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High Dividends Keep Rolling In With PTY, Yield 11%


  • PTY is no stranger to a tough market environment.
  • In 2009, PTY saw its NAV drop considerably, and its price dropped more as investors ran in fear.
  • With 20/20 hindsight, we know investors should have been running toward PTY, not away from it.
  • Don't make that mistake!
  • Looking for a portfolio of ideas like this one? Members of High Dividend Opportunities get exclusive access to our model portfolio. Get started today »

Co-produced with Beyond Saving

The PIMCO Corporate & Income Opportunity Fund (NYSE:PTY) has long been one of our favorite fixed income funds. As of Friday, April 24, PTY is yielding an impressive 11.4% and that's without factoring in the frequent special dividends that PTY has at the end of the year.

Like much of the market, PTY took a significant fall in March.

Falling more than SPY, investors are running away. If we look at NAV, it has fallen almost as much.

We post this to save ourselves the trouble of the numerous comments we will get about PTY underperforming year-to-date. Yes, it absolutely has.

Fortunately, we are not investors who are selling today. We do not invest for three to four months. We invest for years and collect income. PTY was on our short list of investments that we consistently recommended buying throughout the downturn. The reason is that PTY has a solid history of producing great income, and in the long term, will beat the market. High immediate income, combined with market beating total returns, makes PTY a core position in our portfolio.

PTY has been a reliable payer of dividends since inception. This chart compares the Total Return of PTY vs. SPY, including dividends:

Despite the recent underperformance, PTY would have returned $68.53k as opposed to SPY's $43.86k. Most of these returns have come in the form of dividends.

This is what the Income Method is about, utilizing your assets to obtain a significant stream of income which you can decide how you want to use - whether that's reinvestment, investing in new investments, or spending it.

One of the biggest reasons we like PTY is because of its performance through the Great Financial Crisis. PTY was able to

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This article was written by

Rida Morwa profile picture

Rida Morwa is a former investment and commercial Banker, with over 35 years of experience. He has been advising individual and institutional clients on high-yield investment strategies since 1991.

Rida Morwa leads the investing group Learn More.

Analyst’s Disclosure: I am/we are long PTY, PCI, PDI, PFO. 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.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (132)

@Rida Morwa Could you comment on expense ratios for a newbie? I've gone to the website of PTY. www.pimco.com/...

As of May 10, 2020, the distribution rate is 12.08%. The total expense ratio (inclusive of interest) is 2.2%. So does that mean that my return as an income investor is 9.88%? Or is my return 12.08%?

When evaluating funds, is it better to look at "net expense ratio" or "total expense ratio" (without interest) or "total expense ratio" (with interest) in terms of understanding what your actual return is going to be? For example, PCI has "Total Expense Ratio (excluding interest expense) of 2.120%" vs. "Total Expense Ratio (including interest expense) of 4.630%". Huge difference! And would I subtract 4.63% from the market distribution rate of 12.41% for PCI to arrive at an actual yield of 7.78%? Thanks.
allday1234 profile picture
The yield you get is what is posted and expenses have already come out .no subtractions . One thing about PCI, although it is not a given and this year may mean you will get a miss , but they usually pay a special in December and of course it built on the success of the fund
for instance
PIMCO Corporate & Income Opportunity Fund (NYSE:PTY) - $0.07.

PIMCO Income Opportunity Fund (NYSE:PKO) - $0.37.

PIMCO Corporate & Income Strategy Fund (NYSE:PCN) - $0.08.

PIMCO Income Strategy Fund II (NYSE:PFN) - $0.07.

PIMCO Dynamic Income Fund (NYSE:PDI) - $0.50.

PIMCO Dynamic Credit Income Fund (NYSE:PCI) - $0.35.

PIMCO Municipal Income Fund III (NYSE:PMX) - $0.11 (LTCG).

Payable Dec. 21; for shareholders of record Dec. 17; ex-div Dec. 14.

It is not included in the yield rate
PendragonY profile picture

I expect a lot of companies and funds that usually pay a special dividend won't be paying one this year. At a minimum, I would think it would be smaller.
allday1234 profile picture
Totally agree. What is ironic is that when I invested about 4-5 years ago I was not aware of the specials but invested for the monthly dividend so when the first year came around I was ecstatic but there are many who for invest for the special and can be disappointed so when I discuss it I always try and warn them as above
"One thing about PCI, although it is not a given and this year may mean you will get a miss , but they usually pay a special in December and of course it built on the success of the fund
for instance.

chris.strickland profile picture
I moved my 43% returns from THW in my IRA into PTY. I see more upside left with PTY.
PendragonY profile picture
That is one way to do it. I happen to like both funds.
Thanks for the article. I have been buying small chunks of PCI and PTY daily, for last two months.
PendragonY profile picture
Thanks for reading and commenting. That sounds like a very good plan to me.
Life On Mars profile picture
Agree 100%. I hold PTY, PKO, PCI, PDI and I would never sell. The Pimco managers are the best in the world.
PendragonY profile picture
They are good funds. I am adding more PTY and PCI. While I would sell only rarely, I won't say never.
Good data and commentary,thanks.
PendragonY profile picture
Glad you like the article.
kamax1 profile picture
I am one with the Force, and the Force is with me!!!
Rida, Hi: 1. What's annual subscription (after discount) price?
2. If you have different portfolios/programs, does a subscriber have access to all of them, or they have different annual price?
3. Where to go to subscribe?
PendragonY profile picture
We have several portfolios, one subscription gives you access to all.

Try out the free trial here.
04 May 2020
Thanks for the great comment. I own PFL which I thought it prices less premium with same management team. Would you recommend PTY over them? Thanks again.
shame tio
Yeah, but the premium is still extremely high.
@ny44 It's high, but not that high by historical standards (and a bit below the six month average). I copied the data below from Morningstar:

Last Actual Disc/Prem +24.69 %
6-Month Avg Disc/Prem +26.26 %
3-Year Avg Disc/Prem +19.04 %

I have a personal rule to never buy a fund with a premium more than 5% above its three year average, and based on that PYT is almost in my range. I might ease into it soon with a small position.
Thanks for this article. I've been skeptical of the PIMCO fixed income funds you've recommended recently due to high leverage (> 40%) and high expenses (> 3%). But PTY is much more reasonable on both metrics (28% and 1.35%). I'm not crazy about the high premium to NAV (almost 25%), but I get that you have to pay up for quality. This is first one of these funds I'm tempted to buy.
if pimco shifted their holdings the last two months as the author said could be a possibility then its possible the dividend could get cut....
How do you think PTY would fare in an interest-increasing environment? At some point, it will have to happen, and usually bad for bonds.
@Craigs666 IMO actively managed fixed income CEF's like PTY are mostly in the business of managing interest rate and credit risk to make a profit- they are ultimately judged for this - track records help investors to evaluate the fund managers' skills with this regard albeit this is not a guarantee of future performance.
Gerry Lawrence profile picture
PTI was one of the HDO core I never bought because the DY was less than 10%, it was hanging at 8% for a long time. I bought PTI for the 1st time ever last Thursday because of this article. Thanks a bunch!. Yay!!!
Rida Morwa profile picture
@Gerry Lawrence , thanks for reading and sharing, and good move PTY!

All the best, Rida
Thanks Rida, very useful and timely analysis. The comparison to how PTY behaved during the great financial crisis of 2008/09 is very relevant.
PendragonY profile picture
While looking at the past doesn't provide you with a guarantee, it is the best prediction of future behavior we have.
@PendragonY I fully agree with you, but this is relevant as this sheds light on quality of management which is useful for actively managed CEFs like PTY.
Rather naively bought PTY before the great corona fall after having been first introduced to it by Mr. Morwa, (So I'm presently ~27% underwater). Have no intention of selling though, as I anticipate PTY to continue doing what it's always done -- provide regular reliable income.

Thank you for the report, Mr. Morwa.

Retired income investor
Rida Morwa profile picture
@usiah , Thanks for reading and commenting. I have been buying more following the big market pullback, and plan to hold for the very long term.

All the best, Rida
PendragonY profile picture
I don't really worry about where the price goes if I don't plan to sell. And with PTY I have no plans to sell, so the lower price is a good opportunity to pick up more shares.
Excellent analysis. I also own PCI and PDI. would you recommend PTY over them?
Rida Morwa profile picture
@Daniel-S123 , Thanks for reading and commenting. I am long both PCI and PTY and plan to buy more next week.

All the best, Rida
PendragonY profile picture
I like both PCI and PTY, am long both and plan to buy more of them.
@PendragonY : I am assuming with the proceeds of your OXLC investement?
No attraction to this fund family. This fund has a nice monthly yield but at what price? 28% Leverage and at a 25% Premium over NAV. Tulip bulbs!
Rida Morwa profile picture
@mikefconnell , It is all about the safely of the dividends. PTY has never reduced the dividends, even in the worst crisis of 2007-2008. I am long PTY for income, and this is exactly what the fund does. This is why it almost always trades at a premium.

All the best, Rida
I understand and appreciate your point of view. After RDS...I have a bad taste in my mouth about investments never reducing anything. Thanks
@Rida Morwa

"PTY has never reduced the dividends ... ."

It looks like PTY reduced the dividend from 0.1375 to 0.115 somewhere toward the latter part of 2006. Could you please clarify?
Alfred Galli profile picture
It is not at all clear that we will not have a credit crunch. Chase and Wells Fargo have stopped doing home equity loans and credit card companies are tightening credit standards. Paying a 25% premium is too risky for me.
The Value Portfolio profile picture
There's a significant difference between banks tightening standards for individual borrowings in an environment where many are losing their jobs and a full on credit crunch.
PendragonY profile picture
@Alfred Galli

We are unlikely to have a credit crunch. The Fed will step in if needed.
“If needed” is fine if people buy cars and toasters.. not happening yet.
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