago, they have their fans and advocates.

What interests me about them is their nearly unique approach among the widely diverse strategies one finds among equity CEFs. To simplify: Cornerstone funds pay out massive distributions, at rates well above what the funds can possibly earn in any but the most bullish of years. To receive those yields, income-seekers have been willing to pay premiums, at time massive premiums.

The funds cut their distributions routinely, but when they do make a change, they set the new distribution rate for the next twelve months. To keep the whole thing from coming apart as the funds’ values inevitably decay, there are regular expansions of the funds via rights offerings that target a 33% (plus any oversubscriptions) increases in the funds' assets. These are priced at the greater of 107% of NAV or 80% of market price per share.

The funds also offer what amounts to an attractive DRIP (dividend reinvestment programs). Under the terms of the DRIP, distributions are reinvested in the fund at NAV or by a price equal to the average closing price of the Fund over the five trading days preceding the payment date of the Distribution, whichever is lower (source). This is attractive because the funds consistently run premiums, often quite large premiums.

Not all brokers participate in the funds' DRIP program and it is sometimes difficult to get clear information on who does or doesn't from either brokers or Cornerstone. If one’s position is held by a non-participating broker, then reinvestment is at market price, which is not such a good deal as I’ve shown (here).

Finally, the funds regularly expand by rights offerings. If they didn’t they would waste away because they vastly overpay their earnings.

My view of the Cornerstone CEFs is that I stay away from them, but their advocates will argue that they are excellent vehicles for long-term wealth building if you DRIP and you fully participate in all rights offerings.

Previous CLM Research

In an older article (here), I followed Cornerstone Strategic Value Fund, the larger of the two Cornerstone’s CEFs, from mid-July 2011 (the earliest date for which I was able to obtain historical NAVs) through May 2018 to see if the points made by the fund’s advocates held up under scrutiny. I looked at fund performance as a straightforward income investment, or as a total return investment reinvesting the distributions at NAV (via the DRIPs) and at market price. Because the fund’s holdings are large-cap US equities, I benchmarked the strategies to the S&P 500 index fund, SPY.

To summarize those results: Reinvesting at NAV provided highly volatile but reasonable total returns. Put against SPY, the NAV DRIP strategy managed to almost stay close to SPY’s total return for most time periods I examined and even beat SPY for the period beginning at the start of 2016. Reinvesting at market was not competitive with simply holding SPY except for the same investment period beginning in 2016, where it did provide better total return than SPY, albeit less than the NAV DRIP program returned.

In a subsequent article (here) I expanded this to include participation in the rights offerings. My conclusion was that there was no benefit to buying new rights. This strategy necessitates a constant re-infusion of capital.

Cornerstone Strategic Value Fund

There are two Cornerstone funds, CLM and CRF. I’m going to be discussing CLM, the larger of the two. Both have announced another round to rights offerings with a record date of 16 April.

The current premium for CLM is 14.1%. It has fallen from 36.1% on 6 April, the day the rights offering was announced. It had held the premium in the mid 30% range until it tumbled on the rights offering record date (16 April).

CLM: What To Do About The Rights Offering (NYSEMKT:CLM) (2)

This pattern is typical of many CEFs when rights offerings are on the table, but few drop as precipitously as CLM did. This is not unusual for the fund; it is more or less routine.

Distribution Rate

With the 35% premiums the fund’s $0.1602 monthly distribution generated a 14.6% market yield. At the current price the distribution rate is 16.6%. CLM had often run double-digit distribution rates, which is what justified (in the minds of some investors) their double-digit premiums.

Let’s look at the fund. First a quick look at the portfolio.

CLM's Portfolio

The fund holds 97.3% of its assets in equity, 94% of which is domestic.

CLM: What To Do About The Rights Offering (NYSEMKT:CLM) (3)

These holdings look a lot like the top of the S&P 500, so any comparisons using SPY as a benchmark are quite appropriate.

Valuation (Premium and Discount)

Its valuation history is interesting (chart from CEFConnect).

CLM: What To Do About The Rights Offering (NYSEMKT:CLM) (4)

Double-digit premiums are the norm for the fund as the chart and this next table show.

CLM: What To Do About The Rights Offering (NYSEMKT:CLM) (5)

One might find a few funds in the CEF universe with valuation charts that look something like this, but only precious few. And those that do are generally earning their premiums. Such is not the case for CLM. Take the fund’s distribution for a first example of why I say that is the case.

Distribution History

The distribution history for the fund is one of continual decline. The distribution is reset each year for twelve months. As this chart shows there has been only one year in which the distribution increased, and that by an amount that is barely perceptible on this chart, since mid-2008.

CLM: What To Do About The Rights Offering (NYSEMKT:CLM) (6)

Performance History

And, of course, there’s the fund’s performance history. For the last ten years, shareholder return with distributions reinvested at market, totals 95%, slightly (ever so slightly) more than a third of SPY’s total return of 278%. The fund’s market price has declined -71%, and its NAV just about kept pace with its market price having lost -66%.

CLM: What To Do About The Rights Offering (NYSEMKT:CLM) (7)

To be fair, anyone holding the fund would not be (or certainly should not be) reinvesting at market, but at NAV, and as we saw that reinvestment has nearly always been at a significant discount to market. I’ll not repeat the analysis I did earlier (here) in which I modeled that scenario. Readers can see that article for details. I'll simply repeat the conclusions:

There is no strategy for holding CLM that remotely justifies the extreme volatility the fund consistently demonstrates.

I’ve shown earlier that holding the fund for income is a recipe for collecting your invested capital while gradually going broke.

Holding it for capital growth by reinvesting the distributions, even at the seemingly attractive NAV reinvestment price, does provide a decent rate of return, but here again the returns are too low for a fund with the volatility CLM has.”

This was done during a period when high premiums prevailed, so the DRIP discount to market was greater than it has been until the last six months or so. While I’ve not extended the analysis, I have little doubt that the same conclusions would hold.

Rights Offering: What To Do?

Another feature (if I can call it that) of CLM is that the fund has regular rights offerings. Without them the fund could not sustain itself. Current shareholders are now in decision mode on what to do about the rights they received this week.

From the comments I’ve received on CLM, I infer there are two categories of CLM investors. The first is in the fund for its generally high distribution rates. The second is in it for total return under the assumption that reinvesting those high distributions at a discount to market will drive high total return. For the total return investor, the general assumption is that full participation in the rights offering (at 107% of NAV typically) is advantageous. But this means increasing one’s holding by 33% at a regular pace and doing so by buying into a fund that is continually deprecating its value.

In the second article I referred to above I extended the DRIP analysis to include full participation in a series of rights offerings. At the end of the day, the position with the rights offering purchases did have considerably greater value, but that was largely due to several infusions of new capital. When all cash flows were factored in, the rights offering buyers did much less well than those that held and DRIPed. Again, I’ll simply quote from my conclusions:

The third strategy, using the NAV-based DRIP and adding at each rights offering, turns out to have been the worst possible play. Only for the bull market period of 2016-17 does it fare better than simply reinvesting at NAV without adding, and only trivially at that. And even then it trails the simple strategy of buy, holding and reinvesting dividends in SPY by a margin of about 30%.”

I’m rehashing that analysis because the current rights offering is underway. I don’t own the fund. Indeed, I would not own the fund. But those that do are interesting in how to play their rights. I can't give you advice, but I can say if I were holding CLM, I would simply let those rights expire. That regardless of whether one is in the fund for the perceived advantage of the DRIP for total return or for the perceived advantage of its high distribution.

This article was written by

Left Banker


I'm a retired individual investor.


Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: This article does not constitute investment or tax-planning advice. I am passing along the results of my research on the subject. Any investor who finds these results intriguing will certainly want to do all due diligence to determine if any fund mentioned here is suitable for his or her portfolio. And, any investor who has concerns about the tax status of an investment will want to consult with a tax professional on that topic.

CLM: What To Do About The Rights Offering (NYSEMKT:CLM) (2024)


How do I exercise my rights offering? ›

To exercise your rights, you must notify the subscription agent and take all other steps which are necessary to exercise your rights on or prior to expiration of the offering. What happens if the rights offering is not fully subscribed after giving effect to the oversubscription privilege?

Is Clm a good investment? ›

Investment Thesis

CLM isn't a good income investment because it overpays the distribution. Its stock picks are pretty good. And given its very high distribution policy, I am quite impressed at how close it comes to covering it. But in the end, it is just paying out too much.

What is the difference between CRF and CLM? ›

CRF vs CLM Comparison

The conclusion is CLM is a Buy and CRF is a Buy. a Summary for CRF with price predictions.

What does Cornerstone Strategic Value Fund do? ›

Cornerstone Strategic Value Fund, Inc. (the Fund) is a closed-end, diversified management investment company. The Fund's investment objective is to seek long-term capital appreciation through investment primarily in equity securities of United States and non-United States companies.

What happens if I don't take up a rights issue? ›

He warns: 'If shareholders do not take up the rights issue, their stake in the company will be diluted. ' 'As shareholders can buy new shares at a discount to the market value, the rights have an intrinsic value and therefore can be traded in the market,' says Hunter.

What happens to a stock after a rights offering? ›

The rights issued to a shareholder have value, thus compensating current shareholders for the future dilution of their existing shares' value. Dilution occurs because a rights offering spreads a company's net profit over a wider number of shares.

Is CLM a monthly dividend? ›

Schedule monthly income from dividend stocks with a monthly payment frequency.

What is the net asset value of CLM? ›

Share PriceNAV
52 Wk Avg$12.56$9.30
52 Wk High$14.75$10.52
52 Wk Low$7.60$7.38

Is CLM a closed end fund? ›

CLM is a diversified, closed-end fund that invests in both U.S. and non-U.S. equities with the goal of long-term capital appreciation. The fund pays a consistently high dividend.

Is CLM a buy or sell? ›

Today CLM ranks #2495 as buy candidate.

What are the holdings of CLM? ›

Top holdings are as of the date indicated and may not be representative of the funds current or future investments.
Top 10 HoldingsAs of 03/31/2022.
AAPLApple Inc6.88% Inc6.35%
MSFTMicrosoft Corp5.81%
GOOGAlphabet Inc Class C5.44%
BRK/BBerkshire Hathaway Inc Class B3.4%
5 more rows

What is Cornerstone Total Return Fund? ›

Welcome. Cornerstone Total Return Fund, Inc. (the “Fund”) is a diversified, closed-end management investment company. It was incorporated in New York on March 16, 1973 and commenced investment operations on May 15, 1973.

Is Cornerstone Total Return fund a good investment? ›

Much of the recent coverage on CLM has been quite negative, with Sell and Strong Sell ratings by several authors. In my opinion, the fund is a Buy for its total return potential over the next several years. The 2021 total return was one of the best years ever in terms of performance for CRF reaching 45.5% by year end.

Who owns Cornerstone Strategic Value Fund? ›

Top 10 Owners of Cornerstone Strategic Value Fund
StockholderStakeShares owned
Centaurus Financial, Inc.1.39%1,679,256
SagePoint Financial, Inc. (Invest...0.36%430,139
FNY Capital Management LP0.33%400,333
Ford Financial Group LLC0.29%350,470
6 more rows

Is CLM a stock or ETF? ›

Cornerstone Strategic Value Fund is registered as a diversified, closed-end management investment company. The Fund's investment objective is to seek long-term capital appreciation through investment primarily in equity securities of U.S. and non-U.S. companies.
Div Yield23.76
PE Ratio4.88
11 more rows

Does stock price fall after rights issue? ›

A rights issue is one way for a cash-strapped company to raise capital often to pay down debt. Shareholders can buy new shares at a discount for a certain period. With a rights issue, because more shares are issued to the market, the stock price is diluted and will likely go down.

Is a rights issue bad for shareholders? ›

The market may interpret a rights issue as a warning sign that a company could be struggling. This might even cause investors to sell their shares, which would bring the price down. With an increased supply of shares available following a rights issue, this could be very bad news for a company's market value.

Are rights issues good for shareholders? ›

If you would be happy to buy shares at the current market price then a rights issue could be a good opportunity to increase your investment in the business.

What do you do with rights entitlement shares? ›

The Investors may renounce the Rights Entitlements, credited to their respective demat accounts by trading/selling them on the secondary market platform of the Stock Exchanges through a registered stock broker in the same manner as trading / selling Equity Shares of the Company.

Can you sell rights offering? ›

If you'd prefer, you can sell your rights to buy the shares to another investor. Keep in mind that in some instances, the company initiating the rights offering may make rights non-transferable. A rights offering that's not transferable is known as a non-renounceable rights issue.

Is a rights issue a good thing? ›

A rights issue is neither good nor bad for a company although it is often a sign that a company is struggling because it means it is raising more capital. However, it could also be because the company wishes to fund an acquisition, such as Future plc's acquisition of Purch back in 2018.

Which stock has the highest dividend? ›

25 high-dividend stocks
SymbolCompany NameDividend Yield
CVXChevron Corp.3.47%
CLXClorox Co. (The)3.33%
EMNEastman Chemical Co.3.17%
AEPAmerican Electric Power Co. Inc.3.17%
21 more rows

What is the ex dividend date for CLM stock? ›

CLM Dividend History
74 more rows

How often does QYLD pay dividends? ›

QYLD Dividend Information

QYLD has a dividend yield of 14.39% and paid $2.65 per share in the past year. The dividend is paid every month and the last ex-dividend date was Jul 18, 2022.

What is a closed in fund? ›

A closed fund is a fund that is either closed to investors (temporarily or permanently) or has ceased to exist. Funds can close for various reasons, but primarily they close because the investment advisor has determined that the fund's asset base is getting too large to effectively execute its investing style.

How long has CLM been around? ›

It was incorporated in Maryland on May 1, 1987 and commenced investment operations on June 30, 1987. The Fund's shares of Common Stock are traded on the NYSE American under the ticker symbol “CLM.”

What is a cornerstone fund? ›

Cornerstone is a company that sells mutual funds with $1,448M in assets under management. The average expense ratio from all mutual funds is 1.95%. 100.00% of all the mutual funds are no load funds. The oldest fund launched was in 1973. The average manager tenure for all managers at Cornerstone is 16.26 years.

What does growth fund mean? ›

A growth fund is a diversified portfolio of stocks that has capital appreciation as its primary goal, with little or no dividend payouts. The portfolio mainly consists of companies with above-average growth that reinvest their earnings into expansion, acquisitions, or research and development (R&D).

What is a Total Return mutual fund? ›

Total return is the actual rate of return of an investment or a pool of investments over a period. Total return includes interest, capital gains, dividends, and realized distributions. Total return is expressed as a percentage of the amount invested.

What does it mean to exercise your rights? ›

verb. If you exercise something such as your authority, your rights, or a good quality, you use it or put it into effect.

What does it mean to exercise a human right? ›

This provision means that not only the government, but also businesses, civil society, and individuals are responsible for promoting and respecting human rights. When a government ratifies a human rights treaty, it assumes a legal obligation to respect, protect, and fulfill the rights contained in the treaty.

Can I sell my rights issue? ›

The shareholders not willing to subscribe to their rights issue can sell their rights in the open market through the rights entitlement trading platform of the stock exchange or via off-market transaction.

How can I protect others and help them exercise their rights? ›

6 Ways to Protect & Support Human Rights for People Around the...
  1. Speak up for what you care about. ...
  2. Volunteer or donate to a global organization. ...
  3. Choose fair trade & ethically made gifts. ...
  4. Listen to others' stories. ...
  5. Stay connected with social movements. ...
  6. Stand up against discrimination.

How can I defend my rights? ›

1. Spread the word on social
  1. 2) Raise funds for Human Rights. Fundraising events are an excellent way to defend human rights in your community. ...
  2. 3) Volunteer. ...
  3. 4) Send a letter or an email. ...
  4. 5) Start a conversation.
Feb 5, 2019

What are some examples of civil rights violations? ›

Some examples of civil rights violations include:
  • Unreasonable searches and seizures.
  • Cruel and unusual punishment.
  • Losing a job or being passed over for a promotion due to discrimination.
  • Abuse by a public official.
  • Any discrimination based on a superficial quality or belief.
Oct 9, 2019

What happens when options are exercised? ›

Exercising your options

To exercise an option means to take action on the right to buy or sell the underlying position in an options contract at the predetermined strike price, at or before expiration. The order to exercise your options depends on the position you have.

What are the most common human rights violations? ›

Abductions, arbitrary arrests, detentions without trial, political executions, assassinations, and torture often follow. In cases where extreme violations of human rights have occurred, reconciliation and peacebuilding become much more difficult.

What are rights responsibilities? ›

A right is a choice to make your own opinion and entitlement to things such as education, religion and freedom of speech. Responsibilities are duties or something an individual should do such as following the law and rules.

What do you do with rights entitlement shares? ›

The Investors may renounce the Rights Entitlements, credited to their respective demat accounts by trading/selling them on the secondary market platform of the Stock Exchanges through a registered stock broker in the same manner as trading / selling Equity Shares of the Company.

How do you value a rights issue? ›

The company is offering one new share for every two shares held by the shareholder. The market value of the share is Rs.
Price of rights shares.
Market value of the shares already held by shareholder (Rs. 240 x 2 shares)Rs. 480
Add: Price to be paid for buying one shareRs. 120
Total shares (3 shares)Rs. 600

What are the advantages and disadvantages of right issue? ›

The right issue of shares is an extravagant method to raise capital of the listed companies. When a company undergoes liquidity crises, it summons the existing shareholders for additional money in exchange for an issue of shares at discounted prices.

How can you promote mutual respect of rights? ›

Finding This Article Useful?
  1. Get to Know One Another. Sometimes, people are disrespectful out of carelessness or ignorance. ...
  2. Learn About Your Differences. ...
  3. Promote Good Manners. ...
  4. Let People Work Differently. ...
  5. Maintain Boundaries. ...
  6. Be a Role Model for Respect.

What are the 5 most important human rights? ›

Human rights include the right to life and liberty, freedom from slavery and torture, freedom of opinion and expression, the right to work and education, and many more. Everyone is entitled to these rights, without discrimination.

Does anyone have a duty to protect your rights? ›

A right is meaningless without a corresponding responsibility or duty on someone else's part. Every individual has a moral duty not to violate your personal dignity but your government, in signing up to international agreements, has not just a moral duty but also a legal duty.

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