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|
|CORNERSTONE STRATEGIC VALUE FUND||15.55||0.0||0.00||0.00||18.29|
|CORNERSTONE TOTAL RETURN FUND||15.40||0.0||0.00||2.75||17.73|
|PIMCO HIGH INCOME FUND||7.46||0.0||0.00||0.00||12.95|
|CS HIGH YIELD BOND FUND||2.69||0.0||0.00||0.00||9.74|
|OXFORD LANE CAPITAL||10.05||5.4||1.87||0.54||5.34|
Older articles featuring Cornerstone Strategic Value Fund (CLM):Follower Favorite Top Dogs Spot An Industrial For Gains Plus A REIT ETF For Yield In July
Dividend Dog Followers Use New Ways To Put Their Favorite Dogs In Print
Dividend Dog Followers Get More Ways To Put Their Favorite Underdogs In Print
Dividend Dog Followers Pick High-Yield Posies In April
Dividend Dog Followers Dream Of High Yields And Leprechauns In March
For Monthly Pay Dividend Dogs, Orchid & Fifth Corner Has Top Yield In January
Monthly Dividend Stocks: 3 November Lists
Monthly Paid SML Dividend Dogs Face Slow Times Ahead Per Brokers
Monthly Paid Dividend Dogs: Cornerstone Strategic Value Leads Funds
BRG Leads Monthly Pay Dividend SML Dogs In October