PIMCO’s big-yield bond CEFs are perennial favorites, however underdog BlackRock has been outperforming in some cases over the last 3-5 years. For example, BlackRock’s 9.8% yield bond CEF (BIT) is posting better total returns than PIMCO’s widely popular PDI. In this report, I explain why (including comparative metrics on distributions, leverage, potential return of capital and more), and then conclude with my opinion on how income-focused investors may want to consider allocating their income-focused investment dollars (i.e. PIMCO or BlackRock).
PIMCO Big-Yield Bond Funds (PAXS, PDI, PDO, PTY): Distributions > NII
PIMCO’s big-yield bond funds are often an income-investor favorite because of their large 9% to 13% yields. Some investors have been traumatized in recent years as prices fell hard (when the fed rapidly hiked interest rates) while other investors haven’t cared as long as the big monthly income payments kept rolling in. This article provides an update on PIMCO bond funds now, and my opinion on which may (or may not) be worth considering for investment, mainly in light of how PIMCO is sourcing the distribution payments to investors.
Capital Southwest: 40+ Big-Yield BDCs Compared
If you are an income-focused investor, big-dividend Business Development Companies (“BDCs”) are hard to ignore. However, not all BDCs are created equally. In this report, we review one BDC Capital Southwest (including its business strategy, dividend safety, valuation as compared to 40+ other BDCs, and the risks). We conclude with our strong opinion on investing in Capital Southwest in particular and BDCs in general.
Main Street Capital: 40 Big-Yield BDCs Compared
With earnings season for big-dividend Business Development Companies (BDCs) about to kick off in a few weeks, it’s worth reviewing high-level data on the group (i.e. 40+ Big-Yield BDCs) and Main Street Capital (MAIN) In paticular. We consider current price-to-book values (versus history), current market conditions (including how much credit spread risk is priced in) and the breakdown of historical returns (in terms of price gains versus dividend income). We conclude with which BDCs we currently like best (including the ones we own and the ones we are considering).
Arbor Realty: 13.3% “Sucker Yield,” 3 Better Big Divided Strategies
If you are an income-focused investor, Arbor Realty Trust (ABR) may be extremely tempting because of its massive dividend yield (currently 13.3%) and long-term track record of success. However, this mortgage REIT checks all the boxes for a “sucker yield,” and there are far better investment opportunities if you like to generate high income. In this report, we share 10 reasons why Arbor Realty Trust may be a sucker yield (i.e. a dividend that is “too good to be true”), and then conclude with three superior big-dividend strategies for you to consider.
Realty Income: Despite Big Risks, 5.8% Yield Worth Considering
Commerical real estate has performed terribly, and popular retail REIT (Realty Income (O)) has not been spared. With interest rates now sharply higher and shopping habits permanently changed, a lot of investors see more risk than opportunity. In this report, we review Realty Income’s business strategy, valuation, 5.8% dividend yield (paid monthly) and the very big risk factors it is currently facing. We conclude with our strong opinion on investing.
Contrarian CEF: Attractive 8.8% Yield
The popular utility-sector closed-end fund (“CEF”) we review in this report is attractive for several reasons (e.g. big growing monthly distributions, evaporated premium and attractively priced), if you can handle the associated risks of investing. In this report, we run through all the details and then conclude with our strong opinion on investing in this big 8.8% yield CEF.
PDI (13.8% Yield): Up Big, More Gains Likely Ahead (100 Big-Yield CEFs Compared)
If you like high income investments, two things are likely true: (1) you are aware of the big double-digit yields offered by PIMCO closed-end funds (“CEFs”) and (2) you’re likely disgusted by the returns of said bond funds over the last few years. However, the tide has shifted as interest rate hikes have ceased (and may reverse). And as we correctly predicted, the brief price discount on PIMCO’s PDI (versus NAV) has evaporated and the shares now trade at a premium. What’s special is BOTH the premium and share price will likely increase dramatically in the months, quarters and years ahead. We explain in this short report and also share data on 100 other big-yield CEFs (many also paid monthly) for comparison purposes.
Top 10 High Income NOW Securities (Feb 2024)
There is a new Top 10 in town with regards to our “High Income NOW” Portfolio. And the reshuffling is driven by two big themes (i.e. where the stock and bond markets are heading). No one has a working crystal ball, but the writing is on the wall for BDCs and Bond CEFs. In aggregate, the portfolio has 24 positions (including BDCs, stock and bond CEFs, REITs, dividend stocks and more) and the aggregate portfolio yield is 9.5%. Let’s get into the details.
Saratoga: Big-Yield, Big Leverage, Big Write-Downs (40 BDCs Compared)
Saratoga Investment Corp (SAR) is a small-cap BDC ($300 million market cap) with a big yield (12.4%) and some big risks. The company’s high leverage isn’t as bad as it seems (thanks to SBIC loans), but it could still become a problem considering continued depreciation/write-downs on a few of its larger investments. After comparing Saratoga to 40+ other big-yield BDCs, we review its business, valuation, dividend and risks. We conclude with our strong opinion on investing.
Energy Transfer: Top 5 Big-Yield MLPs, IRA vs Taxable or Neither
If you an income-focused investor, you have likely come across energy midstream companies (including master limited partnerships (“MLPs”)). These specialized companies transport oil and gas through pipelines, and they can offer some very large and steady income payments to investors (thanks to the steady long-term contracts they have in place with clients). However, before you invest in any of these companies, you need to understand the unique nuances and tax risks of the MLP structure, particularly with regards to account types (i.e. should you hold in your IRA, your taxable account, or neither). In this report, we share data on the top 10 midstream companies (including the top 5 MLPs), review Energy Transfer (an MLP) in particular (including its business, big yield, valuation and risks), and then finally conclude with our strong opinion on if (and where) your should even consider investing.
RLTY: Attractive Big-Yield CEF, But Know the Big Risks
As per a reader’s request, this report focuses on the attractive qualities and big risks of the Cohen & Steers Real Estate Opportunities and Income Fund (RLTY). This closed-end fund (“CEF”) yields 9.0% and currently trades at 12.0% discount to NAV. However, there are some nuances and big performance factors readers should consider before investing. After reviewing all the details, we conclude with our strong opinion in investing.
Ares Capital: 40 Big-Yield BDCs, Compared
In this report, we compare 40+ big-yield BDCs, including a special focus on industry stalwart, Ares Capital (ARCC). Specifically, we rank the BDCs based on various metrics, including price-to-book value, dividend yield and a variety of other factors. We then dive into the specifics on Ares, including a discussion of how it is fortifying its financials for a potential macroeconomic storm. We conclude with our strong opinion about investing in BDCs at this point in the market cycle, and our specific views on investing in Ares Capital, in particular.
REIT CEF: Big-Yield, Big Discount, Contrarian Opportunity
If you are an income-focused investor, you may have noticed that popular high-dividend REITs have struggled this year. Specifically, rising interest rates and secular changes to the real estate market have kept REIT prices low (while other market sectors, such as technology, have posted strong gains). In this report, we review a blue-chip REIT closed-end fund (“CEF”) that offers a large distribution yield (currently 8.1%) and trades at a significant discount to net asset value (“NAV”). After reviewing the strategy, distribution characteristics, leverage, price and risks, we conclude with our opinion on investing.
Muni Bond CEFs: Big-Yields, Historic Discounts to NAV
If you don’t like paying taxes, like most of us, you may have noticed that municipal bond closed-end funds are still trading at historically large (and very unusual—attractive!) discounts to NAV. The “magic” of a municipal bond, is that you generally don’t have to pay federal income tax on the income—so if you’re in a high tax bracket—munis can be quite lucrative (especially on a “tax-equivalent” yield basis). In this report, we share data on over 75 big-yield municipal bond CEFs, discuss the current historical opportunity (including how funds are actively working to reduce the discounts!), and then share a few thoughts on particular muni-bond CEFs that you may want to consider for investment.
British American Tobacco: Despite Big Risks And Impairment, Big Dividend Is Attractive
The already inexpensive British American Tobacco (BTI) just got more inexpensive following Wednesday’s announced $31.5 billion write down (mainly related to its U.S. cigarette brands). The shares fell sharply on the news (because it adds to the multiple big risks the company already faces). However, this big non-cash impairment doesn’t impact the company’s cash position and it won’t impact future capital allocation decisions (including the monster big dividend, currently yielding nearly 10%). In this report, we review the business, the details of the impairment charge, the company’s valuation and the big risks. We conclude with our strong opinion on investing.
Ares Capital: Big-Yield BDC, Fortifying for the Storm
Ares Capital is a popular big-dividend (9.7% yield) BDC. It has a long track record of success in providing capital (financing) to diverse middle market companies. However, on a go-forward basis, you cannot feasibly underwrite all 490 portfolio companies Ares works with. Fortunately, Ares does it for you, and they’re good at it. Also fortunately, you do have the ability to assess the current market environment (i.e. the big macroeconomic challenges that are coming) and how it will affect Ares’ unique business (we also do this for you in this report). And after reviewing Ares in detail (i.e. the business, the financials, the risks), we conclude with our strong opinion on investing.
Eli Lilly: Despite Big Risks, Business is Strong
Indianapolis-based pharmaceuticals company, Eli Lilly (LLY) is a great business firing on all cylinders. Over the last five years, the shares are up over 400% and the dividend has more than doubled. And looking forward, the FDA’s new approval of diabetes drug, Mounjaro, to also address weight loss, gives Lilly added upside. However, the company faces a few big risks. In this report, we review the business, its blockbuster drugs, the dividend, share repurchases, valuation and the big risks. We conclude with our strong opinion on investing.
Realty Income: Only the Strong Survive
Realty Income shares are down 15% this year while the S&P 500 is up 15%. Aside from the strong performance of the “Super 7” mega-cap stocks that have driven the index higher, Realty Income (and REITs in general) have been plagued by higher interest rates and a changing real estate landscape. In this report, we review Realty Income’s business strategy (i.e. growth through acquisition), the big macroeconomic and secular headwinds the industry faces, dividend safety, valuation and risks. We conclude with our strong opinion on investing.
AGNC: Tempting 18.5% Yield, Know the Big Risks
AGNC is a mortgage REIT that offers a tempting 18.5% Yield. We typically don’t invest in mortgage REITs (because of the risks), unless they offer a particularly compelling opportunity, like AGNC seems to be right now. In this report, we review the business, the market environment, the current valuation, dividend safety and risks. We conclude with our strong opinion on investing.