CEFs are the chosen investment for current high yield income. These investments were created to provide income to investors wanting high yield distributions without the time to wait for dividends to grow over time. One important aspect to consider when evaluating CEFs is the financial strength. The high yield distributions can only be sustained when the CEF is generating excess income to support the distributions. Here is a list of CEFs with strong financials defined as having excess income following expenses and distributions.
Cohen & Steers Select Preferred & Inc (PSF) invests at least 80% of its managed assets in a portfolio of preferred and other income securities issued by U.S. and non-U.S. companies, including traditional preferred securities; hybrid preferred securities that have investment and economic characteristics of both preferred stock and debt securities; floating rate preferred securities; corporate debt securities; convertible securities; and securities of other open-end, closed-end or exchange-traded funds that invest primarily in preferred and/or debt securities. PSF is trading at $24.45 which is right at the NAV price. PSF has a distribution yield of 8.5% paid on a monthly basis. PSF has a year to date market return of 13% which is better than the 7.44% asset class median. It has a total expense ratio of 1.17% and leverage of 30%. In 2011, PSF paid a total of $1.70 in distributions with $0.18 being classified as return of capital. PSF is financially stable with $0.84 per share excess income following expenses and paid distributions.
PIMCO Income Strategy (PFL) is a multi-sector bond fund managed by Bill Gross. On March 1, 2010, the fund changed its strategy from focusing primarily on floating-rate loans to a more diversified portfolio of both fixed- and floating-rate debt (investment grade and non-investment grade). PFL is trading at $11.40 which is a 5% premium to the NAV price. PFL has a distribution yield of 7.9% paid on a monthly basis. PFL has a year to date market return of 10.8%. It has a total expense ratio of 1.41% and leverage of 39%. In 2011, PSF paid a total of $1.06 in distributions with no return of capital. PFL is financially stable with $0.82 per share excess income following expenses and paid distributions.
Eaton Vance Tax Advantaged Dividend Inc (EVT) has an investment objective to provide a high level of after-tax total return consisting primarily of tax-advantaged dividend income and capital appreciation. Under normal market conditions, the fund will invest at least 80% of its total assets in dividend-paying common and preferred stocks. EVT is trading at $16.20 which is a 10.8% discount to the NAV price. EVT has a distribution yield of 7.9% paid on a monthly basis. EVT has a year to date market return of 12.8%. EVT has also been good at increasing its NAV over the past year from $15.95 to $18.17. It has a total leverage ratio of 25%. In 2011, PSF paid a total of $1.29 in distributions with no return of capital. EVT is financially stable with $0.82 per share excess income following expenses and paid distributions.
For BlackRock Corporate High Yield V (HYV), its primary investment objective is to seek current income, but it also seeks to provide stockholders with capital appreciation. Under normal market conditions, it will invest at least 80% of its total assets in high yield debt instruments, including high yield bonds and high yield corporate loans. HYV is trading at $12.70 which is a 2.7% premium to the NAV price. HYV has a distribution yield of 8.1% paid on a monthly basis. HYV has a year to date market return of 10.96%. Over trailing one-, three- and five-year periods, the fund had annualized total returns of 19.29%, 41.16% and 6.6%. While peers charged an average rate of 1.29%, HYV's expense ratio was just 1.02% in fiscal 2011. HYV is financially stable with $0.65 per share excess income following expenses and paid distributions.
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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.