Reitrees: Adams Diversified (ADX) Yields 8.1% And No One Has Heard Of It

PEO -0.33% ADX -1.01%

Quick Read

• Adams Diversified Equity Fund (ADX) gained over 100% in the past 5 years while delivering an 8.12% yield.

• ADX has returned 23% year-to-date and outpaced the S&P 500 by roughly 7 percentage points.

• The fund has only 19.6% institutional ownership and operates with a 0.50% expense ratio.

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Some Closed-End Funds (CEF) hide under the radar successfully and quietly go about earning moderate returns for investors. Rare is the CEF that outpaces the S&P 500 without notice. Rarer still is a CEF that has gained over 100% in the past 5 years. The unicorn CEF might be one that not only generates those gains, but delivers an 8.12% yield and whose company has been in existence since before the Civil War! Adams Diversified Equity Fund, Inc.  (NYSE: ADX) may just be that unicorn. It has an amazing history behind its current superlative stealth performance, and may be that under-the-radar investment that even institutions have overlooked.

Pony Express Roots

Adams Diversified Equity Fund has roots going back to its links with the Pony Express and its role in the abolitionist movement prior to the Civil War.

Founded in 1854 as the Adams Express Company by entrepreneur Alvin Adams, it was originally a cargo and freight company sub-contractor to the Pony Express system. Adams Express stagecoach and rail delivery services were a critical part of the abolitionist movement, and delivered anti-slavery literature throughout the South. A slave named Harold “Box” Brown even escaped slavery by mailing himself in a wooden crate from Virginia to Philadelphia via Adams Express!

Surviving through the Civil War, the Gold Rush, the Gilded Age, and WW I, Adams became an investment company in 1929, right before the stock market crash and The Great Depression. It became one of the first and longest lasting CEFs in NYSE history. Adams would go on to build its warchest with significant stakes in railroads, such as Pennsylvania Railroad, Norfolk & Western, and also American Express.

The company has paid annual dividends since 1935 for nearly 90 years, with an unbroken 54-year streak. It officially changed its name to Adams Diversified Equity Fund, Inc. in 2015, acknowledging its shipping activities had ended long ago.

Double-Digit Gains With A Ninja’s Stealth

Despite quadrupling in the past decade and doubling in the last 5 years, ADX has stayed under the analysts and institutional investor radar with ninjalike stealth.

A $10,000 investment in ADX made just five years ago would be worth $21,042.19 as of 11/21 market close. If the investment was made 10 years ago in 2015, it would be worth over $40,000.

Amazingly, ADX continues to prosper while staying under the radar. Scant analyst coverage and a paltry 19.6% institutional ownership definitely make ADX an individual investor’s vehicle.

While ADX does hold fairly substantial shares of the Magnificent 7 stocks in its portfolio, its current 23.16% YTD return outpaces the S&P 500’s 16% by roughly 7 points. Its own Adams Natural Resources Fund (NYSE: PEO), which focuses on energy and commodity stocks, might be part of its competitive advantage. PEO comprises nearly 2% of the ADX portfolio, and has a 5-year return of +177%. Other sizable portfolio allocations include 13% in financial stocks, such as JP Morgan Chase, and 10% each in consumer cyclical and telecomm.

A quick overview of ADX below:

YTD Return

23%

Avg Daily Volume

268,968

Yield

8.12%

Expense Ratio

0.50%

NAV

$23.81

1-Year Return

25.6%

Net Assets

$3.08 billion

3-Year Return

26.8%

Beta

0.92

5-Year Return

20.3%

Inception Date

1929

10-Year Return

16.3%

ADX presently trades at a -4.3% discount to NAV, which may also be an additional incentive factor for some yield oriented investors. The +8% yield is certainly anomalous with high growth funds, which may make ADX a very attractive proposition for retirees’ IRA accounts.

Like the Unicorn, Bigfoot, and The Loch Ness Monster, the high growth, high dividend fund that nobody knows about is scarce and nearly mythological. However, ADX shows that such a creature does exist; it has just been hiding in plain sight for nearly a century.

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