Alaska Just Paid Its Residents $3,284, But Its Fund Could Take a Hit With the Markets

Mark Hake

Alaska just paid qualified residents of the state $3,284 per head from its oil pipeline and Permanent Fund Dividend pile of cash. And it charges no income tax to these residents.

To qualify, you must apply and state that you were a resident in Alaska for the whole of the calendar year 2021, were not a criminal, and intend to stay indefinitely. There are some additional minor eligibility requirements but those are the three main ones.

And Alaska is one of 9 U.S. states that have no state tax. That makes living in Alaska a pretty good deal. But this might not last.

The Fund Hits Turbulent Times

The $3,284 per head payment this year was a huge increase over the $1,114 paid out last year. However, the actual payment from the PFD was $2,622, and Alaska lawmakers added $622 per head from their funds.

The Permanent Fund Dividend (PFD) should be able to keep paying out dividends. After all, the FDF is worth over $73.67 billion as of Aug. 31.

There are only 732,673 people in the state, as of the US Census Bureau (July 1, 2021). That implies that the PFD is worth over $100,500 per resident. That's what it would be worth if the PFD ever shut down, before closing costs.

However, a huge portion of the PFD is in stocks. If they keep falling, the Fund might have to make a change.

Equities Play a Huge Part

The Fund pays out the dividend to Alaska residents from the investment earnings of its mineral royalties, most of which come from oil. In addition, the PFD makes money on its investments.

The state covers its expenses from the PFD and pays out an additional amount in dividends to residents. Typically the Fund pays out about $3 billion or slightly more to the state for these expenses. It tries to make up for this downdraft by gains in the value of its investments.

Last fiscal year (ending June 30) the PFD dropped 6.79% in value from $81.896 billion to $76.337 billion as of June 30, 2022.

That includes a net $2.544 billion in state withdrawals, so its actual performance was just negative 3.7% (i.e., down $3.015 billion). The state's annual report says the performance was negative 1.32%. The difference could relate to the timing of the payments and how performance is calculated.

The PFD keeps about one-third to 38% of its total value in global equities, and 20% in cash. So if the markets keep faltering, the Fund's value might continue to deteriorate in value.

It has already fallen to $73.67 billion as of Aug. 31 from $76.337 billion at the end of June. That represents another decline in value of 3.5% in the past 2 months.

If the markets don't turn around, the PFD may have to adjust its exposure to equities.

Bottom line: Alaska seems to be in good shape to keep paying dividends to its residents. But it may have to adjust its strategy.

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Mark R. Hake, CFA writes articles on stocks and cryptos at InvestorPlace.com, Barchart.com, Medium.com, and Newsbreak.com as well as TalkMarkets.

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Mark Hake is a financial analyst, investor, and Chartered Financial Analyst (CFA). He writes about US and foreign stocks as well as cryptos, hedge funds, and private equity. He previously ran his own hedge fund, investment research firm, and acted as CFO for a fintech startup. He focuses on finding value, arbitrage, and hidden asset opportunities.

Phoenix, AZ
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