Western Asset Global High Income (NYSE:EHI) is a closed end fund or "CEF" that invests in high yield, emerging market and other bonds. This fund is managed by Legg Mason Partners Fund Advisors, LLC. which is a wholly-owned subsidiary of Legg Mason, Inc. (NYSE:LM). Since this fund has an outstanding yield and a shorter than average duration, it appears to be offering investors a significant buying opportunity thanks to a recent pullback. Here is a closer look at why this fund appears poised to rebound and continue offering shareholders monthly dividends that are well above average:
As the chart above shows, this CEF was trading for over $13.50 per share in late May and then declined along with most bond funds due to concerns about the Federal Reserve's potential "tapering" plans in September. The selloff appears to be overdone and investors are already starting to see the value as this fund is now rebounding.
Based on net asset value and the dividend yield of nearly 10%, this fund is currently very undervalued and it has yet to fully rebound from the bond market sell-off. This fund pays a monthly dividend of 9.625 cents per share, and this provides a yield of 9.8%. Historically, this fund trades very close to net asset value or "NAV", which, as of September 16, is $13.10 per share. With the current share price at around $11.90, this fund now trades at a discount of about 9.6% to NAV, which represents a real bargain. If this CEF trades close to NAV which it has done historically, it would give investors who buy now, capital gains of about 9% while collecting an outstanding monthly dividend.
Investors should consider duration in certain bonds as a potential risk. Investors who own long term bonds that mature in 20 or 30 years could be significantly impacted in a rising rate environment. However, the average duration for this CEF is just 6.8 years which means duration risk is low, especially when considering the generous yield of nearly 10%. This fund has about 549 holdings which indicates the portfolio is well diversified. About 76% of the fund is invested in high yield bonds, around 19% is invested in emerging market debt, and the rest is in other types of bonds and cash equivalents.
The Western Asset Global High Income Fund has a history of providing significant returns to investors which is one more reason to consider the current pullback as a buying opportunity. This fund has returned 13.21% annually for the past 5 years and about 8% annually for the past 10 years. With this solid track record, a monthly payout that yields a generous 9.8% and with the shares trading 9.6% below net asset value, this is an ideal buy for investors seeking a generous income stream and significant rebound potential in the share price.
Investors who buy this fund soon will be eligible to receive a dividend very shortly. This fund will pay the next monthly dividend of 9.625 cents per share to shareholders of record on September 20, 2013. The ex-dividend date is September 18, 2013 and the dividend will be paid on September 27.
Here are some key points for EHI:
- Current share price: $11.90
- The 52 week range is $11.34 to $14.25
- Earnings estimates for 2013: not applicable
- Earnings estimates for 2014: not applicable
- Annual dividend: $1.16 per share (or 9.625 cents per month), which yields 9.8%
Data is sourced from Yahoo Finance. No guarantees or representations are made. Hawkinvest is not a registered investment advisor and does not provide specific investment advice. The information is for informational purposes only. You should always consult a financial advisor.
Disclosure: I am long EHI. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.