GOF: 12% Dividend Yield, Monthly Payer

Summary

• GOF yields 11.91%.
• It pays monthly and should go ex-dividend next in mid-January.
• Management uses a mix of fixed income and equity strategies.
• It's selling for a lower than normal premium.
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Is it time to rebalance your portfolio? Do you favor equities or bonds in 2022, or a mix of both?

The Guggenheim Strategic Opportunity Fund (NYSE:GOF) is a closed-end fund which offers a mix of fixed income and equity strategies:

(GOF site)

The Fund’s investment objective is to maximize total return through a combination of current income and capital appreciation. The Fund will pursue a relative value-based investment philosophy, which utilizes quantitative and qualitative analysis to seek to identify securities or spreads between securities that deviate from their perceived fair value and/or historical norms. The Fund’s sub-adviser seeks to combine a credit managed fixed-income portfolio with access to a diversified pool of alternative investments and equity strategies.

(GOF site)

GOF has $2.26B in total managed assets and 3.45X in Asset/Debt coverage. ~47$ of its holdings are US-based, and management uses leverage of ~29%. Liquidity looks good, with 665K in average daily volume, and 97M shares outstanding. The expense ratio is 1.83%.

Merger:

Guggenheim announced that its board had approved a plan to merge GOF with two of its other CEFs, GPM and GGM. Shareholders voted to approve the merger in mid-September, and it was finalized in late October 2021.

Performance:

The market wasn't impressed too much by the merger. Although GOF performed well in 2021 up until mid-September, except for a pullback in April, when its board announced the merger plan. GOF has mostly drifted lower ever since the merger was approved in mid-September and finalized in late October:

The post-September swoon has resulted in price under performance vs. the bond market and the S&P 500 over the past month, quarter, six months, and in 2021.

However, if you add GOF's ~12% yield to its YTD -6.44% performance, its total return for 2021 is 5.63%, higher than the two bond ETFs listed below, but far lower than the S&P 500:

Longer term, GOF has a mixed record - it outperformed the Morningstar US CEF Multi-Sector category in 2020, 2016-2017, and 2013, and lagged in 2019 and 2015. It was roughly in line in 2014 on a price basis:

Pricing:

A useful strategy for investing in CEFs is to try to buy them at a deeper discount or lower premium to NAV than their historical averages.

GOF has a long history of selling at a premium price/NAV.

At $18.34, GOF is selling at a 9.62% premium to NAV/share, which compares favorably to its one-year average premium of 20.71%, its three-year average premium of 13.54%, and its five-year average premium of 11.16%.

Distributions:

At its 12/31/21 intraday price of $18.34, GOF yielded 11.91%. Its next ex-dividend date should be ~1/14/22. Management has kept the monthly distribution at $.1821 since Q2 2013.

Taxes:

Since there's no aggregate estimation on the GOF site, we compiled this table of monthly distribution sources for GOF's 2021 payouts.

While short-term capital gains began happening in September, Return Of Capital dominated the distributions' sources, averaging ~51.3% in 2021, vs. 45.64% from Income, with just 3% for capital gains:

Holdings:

High yield corporate bonds and bank loans form ~64% of GOF's portfolio, followed by Equity Strategy, at ~30%, in addition to Investment Grade corporate Bonds, at ~11%, Asset-Backed Securities, at ~8%, Preferreds, at 5%, and small holdings of other types of investments:

(GOF site)

GOF's top 10 holdings were mostly in corporate bonds, and only comprised 7% of its holdings, as of 10/31/21:

The weighted average duration was 4.59 years, as of 10/31/21, with the bulk of credit ratings, ~77%, in the BBB investment grade, and BB and B non-investment grade levels:

(GOF site)

Parting Thoughts:

With interest rates due to rise sometime in 2022, GOF's managers will have their hands full in trying to mitigate falling bond prices, which in turn would pressure NAV. You may have an opportunity to buy it at an even lower premium to NAV/share in 2022, which could be beneficial over the long term.

All tables by Hidden Dividend Stocks Plus, except where otherwise noted.

Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. 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.

Disclaimer: This article was written for informational purposes only, and is not intended as personal investment advice. Please practice due diligence before investing in any investment vehicle mentioned in this article.