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Monthly Pay, Fully Covered 12.5% Yield From XFLT

Published Fri, 30 Oct 2020 08:35:00 -0400 on Seeking Alpha

Seeking AlphaDividend IdeasMonthly Pay, Fully Covered 12.5% Yield From XFLTOct. 30, 2020 8:35 AM ET|| About: XAI Octagon Floating Rate & Alternative Income Term Trust (XFLT), Includes: ECC, ECCB, ECCX, ECCY, OCCI, OCCIP, OXLC, OXLCM, OXLCO, OXLCP, PFLTby: Rida MorwaRida Morwa High Dividend OpportunitiesThe #1 Service for Income Investors and Retirees, 9-10% dividend yield.SummaryXFLT raised its distribution again after reducing it as a precautionary measure during the COVID-19 crisis. Now the fund yields over 12%.
Senior secured loan values have shown strength in returning to PAR.
CLOs offer strong risk-adjusted returns after their sell-off.
Co-produced with Treading Softly
Here at High Dividend Opportunities, we have consistently covered and monitored various options available to income investors. One such sector is the much-misunderstood and much-feared Collateralized Loan Obligation, or the CLO sector.
To do this we will need to take a longer than normal approach to understand the tremendous potential inside this little fund. We are going to start with the basics and move into more technical details.
Here's a road map of where we are headed:
A brief comparison of CLOs to BDCs Overview of the fund in question Understanding what happened in the loan market An In-depth look at the fund's NAV and projections of what is to come A Brief Comparison of CLOs to BDCs
Before we get to our main focus on XFLT, we need to begin with an explanation of CLOs. A CLO shouldn't be that hard to understand, and yet many confuse it with other securitized products. A CLO is essentially a little Business Development Company (or BDC) that invests in loans. We'll use PennantPark Floating Rate Capital (PFLT) as an example:

Source: PFLT Earnings Call Presentation
PFLT holds a large number of senior secured loans along with a small smattering of preferred and common equity. To buy and hold these loans, PFLT uses its credit facility and long term notes. They... Read more

Stock name Last trade   P/E Earnings/Share Dividend/Share Dividend yield
OXFORD LANE CAPITAL 9.73   0.0 0.00 1.62 16.65
EAGLE POINT CREDIT 16.14   0.0 -1.13 2.40 14.64
PENNANTPARK FLOATING RATE CAPITAL 11.68   30.0 0.39 1.14 9.81


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