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My future live-off-dividends portfolio
(10-19-2020, 09:45 AM)fenders53 Wrote:
(10-19-2020, 08:23 AM)ken-do-nim Wrote:
(10-18-2020, 09:27 PM)fenders53 Wrote: I understand you aren't really buying these today but the high yields made me curious.  I took a look at the first security which is OXLC which is closed end fund listed at an 18% yield.  I was curious how it did during severe markets but it didn't exist until 2011.  It's dropped from about $19 to around $4.40 after being under $2 earlier this year.  That's about a 75% loss of capital during a nine year bull market.  The yield is now down to 18% because they cut the dividend in half a few monthes back.  I wonder if they might be distributing the capital back to the shareholders?  That's a very interesting pick.  Am I missing something?

Admittedly I'm very leery of OXLC as well.  Now, I did own ORC and NLY for many years.  ORC went down down down, but I did buy more at the bottom in March and it tripled since then, which was nice, and I sold.  But it has stabilized since.

NLY I had about $25K in for many years, and getting those quarterly $700 dividends was wonderful.  It traded in a tight $10-$12/share band, until it dropped like a rock this year, thankfully after I got out, and like ORC has since stabilized.

The ones I only recently discovered but am very excited about are the two PIMCO funds paying around 10%.  It will be interesting to see how they do.
If you don't listen to anything else, look for a couple decades of performance, and research the management.  I didn't cherry pick your list to find a problem.  I just grabbed OXLC because it was listed first and it looks like the worst investment idea ever.  You are likely only attracted to the too good to be true yield.    Just understand whether the yield is a real dividend from FCF, or merely financial hocus pocus.  I highly suspect the latter in this case.  Virtually all the high yielders get beat up in a market downturn.  That is just how it is.  That is when you buy, no matter how much patience it requires.  I consider my high yielders solid, and I still have to wait a long time between adds.  A "safish"'' 7% yield is infinitely safer than a 15% yield today.

Very solid advice.  My thinking was to put a small amount of money in some of these too-good-to-be-true funds.
That is fine, as long as you are ok with the fact why we consider them to be too-good-to-be-true. Some risk is necessary, it's more about balancing the risk and reward.

I picked Pimco high income fund (PHK) randomly yesterday to take a look at since I didn't recognize most of the names. And the name is pretty nice and straight forward so I got interested. Also, I didn't want to look at the monster yield but something a bit more doable.

So, yield is 10%.
They deal in bonds. A quick look to their portfolio reveals that in their top 25 holdings there are only 2 bonds that themselves pay out more than 10%. The majority of the bonds yield somewhere around 6-7%... so how are they exactly taking a 2% management fee and still paying out 10% to investors? Yeah... strike one.

Their largest investment, with a 5% weight, is a 12% bond from Sequa Corporation. Opening their website: well for one, it looks like it was designed by a 15 year old at a highschool computer class somewhere in the 1990's. Secondly, last news on the company's official news feed? 2015. Yeah.
What do they do?

"Chromalloy, Sequa's largest business unit, provides the airline industry with a broad range of aftermarket services and ranks as the leading independent supplier of advanced repairs for jet engine parts"

Aircraft aftermarket would not be my first choice of industry for a high yield bond these days. Highest weight in a super dodgy looking company dealing in an industry that is currently being absolutely decimated? Strike two!

Dividend history?
They were essentially at $0.122/month for years, from 2003 to 2015. Then down to $0.103 in 2015, down to $0.081 in 2017, to $0.061 in 2019 and currently down to $0.048. In other words, in the past 5 years they have lowered their dividend payout ratio constantly, down 60% from where it was in 2015. You do not want to get dragged back to work when you're 70 because your income went down 60%, do you? Big Grin And it's still not low enough, so unless something changes another cut is coming. Strike three and out!
Are you tired of us yet ken-do-nim? Smile 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.

Really amazing analysis. When I actually do move into dividend producers, I'll really have to do my homework. For years I've said I'll put most of it into AT&T, but looking at the last 5 years T's price is steadily declining, though I can't quite understand it with a PE Ratio of 16.46. I hope I don't have to go as low as JNJ's yield to find a stock I really trust.
(10-20-2020, 09:45 AM)ken-do-nim Wrote: Really amazing analysis.  When I actually do move into dividend producers, I'll really have to do my homework.  For years I've said I'll put most of it into AT&T, but looking at the last 5 years T's price is steadily declining, though I can't quite understand it with a PE Ratio of 16.46.  I hope I don't have to go as low as JNJ's yield to find a stock I really trust.
We spend a lot of time here discussing dividend safety.  It's a critical skill.  Most of us here own some T shares.  If you bought it years ago it was a bad call, no matter the high yield.  I'd like to think it's a good buy at current prices, or even 30 perhaps.  Time will tell.  The dividend is very safe at this time.  Management has made some bad acquistions and incurred excessive debt.  They are paying it down rapidly, but it won't be solved in a year. 

Over time, a 2% yielder with growth will almost always outperform a high yielder with near zero growth.  I still put a few high yielders in the mix, and use the dividends to buy something with more potential of at least modest earnings/Rev growth.

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