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Dealing With A Dividend Cut In Your CEF Portfolio

Published Wed, 12 Jul 2017 14:31:37 -0400 on Seeking Alpha

If you dabble in the closed-end fund market long enough, you are probably going to own a fund that sees its dividend cut. This seemingly innocuous event can have numerous ripple effects for shareholders that should be carefully evaluated before you respond with any knee-jerk reactions.
Closed-end funds generally operate their dividend schedules in two ways: 1) a managed distribution schedule set by the board of directors or 2) an income-only policy that distributes the actual dividends generated by the underlying portfolio. Both dividend strategies are subject to continual review and can change out of left field even when the market appears calm on the surface.
The most recent example is the PIMCO California Municipal Income Fund III (PZC), which announced a 25% decrease in its distribution rate beginning in August. PIMCO cut the dividend from a steady $0.06/share down to $0.045/share monthly. See if you can guess on the chart when this was announced.

The quick reaction by the market was a huge sell off on high volume as a result of the income cut. After all, CEF investors want yield and they want it now. This is particularly true for municipal bond holders that receive a lower front-end dividend stream in exchange for an attractive taxable-equivalent yield.
In the case of PZC, PIMCO is making a proactive change to balance the lack of available yield in the marketplace without compromising its asset management strategy. They likely don’t want to add... Read more

Stock name Last trade   P/E Earnings/Share Dividend/Share Dividend yield
PIMCO MUNICIPAL INCOME FUND 14.42   0.0 0.00 0.00 4.83
PIMCO CALIFORNIA MUNICIPAL INCOME FUND III 10.93   0.0 0.00 0.00 4.45

PIMCO MUNICIPAL INCOME FUND - PMF
PIMCO MUNICIPAL INCOME FUND - PMF  


Older articles featuring Pimco Municipal Income Fund (PMF):
Treasury Curve Bear-Steepened; Muni Yields Higher - Muni Fortnightly, August 31, 2020
5 Monthly Dividend Stocks Paying up to 11.5%
Treasury Yields Rose A Few Basis Points By The End Of The Week - Muni Fortnightly, August 10, 2020
Treasury Yields Were Little Changed In Low Volatility - Muni Fortnightly, June 22, 2020
Treasury Yields Little Changed In Low Volatility - Muni Fortnightly, June 1, 2020
Treasury Yields Mixed With Curve Steepening - Muni Fortnightly May 11, 2020
Treasury And Municipal Yields Extremely Volatile - Muni Fortnightly March 30, 2020
Weekly Review: Municipal Bond CEFs - The Benchmark Distributed Its Dividend
Municipal Bond Perspective: Approach High Yield With Caution In 2020
Weekly Review: Municipal Bond CEFs - Dividend Cut For Most Of PIMCO Funds

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