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My future live-off-dividends portfolio
#11
(9 hours ago)fenders53 Wrote:
(10 hours ago)ken-do-nim Wrote:
(Yesterday, 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.
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#12
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!
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