High Yield Idea - Pro And Con

Dividends! Dividends! Dividends!

If yield is all that matters to you, a long idea to consider would be Pimco High Income Fund (NYSE:PHK). The current distribution yield is 12.78%. This could be a perfect investment for any dividend growth investor who explicitly believes that the only thing to focus on is the yield.

On the other hand…

Others might be less enthusiastic. To start with, while the distribution yield is over 12%, the income only yield is 10.14%. The premium to NAV is 38.20%. Combining the fact that the distributions are self-liquidating the fund over time, you are actually paying that premium a little bit every time you get a distribution. But, dividends!

As a value investor focused on expected value, I find this to be an enticing short idea. Happily, both yield seekers and value seekers can get what they want by taking long and short positions respectively.

Disclosure: I am/we are short PHK.

Chris DeMuth Jr is a portfolio manager at Rangeley Capital. ...

more
How did you like this article? Let us know so we can better customize your reading experience.

Comments

Leave a comment to automatically be entered into our contest to win a free Echo Show.