Published Thu, 05 May 2016 13:10:27 -0400 on Seeking Alpha
Reaching for yield almost always ends in disaster.
This doesn't mean you have to be happy with 2% Treasuries or 1% CDs, but it does mean prudence, care, and diligence when it comes to finding higher yielding closed-end funds ((CEFs)), especially funds whose income source is junk bonds.
There are a number of reasons for this, ranging from managers' inability to earn payouts, depletion of NAV due to fees, bad bets, derivatives, systemic events, and other problems, and declining junk bond yields over time.
This doesn't stop many investors' hunt for yield, bringing them to have positions in long-term losers like the Cornerstone Strategic Value Fund (NYSEMKT:CLM), Prospect Capital (Nasdaq: PSEC), Chimera Investment Corporation (NYSE: CIM), and the Credit Suisse High Yield Bond Fund (NYSEMKT:DHY). These aren't all closed-end funds or even entirely comparable in any way but one: they promise a high dividend yield significantly higher than their peer group.
Why to Avoid High Yield CEFs
But the yield isn't enough to offer high returns, and the performance of high yield CEFs makes this clear. I've chosen to compare CLM and DHY with the Cornerstone Total Return Fund (NYSEMKT:CRF), Oxford Lane Capital Corporation (Nasdaq: OXLC), the Pimco High Income Fund (NYSE: PHK), and the Pimco Dynamic Income Fund (NYSE: PDI).
Except for PDI, I've chosen these funds because their yields are intoxicating; OXLC is offering over a 25% yield, while... Read more
|Stock name||Last trade||P/E||Earnings/Share||Dividend/Share||Dividend yield|
|OXFORD LANE CAPITAL||10.86||1.8||6.16||2.40||22.20|
|CORNERSTONE TOTAL RETURN FUND||15.06||0.0||0.00||3.25||22.01|
|CORNERSTONE STRATEGIC VALUE FUND||15.03||0.0||0.00||0.00||18.60|
|PIMCO HIGH INCOME FUND||9.72||0.0||0.00||0.00||12.93|
|CS HIGH YIELD BOND FUND||2.69||0.0||0.00||0.00||10.30|
Older articles featuring Oxford Lane Capital (OXLC):Stocks Trading Ex-Dividend on 6/14/2016
BDC Top Dividend Dog Is Medallion Again In June
Analysts Name Capitala Finance Best BDC Dividend Dog In March
Johnson & Johnson Ties AT&T As 'Follower Favorite' Dividend Dog For March
Stocks Trading Ex-Dividend on 3/14/2016
Stellus Best BDC Dividend Dog For January, Analysts Say
Top BDC Dividend Dog, Oxford, Yields 21% As Of November 24
Oxford Lane Capital And Eagle Point Keep Churning Out The Cash, While High Yield Market Jitters Drag Down NAVs
Top 10 BDC Dividend Dogs Average 39% Upsides And 50% Net Gains As Of October 19, 2016
Top 10 BDC Dividend Dogs Yield 13.4% To 20.4% As Of October 19