The Credit Suisse High Yield Bond Fund Could 'Supercharge' Your Portfolio

| About: Credit Suisse (DHY)

The Credit Suisse High Yield Bond Fund (NYSEMKT:DHY) is a closed end fund or "CEF" that primarily invests in high yield corporate bonds. As of December 31, 2013, this fund has about 248 holdings and around $457 million in net assets which indicates it is well diversified. This CEF is an ideal investment to consider, especially for investors who appreciate the income potential that high yield bonds offer.

This CEF has typically sold at a premium to net asset value during the past 52 weeks. The premium has been about 2% on average, and as high as 7.55%. Currently, this CEF is trading at a discount of about 2%. As of January 31, 2014, the net asset value is $3.12 per share. Investors have typically been willing to pay a premium for this CEF because it offers a very attractive yield which is currently around 9.4%. It is professionally managed by Credit Suisse and it pays a monthly distribution of 2.4 cents per share. The monthly payment that it offers (instead of quarterly) is another reason why it is very attractive, since it will never be very long before investors get paid. I find waiting for quarterly dividends to be paid is too long of a wait, especially when you can get generous yields with investments that pay every month.

Investors should consider potential downside risks that are typically associated with high yield bond investments such as a big jump in interest rates, or another recession. However, these risks do not seem likely now as the economy is slowly growing, and also because the Federal Reserve is expected to keep rates at very low levels for years. The recent focus on "tapering" by the Federal Reserve needs to be put into perspective since tapering is expected to be about a very slow reduction in bond buying, and not about significantly increasing interest rates. We have lived in a low interest rate world for years, and that trend could last for many more years, just as Japan has experienced.

Another positive for investors to consider is the fact that high yield bonds can benefit from an improvement in the economy. This is because economic growth generally leads to higher corporate profits and that in turn can lead to higher credit ratings for many bond issuers. When credit ratings are upgraded, bond holders can benefit as bond prices rise. By looking at the chart of the SPDR Barclays High Yield Bond Fund ETF (NYSEARCA:JNK), it is easy to see the recent uptrend in high yield bonds in the past few months. The chart shows that high yield bonds are rising as the economy improves. This trend is continuing even as the Federal Reserve tapers and high yield bonds are even showing strength in the recent market pullback.

With the yield at about 9.4%, this CEF pays over 50% more than the yield of roughly 6% offered by the SPDR Barclays High Yield Bond Fund ETF. That is too tempting to pass up, which is why this is one of my top picks for high yield in my portfolio. If you consider the power of compound returns, it's easy to see why a 9.4% yield can "supercharge" your portfolio over time. The Credit Suisse High Yield Bond Fund usually has an ex-dividend date by around the 15th of each month and it typically makes the payment by the 24th of each month. Investors who buy soon will be eligible for the February distribution, which means it won't be long before another generous payment is made. Investors may also see some potential upside if it resumes its historical tendency to trade at a premium to net asset value of about 2%. That could put the share price at about $3.16 per share, based on the current net asset value.

Here are some key points for Credit Suisse High Yield Bond Fund:

Current share price: $3.09
The 52-week range is $2.76 to $3.45
Earnings estimates for 2013: n/a
Earnings estimates for 2014: n/a
Annual dividend: about 2.4 cents per month, which yields about 9.4%

Here are some key points for SPDR Barclays High Yield Bond Fund ETF :

Current share price: $40.79
The 52-week range is $38.21 to $41.95
Earnings estimates for 2013: n/a
Earnings estimates for 2014: n/a
Annual dividend: about 20 cents per month, which yields roughly 6%

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 DHY. 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.

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