UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number: 811-21576
Stock Dividend Fund, Inc.
(Exact name of registrant as specified in charter)
8150 N. Central Expressway #M1120 Dallas, Texas 75206
(Address of principal executive offices)
Laura S. Adams
8150 N. Central Expressway #M1120 Dallas, Texas 75206
(Name and address of agent for service)
Registrant?s telephone number, including area code: 800-704-6072
Date of fiscal year end: December 31
Date of Reporting Period: December 31, 2018
Item 1. Report to Shareholders.
STOCK DIVIDEND FUND, INC.
ANNUAL REPORT
DECEMBER 31, 2018
Stock Dividend Fund, Inc.
8150 N. Central Expressway #M1120
Dallas, Texas 75206
1-800-704-6072
Fund Symbol: SDIVX
Dear Shareholders of Stock Dividend Fund, Inc.,
The Fund ended 2018 with a Net Asset Value per share of $26.01, after paying an
income dividend of $0.7148 per share and long term capital gain of $1.4073 per
share on December 21, 2018, which is down from a Net Asset Value per share of
$29.93 at the beginning of the year.
For the period December 31, 2017 through December 31, 2018 the total
return of the Fund was down 5.77% versus the S&P 500 down 4.39%. The value and
income strategy of the Fund did outperform the Ishares Morningstar Large Cap
value etf which was down 6.21% and the SPDR Portfolio S&P 500 Value etf which
was down 8.98%. A few of our larger holdings such as APPL, BAC and UVV were down
significantly in the fourth quarter and this dragged our overall returns.
The Fund continues to hold what we feel are very high quality companies with
stable cash flows and relatively transparent balance sheets.
The Fund begins 2019 with an above market internal portfolio dividend yield,
companies with relatively low debt levels on average, strong cash flows, low
retirement and pension liabilities, all of which we would expect to perform well
going forward.
Our top holdings and industry group exposures, as of December 31, 2018, are
listed on the following page.
We look forward to excellent performance in 2019.
Sincerely,
Steven Adams
Portfolio Manager
STOCK DIVIDEND FUND, INC.
Top Ten Holdings and Asset Allocation
December 31, 2018
Top Ten Holdings*
(% of Net Assets)
Universal Corp. 6.65%
Valero 6.55%
Bank of America 6.47%
Apple Inc. 5.47%
Verizon 5.21%
The Gap Inc. 5.17%
Caterpillar Inc. 5.13%
Intel Corp. 5.03%
Schlumberger Limited 4.93%
Kohls Corp. 4.78%
------
55.39%
Asset Allocation
(% of Net Assets)
Petroleum Refining 15.15%
Family Stores 9.93%
Telephone Communications, Except Radiotelephone 9.84%
Computer and Office Equipment 7.21%
Raw Farm Food 6.65%
National Commercial Banks 6.47%
Electronic Computers 5.47%
Construction Machinery and Equipment 5.13%
Semi Conductors and Related Devices 5.03%
Crude Oil and Natural Gas 4.93%
Department Stores 4.78%
Canned Fruits and Vegetables 4.44%
Variety Stores 4.62%
Engines and Turbines 4.44%
Food/Like Products 4.20%
Other Assets, Less Liabilities, Net 1.71%
-----
100.00%
*Portfolio holdings are subject to change and are not recommendations of
individual stocks
STOCK DIVIDEND FUND, INC.
PERFORMANCE SUMMARY
The graph below represents the changes in value for an initial $100,000
investment in the Stock Dividend Fund from its inception, December 27, 2004 to
years ending through 2018. These changes are then compared to a $100,000
investment in the S&P 500 Index for the same period. Returns shown include the
reinvestment of all dividends but do not reflect deduction for taxes a
shareholder would pay on distributions or redemption of Fund shares. Past
performance is not predictive of future performance. Investment return and
principal value will fluctuate, so that your shares, when redeemed, may be worth
more or less than the original cost.
Inception Year End Year End Year End Year End Year End Year End
(12/27/04) 2004 2005 2006 2007 2008 2009
Stock Dividend --------- ------- ------- ------- ------- ------- --------
Fund $100,000 $100,680 $107,735 $130,128 $136,817 $87,618 $103,836
S&P 500 Index $100,000 $100,150 $105,007 $121,588 $128,069 $80,696 $102,049
Year End Year End Year End Year End Year End Year End Year End
2010 2011 2012 2013 2014 2015 2016
Stock Dividend ------- ------- ------- -------- ------- ------- ---------
Fund $122,973 $132,921 $151,264 $193,996 $188,913 $157,205 $214,380
S&P 500 Index $117,438 $119,892 $139,063 $184,064 $209,207 $212,094 $237,397
Year End Year End
2017 2018
Stock Dividend ------- -------
Fund $263,841 $248,617
S&P 500 Index $289,150 $276,456
$290,000| *
$280,000| *
$270,000|
$260,000| #
$250,000| #
$240,000| *
$230,000|
$220,000| #
$210,000| * *
$200,000|
$190,000| # #
$180,000| *
$170,000|
$160,000| #
$150,000| #
$140,000| # *
$130,000| # * #
$120,000| * #* *
$110,000| #*
$100,000| #* #*
$ 90,000| #
$ 80,000| *
______________________________________________________________
2 2 2 2 2 2 2 2 2 2 2 2 2 2 2
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
0 0 0 0 0 0 1 1 1 1 1 1 1 1 1
4 5 6 7 8 9 0 1 2 3 4 5 6 7 8
#=Stock Dividend Fund *=S&P 500 Index
5 Day Annual Annual Annual Annual Annual Annual Annual
Return Return Return Return Return Return Return Return
2004 2005 2006 2007 2008 2009 2010 2011
Stock Dividend ------ ------ ------ ------ ------ ------ ------ ------
Fund 0.68% 6.65% 21.19% 5.14% (35.96)% 18.51% 18.34% 8.09%
S&P 500 Index 0.15% 4.85% 15.79% 5.33% (36.99)% 26.46% 15.08% 2.09%
Annual Annual Annual Annual Annual Annual Annual
Return Return Return Return Return Return Return
2012 2013 2014 2015 2016 2017 2018
Stock Dividend ------ ------ ------ ------ ------ ------ --------
Fund 13.80% 28.25% (2.62)% (16.78)% 36.37% 23.07% (5.77)%
S&P 500 Index 15.99% 32.36% 13.66 % 1.38 % 11.93% 21.80% (4.39)%
Compound Average
Annual Return
5 Year 10 Year
Stock Dividend ------ ------
Fund 5.05% 10.98%
S&P 500 Index 8.48% 13.10%
STOCK DIVIDEND FUND, INC.
EXPENSES
DECEMBER 31, 2018
As a shareholder of the Fund you incur ongoing costs including
management fees, transaction costs, potential early redemption fees and other
operating expenses. This example is intended to help you understand your
ongoing costs (in dollars) of investing in the Fund and to compare these costs
with the ongoing costs of investing in other mutual funds. This example is
based on an investment of $1,000 invested at the beginning of the period and
held for the entire six month period of June 30, 2018 to December 31, 2018.
Actual Expenses
The first line of the table below provides information about actual
account values and actual expenses. You may use the information in
this line, together with the amount you invested at the beginning of
the period, to estimate the expenses that you paid over the period.
Simply divide your account value by $1,000 (for example, an $8,500
account value divided by $1,000 equals 8.5), then multiply this result
by the number in the first line under the heading "Expenses Paid During
Period" to estimate the expenses you paid on your account during the
period.
Hypothetical Example for Comparison Purposes
The second line of the table below provides information about
hypothetical account values and hypothetical expenses based on the
Fund's actual expense ratio and an assumed rate of return of 5% per
year before expenses, which is not the Fund's actual return. The
hypothetical account values and expenses may not be used to estimate
the actual ending account balance or expenses you paid for the period.
You may use this information to compare the ongoing costs of investing
in the Fund to other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the
shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight
your ongoing costs only and do not reflect any transactional costs such
as sales charges (loads), redemption fees, or exchange fees.
Therefore, the second line of the table is useful in comparing ongoing
costs only.
Expenses Paid
Beginning Ending During Period*
Account Value Account Value June 30, 2018
June 30, 2018 December 31, 2018 to December 31, 2018
----------------- ----------------- ---------------------
Actual $ 1,000.00 $ 918.75 $ 4.11
Hypothetical** $ 1,000.00 $ 1,021.00 $ 4.33
*Expenses are equal to the Fund's annualized expense ratio of 0.85%,
multiplied by the average account value over the period, multiplied by
184 days/365 days to reflect the one-half year period.
** Hypothetical return assumes 5% return before expenses.
STOCK DIVIDEND FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 2018
ASSETS
Investment securities, at fair
value(cost $21,664,839) $ 28,268,970
Dividends receivable 25,389
-----------
Total assets 28,294,359
-----------
LIABILITIES
Advisory fees payable 20,980
-----------
Total liabilities 20,980
-----------
NET ASSETS -
Equivalent to $26.01 per
share based on 1,087,039 shares
of common stock issued and outstanding;
100,000,000 shares authorized,
$0.001 par value $ 28,273,379
============
NET ASSETS CONSIST OF:
Common stock $ 1,087
Paid-in capital 21,668,161
Net unrealized appreciation 6,604,131
------------
Net assets $ 28,273,379
============
Net asset value per share $ 26.01
See accompanying notes to these financial statements
STOCK DIVIDEND FUND, INC.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2018
DESCRIPTION SHARES MARKET VALUE
----------- ------ -------
COMMON STOCKS ? 98.34%
Petroleum Refining-11.97%
Valero Energy Corp 18,302 $ 1,372,101
Chevron Corp. 11,838 1,287,856
Exxon Mobil 10,629 724,792
---------
3,384,749
Semi Conductors and Related Devices-4.13%
Intel Corp 24,896 1,168,369
Telephone Communications, Except
Radiotelephone-10.06%
Verizon 27,638 1,553,808
AT&T 45,199 1,289,979
---------
2,843,787
Computer and Office Equipment-4.33%
Hewlett Packard Inc. 59,853 1,224,592
Construction Machinery and Equipment-4.73%
Caterpillar Inc. 10,533 1,338,428
Engines and Turbines-3.85%
Cummins Inc. 8,148 1,088,899
National Commercial Banks-5.58%
Bank of America 64,055 1,578,315
Electronic Computers-5.84%
Apple Inc. 10,468 1,651,222
Variety Stores-5.00%
Walmart 15,163 1,412,433
Family Stores-3.08%
Gap Inc. 33,852 872,028
Department Stores-5.54%
Kohl?s Corp. 23,632 1,567,747
Canned Fruit/Vegetables-4.06%
J.M. Smuckers Co. 12,281 1,148,151
Raw Farm Food-7.32%
Universal Corp. 38,219 2,069,559
- Continued ?
STOCK DIVIDEND FUND, INC.
SCHEDULE OF INVESTMENTS, continued
DECEMBER 31, 2018
DESCRIPTION SHARES MARKET VALUE
----------- ------ ------------
Scheduled Air Transportation-3.59%
Alaska Air Group 16,700 $ 1,016,195
Pharmaceutical Preps-9.28%
AbVie Inc. 15,379 1,417,790
Pfizer 27,662 1,207,446
---------
2,625,236
Drug Store-3.55%
CVS Health Corp 15,313 1,003,308
Paper Products-3.19%
Kimberly-Clark Corp 7,916 901,949
Malt Beverages-3.21%
Molson Coors Brewing Co. 16,168 907,995
----------
Total common stocks (cost $21,198,832) $ 27,802,962
--------
SHORT-TERM INVESTMENTS ? 1.65%
Schwab Money Market Fund (Single Class Fund)
-current interest at 0.60% 466,007 $ 466,007
--------
Total short-term investments (cost $ 466,007) 466,007
--------
Total investment securities ? 99.98% (cost $21,664,839) 28,268,969
Other assets less liabilities ? 0.02% 4,410
--------
Net assets - 100.00% $ 28,273,379
============
See accompanying notes to these financial statements.
STOCK DIVIDEND FUND, INC.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2018
INVESTMENT INCOME
Dividends $ 985,104
Interest 6,684
------------
Total investment income 991,788
------------
EXPENSES -
Advisory fees 274,532
--------
Total Expenses 274,532
--------
Net investment income 717,256
------------
GAIN(LOSS)ON INVESTMENTS -
Net realized gain on investments 1,412,073
Net decrease in unrealized appreciation (3,771,780)
of investments ------------
Net realized gain and unrealized loss
on investments (2,359,707)
------------
Net decrease
in net assets resulting from operations $ (1,642,451)
============
See accompanying notes to these financial statements.
STOCK DIVIDEND FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
Year Ended Year Ended
Dec 31, 2018 Dec. 31, 2017
INCREASE(DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net investment income $ 717,256 $ 693,580
Net realized gain (loss)on investments 1,412,073 2,095,308
Unrealized appreciation(depreciation)
of investments (3,771,780) 3,393,055
----------- ------------
Net increase (decrease) in net assets
resulting from operations (1,642,451) 6,181,943
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net investment income (717,256) (741,902)
Realized gains (1,412,073) (2,046,986)
----------- ------------
Total Distributions (2,129,329) (2,788,888)
CAPITAL SHARE TRANSACTIONS-NET (340,177) (1,733,323)
----------- ------------
TOTAL INCREASE (DECREASE) IN NET ASSETS (4,111,957) 1,659,732
NET ASSETS, beginning of year 32,385,336 30,725,604
----------- ------------
NET ASSETS, end of year (includes $ 28,273,379 $ 32,385,336
undistributed net income of $- and =========== ============
$-, respectively)
See accompanying notes to these financial statements.
STOCK DIVIDEND FUND, INC.
FINANCIAL HIGHLIGHTS
PER SHARE DATA AND RATIOS FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
ENDED:
YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
2018 2017 2016 2015 2014
----- ------ ------ ------ ------
Net asset value,
beginning of year $29.93 $26.61 $20.31 $25.26 $26.55
------ ------- ------ ------ ------
Income (loss)from investment
operations:
Net investment income 0.71 0.70 0.61 0.71 0.59
Net realized and
unrealized gain
(loss)on investments (2.51) 5.44 6.78 (4.95) (1.29)
---- ------ ----- ----- -----
Total from
investment operations (1.80) 6.14 7.39 (4.24) (0.70)
---- ------ ----- ----- -----
Less distributions from:
Net investment income (0.71) (0.75) (0.62) (0.71) (0.59)
Net realized gains (1.41) (2.07) (0.47) 0.00 0.00
----- ------ ------ ------ ------
Total distributions (2.12) (2.82) (1.09) (0.71) (0.59)
----- ------ ------ ------ ------
Net asset value,
end of year $26.01 $29.93 $26.61 $20.31 $25.26
------ ------ ------ ------ ------
Total Return (5.77)% 23.07% 36.37% (16.78)% (2.62)%
Net assets, end of
year(in 1000's) $28,273 $32,385 $30,726 $23,617 $36,736
Ratio of expenses to
average net
assets(a) 0.86% 0.85% 0.87% 0.87% 0.85%
Ratio of net investment
income to average net
assets 2.24% 2.37% 2.52% 2.74% 2.21%
Portfolio turnover
rate (annualized) 28.64% 41.45% 29.83% 37.61% 34.03%
(a) The Fund's actual expenses are calculated daily at 0.85% of net
asset value (NAV).
See accompanying notes to these financial statements.
STOCK DIVIDEND FUND, INC.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
Stock Dividend Fund, Inc. (the "Fund") was incorporated in the
State of Texas on April 6, 2004 and is registered under the
Investment Company Act of 1940 as a non-diversified, open-end
management investment company. The investment objective of the
Fund is to achieve growth and income by investing primarily in
dividend paying common stocks. The effective date of the Fund's
registration with the SEC was November 29, 2004.
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial statements have been prepared on the
accrual method of accounting in accordance with accounting
principles generally accepted in the United States of America.
Use of Estimates
The preparation of financial statements in conformity with U.S.
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of increases and decreases in net assets from
operations during the reporting period. The Fund?s significant
estimates include primarily the fair value of investments.
Actual results could differ from these estimates.
Security Valuation
Securities listed on a national securities exchange or in the over-
the-counter market are valued at the last quoted sales price on the
day of valuation, or if no quoted sales price was reported on that
date, the last quoted bid price. Short-term investments are valued
at cost which approximates fair value. Securities for which
quotations are not readily available are valued at their estimated
fair value as determined in good faith by the Fund's Board of
Directors.
Securities Transactions and Investment Income
Securities transactions are recorded on a trade-date basis.
Dividend income is recorded on the ex-dividend date and interest
income is recorded on the accrual basis. Realized gains and losses
are determined on a specific identification basis of the securities
sold. Unrealized gains and losses resulting from the appreciation
and depreciation of securities carrying values are included in the
statements of operations.
Distribution of Income and Gains
The Fund declares and pays dividends annually from net investment
income and from net realized gains, if any. Distributions from
realized gains for book purposes may include short-term capital
gains, which are included in ordinary income for tax purposes.
Dividends are paid upon Board approval by the end of each calendar year.
STOCK DIVIDEND FUND, INC.
NOTES TO FINANCIAL STATEMENTS
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
Federal Income Taxes
The Fund's policy is to continue to comply with the requirements of the
Internal Revenue Code that are applicable to regulated investment
companies and to distribute all of its taxable income, including
any realized gains on investments, to its shareholders. The Fund also
intends
to distribute sufficient net investment income and net capital gains,
if any, so
that it will not be subject to excise tax on undistributed income and gains.
Therefore, no federal income tax or excise provision is required.
Net investment income (loss), net realized gains (losses) and the
cost of investments in securities may differ for financial
statement and income tax purposes. The character of distributions
from net investment income (loss) or net realized gains (losses) may
differ from
their ultimate characterization for income tax purposes. At December
31, 2018, there were no material differences. Also, due to the
timing of dividend distributions, the fiscal year in which amounts
are distributed may differ from the year that the income or
realized gains were recorded by the Fund.
Subsequent Events
Subsequent events were evaluated through February 18, 2019, the date the
financial statements were available for issuance.
STOCK DIVIDEND FUND, INC.
NOTES TO FINANCIAL STATEMENTS
3. FAIR VALUE OF INVESTMENTS
In accordance with U.S. generally accepted accounting principles (?GAAP?), fair
value is defined as the price that the Fund would receive to sell an asset or
pay to transfer a liability in an orderly transaction between market
participants at the measurement date. GAAP also establishes a framework for
measuring fair value, and a three-level hierarchy for fair value measurements
based upon the transparency of inputs to the valuation of an asset or liability.
Inputs may be observable or unobservable and refer broadly to the assumptions
that market participants would use in pricing the asset or liability. Observable
inputs reflect the assumptions market participants would use in pricing the
asset or liability based on market data obtained from sources independent of the
Fund. Unobservable inputs reflect the Fund's own assumptions about the
assumptions that market participants would use in pricing the asset or liability
developed based on the best information available in the circumstances. Each
investment is assigned a level based upon the observability of the inputs which
are significant to the overall valuation. The three-tier hierarchy of inputs is
summarized below.
Level 1 - quoted prices in active markets for identical investments.
Level 2 - observable inputs other than quoted prices(including quoted prices for
similar investments, interest rates, prepayment speeds, credit risk, etc.)
Level 3 - significant unobservable inputs (including the Fund's own assumptions
in determining the fair value of investments)
The following table summarizes the valuation of the Fund's investments by the
above fair value hierarchy levels as of December 31, 2018:
Investments Other
in Financial
Level Securities Instruments *
----- ---------- -----------
Level 1:
Common Stock $27,802,963 $ 0
Short term investments 466,007 0
----------- ------------
Total Level 1: 28,268,970 0
Level 2 0 0
Level 3 0 0
----------- ------------
Total $28,268,970 $ 0
=========== ============
* Other financial instruments are derivative instruments not reflected
in the Portfolio of Investments, such as futures forwards and swap contracts,
which are valued at the unrealized appreciation / depreciation on the
instrument. As of December 31, 2018, the Fund did not own any other financial
instruments.
STOCK DIVIDEND FUND, INC.
NOTES TO FINANCIAL STATEMENTS
3. FAIR VALUE OF INVESTMENTS (continued)
Transfers between levels are recognized at the end of the
reporting period. There were no transfers between level 1 and
level 2 during the year. There were no level 3 investments held by
the Fund during the year ended December 31, 2018.
4. CAPITAL SHARE TRANSACTIONS
Capital share transactions in the Fund's $0.001 par value common
stock were as follows:
Year Ended Year Ended
December 31, 2018 December 31, 2017
------------------- -------------------
Shares Amount Shares Amount
Shares sold 28,028 $ 838,974 36,590 $ 1,053,900
Shares issued in
reinvestment of
dividends 84,598 2,129,329 92,776 2,788,842
-------- -------- -------- ---------
112,626 2,968,329 129,366 3,842,742
Shares redeemed (107,524) (3,308,421) (202,174) (5,576,134)
-------- -------- -------- ---------
Net increase(decrease) 5,102 (340,118) (72,808) (1,733,392)
Beginning of year 1,081,937 22,009,366 1,154,745 23,742,758
---------- ---------- --------- ----------
End of year 1,087,039 $ 21,669,248 1,081,937 $ 22,009,366
========== ========== ========= ==========
5. INVESTMENT TRANSACTIONS
The aggregate cost of purchases and proceeds from sales of investment
securities, excluding short-term investments, aggregated $9,195,002
and $10,955,860, respectively, for the year ended December 31, 2018.
6. TAX MATTERS
Income and long-term capital gain distributions are determined in accordance
with Federal income tax regulations, which may differ from accounting principles
generally accepted in the United States.
On December 21, 2018, the Fund paid an income distribution of $0.7148 per share
to shareholders of record on December 20, 2018 for a total distribution of
$717,256, and a long-term capital gain distribution of $1.4073 per share for a
total distribution of $1,412,073.
On December 22, 2017, the Fund paid an income distribution of $0.7500 per share
to shareholders on December 21, 2017 for a total distribution of $741,902, and a
long-term capital gain distribution of $2.0694 per share for a total
distribution of $2,046,986.
The Fund?s distributable earnings on a tax basis are determined only at the end
of each fiscal year. As of December 31, 2018, the Fund?s most recent fiscal
year-end, the components of distributable earnings on a tax basis were as
follows:
Unrealized Appreciation $ 6,604,131
Undistributed Realized Long-Term Gains $ 0
Undistributed Ordinary Income $ 0
-----------
Total Distributable Earnings, Net $ 6,604,131
As of December 31, 2018, the tax basis components of unrealized appreciation
(depreciation) and cost of investments were as follows:
Gross tax appreciation of investments $ 7,165,151
Gross tax depreciation of investments $ (561,020)
---------
Net tax appreciation of investments $ 6,604.131
Federal tax cost of investments,
Including short-term investments $ 21,664,839
As of December 31, 2018, open Federal tax years, subject to examination, include
the tax years ended December 31, 2016 through December 31, 2018. As of and
during the year ended December 31, 2018, the Fund did not have a liability for
any unrecognized tax benefits. The Fund has no examination in progress and is
not aware of any tax positions for which it is reasonably possible that the
total tax amounts of unrecognized tax benefits will significantly change in the
next twelve months.
7. ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Fund and the Advisor are under common control and the existence
of that control may create operating results and financial position
different than if they were autonomous.
The Fund has an investment advisory agreement with Adams Asset Advisors,
LLC (the "Advisor") to provide investment advisory services to the
Fund. Steven Adams is managing member of the Advisor and is also
an officer and shareholder of the Fund, and his wife, Laura S. Adams
is a member
of the Advisor and also a director of the Fund. Under the terms
of the agreement, the Fund will pay the Advisor a monthly fee at
the annual rate of 0.85% of the Fund's average daily net assets.
The fee is computed daily and payable monthly. The Advisor has
contractually agreed to pay all operating expenses of the Fund,
except brokerage fees and commissions, interest, taxes and
extraordinary expenses.
The advisory fee for 2018, as computed pursuant to the investment advisory
agreement, totaled $274,532, of which $20,980 was payable on December 31, 2018.
STOCK DIVIDEND FUND, INC.
NOTES TO FINANCIAL STATEMENTS
The Advisor acts as the transfer agent for the Fund, with Fidelity Investments
as the sub-transfer agent. There are no fees associated with these services.
The Fund acts as its own custodian, effective September 1, 2008, and is in
compliance per requirements of Rule 17f-2. There are no fees associated with
these services.
8. REDEMPTION FEE
To discourage short-term trades by investors and to compensate the Fund for
costs that may be incurred by such trades, the Fund may impose a redemption fee
of 2% of the total redemption amount if shares are held less than 365 days. For
the year ended December 31, 2018, there were no redemption fees received by the
Fund.
ADDITIONAL INFORMATION (Unaudited)
PROXY VOTING INFORMATION
Stock Dividend Fund, Inc. management is responsible for exercising the
voting rights associated with the securities held by the Fund. A
description of our philosophy on fulfilling this responsibility is
available without charge, upon request, by calling 1-800-704-6072.
QUARTERLY FILING OF PORTFOLIO HOLDINGS
The Fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission (SEC) for the first and third quarters of each fiscal
year on Form N-Q. The Fund's Forms N-Q are available on the SEC's website
athttp://www.sec.gov. The Fund's Forms N-Q may also be reviewed and copied at
the SEC's Public Reference Room in Washington DC. Information on the operation
of the Public Reference Room may be obtained by calling 1-800-SEC-0330.
APPROVAL OF INVESTMENT ADVISORY AGREEMENT
At an in-person meeting held on January 18, 2019, the Board of Directors,
including a majority of Directors that are not "interested" persons of the
Fund(as the term is defined in the 1940 Act), re-approved the Advisory
Agreement based upon its review of the qualitative and quantitative
information provided by the Investment Advisor. The Directors
considered, among other things, the following information regarding the
Investment Advisor:
1) Nature, extent and quality of services provided by the Advisor ?
The Directors reviewed the nature, quality and scope of current
services provided by the Advisor under the Advisory Agreement. The
Directors also analyzed the experience of the Investment Advisor and
capabilities as a portfolio manager, noting that the Advisor has managed
separate account portfolio?s successfully with assets far in excess of the
Fund?s NAV for decades. The Advisor?s Form ADV was reviewed as well as
internal compliance policies and experience managing other portfolios. In
addition, the portfolio and brokerage transactions of the Fund were
reviewed. Based on this review, the Directors concluded that the range and
quality of services to be provided by the Investment Advisor to the Fund
were appropriate and to support the selection of the original Investment
Advisor.
2) Investment performance ? The Directors reviewed the performance
of the Fund
as compared to market benchmarks for various time periods. This review
focused on investment strategy and long term performance potential. For
2018 the Fund was down 5.77% versus down 4.39% for the S&P 500 and down
8.97% for the S&P Value index. In 2017 the Fund was up 23.07% versus the
S&P 500 up 21.80%. The Directors concluded that the performance of the
Fund managed by the Investment Advisor, both short term and longer term,
was satisfactory.
3) Cost of services to the Fund and profitability of the Advisor ? The
Directors considered the Fund?s management fee and total expense ratio of
the Fund relative to industry averages. The Directors determined that the
Advisor is receiving a fee (0.85%) that is in line with fees charged for
other funds and that the Advisor is operating profitably, is viable and
should remain an ongoing entity. The Directors also noted that the Advisor
is paying all expenses (except transaction commissions) associated with
managing the Fund out of the management fee, which is very advantageous to
shareholders versus other funds.
4) Economies of Scale ? The Directors considered information regarding
economies of scale with respect to management of the Fund and noted that
the Fund and its shareholders are already experiencing and benefitting from
an expense ratio (0.85%) that would be expected from that of funds with
significantly larger asset bases.
5) Conclusions ? Based on the above review and discussions, the Directors
concluded that it is in the best interest of the Fund and the shareholders
to approve the Advisory Agreement.
Board of Directors Information (Unaudited)
Stock Dividend Fund, Inc.
December 31, 2018
The business and affairs of the Fund are managed under the direction of the
Fund's Board of Directors. Information pertaining to the Directors of the Fund
are set forth below. The Fund's Statement of Additional Information includes
additional information about the Fund's Directors, and is available without
charge, by calling 1-800-704-6072. Each director may be contacted by
writing to the director c/o Stock Dividend Fund, Inc, 8150 N. Central
Expressway, Suite M1120, Dallas, Texas, 75206.
INDEPENDENT DIRECTORS
Name and Age Position Term/ Principal Occupation Other Public
Yrs* Past five years Directorships
Served**
------------------ -------- ---- --------------------- -------------
Vicky L. Hubbard Director 1 Private investor Small Cap
Age 61 since 2000, Tech Co. Value Fund, Inc.
Manager prior
Yolawnde F. Malone Director 1 Pres. Whitford Capital,Small Cap
Age 55 Senior Tax Mngr, Value Fund, Inc.
Montgomery Cosia
Greilich LLP prior,
CPA Family Legacy
Trust prior
Melissa D. Gordon, Director 1 Vice Chair Pathologist Small Cap
M.D. prior Partner at North Value Fund, Inc.
Age 55 Dallas Pathology
INTERESTED DIRECTORS
Laura S. Adams Director, 1 Member, Adams Small Cap
Age 57 President Asset Advisors Value Fund, Inc.
Secretary
Treasurer
*All Directors have served since the Fund?s Effective date of registration with
SEC, November 29, 2004.
**The number of portfolios in each Fund complex overseen is one. Each Director
oversees two portfolios, one for each complex overseen.
This report and the financial statements contained herein are submitted for the
general information of shareholders and are not authorized for distribution to
prospective investors unless preceded or accompanied by an effective
prospectus. Nothing herein contained is to be considered an offer of sale or
solicitation of an offer to buy shares of Stock Dividend Fund, Inc. Such
offering is made only by prospectus, which includes details as to offering
price and material information.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Stock Dividend Fund, Inc.
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Stock Dividend Fund, Inc. (the ?Fund?) as of
December 31, 2018, the related statements of operations and changes in net
assets for the year ended December 31, 2018, including the related notes, and
the financial highlights for the year ended December 31, 2018 (collectively
referred to as the ?financial statements?). In our opinion, the financial
statements present fairly, in all material respects, the financial position of
the Fund as of December 31, 2018 and the results of its operations and its
changes in net assets for the year then ended, in conformity with accounting
principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Fund?s management. Our
responsibility is to express an opinion on the Fund?s financial statements based
on our audit. We are a public accounting firm registered with the Public Company
Accounting Oversight Board (United States) (?PCAOB?) and are required to be
independent with respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the Securities and
Exchange Commission and the PCAOB.
We conducted our audit of these financial statements in accordance with the
standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement, whether due to error or fraud. The Fund is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. As part of our audit we are required to obtain
an understanding of internal control over financial reporting but not for the
purpose of expressing an opinion on the effectiveness of the Fund?s internal
control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material
misstatement of the financial statements, whether due to error or fraud, and
performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in
the financial statements. Our procedures also included confirmation of
securities owned as of December 31, 2018 by correspondence with the custodian
and others; when replies were not received, we performed other appropriate
auditing procedures. Our audit also included evaluating the accounting
principles used and significant estimates made by management, as well as
evaluating the overall presentation of the financial statements. We believe that
our audit provides a reasonable basis for our opinion.
/s/ Turner, Stone & Company, L.L.P.
Dallas, Texas
February 18, 2019
This is the first year we have served as the Fund?s auditor.
2017
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
FROM PREVIOUS AUDITOR FOR YEAR ENDING 2017
To the Shareholders and
Board of Directors of
Stock Dividend Fund, Inc.
We have audited the accompanying statement of assets and liabilities of Stock
Dividend Fund, Inc., including the schedule of investments, as of December 31,
2017, and the related statement of operations for the year then ended, the
statements of changes in net assets for each of the two years in the period then
ended, and the financial highlights for each of the five years in the period
ended. These financial statements and financial highlights are the
responsibility of the Fund?s management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of December 31, 2017, by correspondence with
the custodian. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Stock
Dividend Fund, Inc. as of December 31, 2017, the results of its operations for
the year then ended, the changes in its net assets for each of the two years in
the period then ended, and the financial highlights for the each of the five
years in the period then ended, in conformity with accounting principles
generally accepted in the United States of America.
PMB HELIN DONOVAN, LLP
Austin, Texas
February 16, 2018
Item 2. Code of Ethics. The registrant, as of the end of the period
covered by this report, has adopted a code of ethics that applies to
all officers and employees of the Fund. The registrant has not made
any amendments to its code of ethics or granted any waivers or
exceptions to the code during the covered period.
Item 3. Audit Committee Financial Expert. The entire Board of
Directors, in effect, acts as the audit committee. The Board has two
financial experts serving on the Board. Laura Adams and Yolawnde
Malone are the financial experts. Mrs. Adams is an "interested"
Director and Mrs. Malone is an "independent" Director.
Item 4. Principal Accountant fees and services.
(a)-(d) Total fees billed to the registrant for the last two fiscal years for
professional services rendered by the registrant?s independent auditor were as
follows:
December 31,2018 December 31, 2017
Audit $14,000 $8,000
Audit-Related fees $0 $0
Tax preparation fees $0 $0
Other fees $0 $0
Audit fees include amounts related to the annual audit of the registrant?s
financial statements, spot checks for compliance with Rule 17f-2 and services
normally provided by the auditor in connection with statutory and regulatory
filings. The registrant performance tax preparation internally.
(e)(1) The directors have not adopted pre-approval policies and procedures
described in paragraph (c)(7) of Rule 2-10 of Regulation S-X.
(e)(2) None
(f) Not applicable
(g) The aggregate fees billed for the most recent fiscal year and the preceding
year by the registrant?s independent auditor for non-audit services rendered to
the registrant, its investment advisor, and any entity controlling, controlled
by, or under common control with the advisor that provided ongoing services to
the registrant were $0 and $0, respectively.
(h) Not applicable
Item 5. Audit Committee of listed Registrants. (Not applicable)
Item 6. Schedule of Investments. Schedule of Investments is included
as part of the report to shareholders filed under Item 1 of this Form.
Item 7. Disclosure of proxy voting policies and procedures for closed-
end management investment companies. (Not applicable)
Item 8. Portfolio Managers of Closed-End Management Investment
Companies. Not Applicable to open-end investment companies.
Item 9. Purchase of equity securities by closed-end management
investment companies. (Not applicable)
Item 10. Submission of Matters to a vote of security holders. (None)
Item 11. Controls and Procedures
a) The Fund's President has concluded that the Fund's disclosure
controls and procedures are sufficient to ensure that information
required to be disclosed by the Fund in this Form N-CSR was
recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission's rules and
forms, based upon such officers' evaluation of these controls and
procedures as of a date within 90 days of the filing date of the
report.
b) There were no significant changes or corrective actions with
regard to deficiencies or material weaknesses in the Fund's internal
controls or in other factors that could significantly affect the
Fund's internal controls subsequent to the date of their evaluation.
Item 12. Disclosure of Securities Lending Activities for Closed-End
Management
Investment Companies. (Not applicable)
Item 13. Exhibits.
a) (1)Code of Ethics- Filed with N-CSR and hereby incorporated by
reference as Exhibit (p) of Post-Effective Amendment No. 16
(485BPOS)of our Registration under the Securities Act of 1933 filed on
2/12/2016 and can be viewed on the SEC.gov website under company filings.
A copy of the Code of Ethics can also be obtained by calling us at 1-800-
704-6072.
(2)Certifications pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002- Attached
b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002- Attached
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Stock Dividend Fund
By /s/ Laura S. Adams
--------------------------------------
Laura S. Adams
President
Principal Executive Officer and Principal Financial Officer
Date 2/18/19
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, this report has been signed below
by the following persons on behalf of the registrant and in the
capacities and dates indicated.
Stock Dividend Fund
By /s/ Laura S. Adams
--------------------------------------
Laura S. Adams
President
Principal Executive Officer and Principal Financial Officer
Date 2/18/19