10-19-2020, 09:49 PM
Are you tired of us yet ken-do-nim? 
I know you're new here but we do this to each other all the time lol. It's for our own good Some of these income funds do some shakey stuff, and probably all of the super high yielders do. I'm sure there are many accounting tricks I am not aware of, but some of the most common ways to pay out an excessively high dividend .....
-trade or hold junk bonds.
-borrow the money to pay the dividend
-slowly pay you back your own capital and call it a dividend. Often by slowly selling off company assets. Obviously that affects the value of the security. Often a slow bleed of your capital that never ends. As the price drops, the yield gets ridiculous, so they chop the dividend and find some new fools to invest.
-sell options. i.e. covered calls against the positions the fund holds. Not necessarily a terrible plan if income is the only goal.
This should be covered in the prospectus and their routine document filings. I dumped a few lately that were paying about 6% yield. Well regarded funds and dividend very steady for years, but lately they were paying me back capital every month and the share price was edging up. I need a discount to NAV to be involved in that. Don't get me wrong, when you catch these in a rough market you can very nice capital appreciation, and a great yield on cost. Some of the ones I track normally pay about 6% yield and some of them bounced 50-100% off doubled off the Mar lows. In the short-term it doesn't matter if that fund is paying back a small amount of capital. I think I mentioned them already but JSP (preferred stocks) and RQI (real estate) are two I like. I own ARCC as well but it's a little riskier. I think it's yield is over 10% If it runs very high I'll cash it in and wait for a rough market. The other two I am fairly content to hold. I don't have huge positions in them.
.
I know you're new here but we do this to each other all the time lol. It's for our own good Some of these income funds do some shakey stuff, and probably all of the super high yielders do. I'm sure there are many accounting tricks I am not aware of, but some of the most common ways to pay out an excessively high dividend ..... -trade or hold junk bonds.
-borrow the money to pay the dividend
-slowly pay you back your own capital and call it a dividend. Often by slowly selling off company assets. Obviously that affects the value of the security. Often a slow bleed of your capital that never ends. As the price drops, the yield gets ridiculous, so they chop the dividend and find some new fools to invest.
-sell options. i.e. covered calls against the positions the fund holds. Not necessarily a terrible plan if income is the only goal.
This should be covered in the prospectus and their routine document filings. I dumped a few lately that were paying about 6% yield. Well regarded funds and dividend very steady for years, but lately they were paying me back capital every month and the share price was edging up. I need a discount to NAV to be involved in that. Don't get me wrong, when you catch these in a rough market you can very nice capital appreciation, and a great yield on cost. Some of the ones I track normally pay about 6% yield and some of them bounced 50-100% off doubled off the Mar lows. In the short-term it doesn't matter if that fund is paying back a small amount of capital. I think I mentioned them already but JSP (preferred stocks) and RQI (real estate) are two I like. I own ARCC as well but it's a little riskier. I think it's yield is over 10% If it runs very high I'll cash it in and wait for a rough market. The other two I am fairly content to hold. I don't have huge positions in them.
.
