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PDO: Well-Covered 8.3% Yield At A Discount

Gary Gambino profile picture
Gary Gambino


  • The PIMCO Dynamic Income Opportunities Fund is selling at a 5.4% discount to net asset value, which is rare for a PIMCO closed end fund.
  • The first Fed Funds hike was a good buying opportunity for PIMCO CEFs in the last tightening cycle.
  • PDO has the largest amount of undistributed investment income of all PIMCO funds and the dividend looks well-covered, even at an increasing cost of leverage.
High Yield, Low Risk Road Sign

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I'm Not A PermaBull But I'm Bullish Now

The PIMCO family of closed-end funds gets a lot of attention on Seeking Alpha due to their high dividend yield and good long-term performance, despite high fees. The last year has been a tough

This article was written by

Gary Gambino profile picture
I am a Chemical Engineer by training and have an MBA with concentrations in Finance and Operations Management. I retired early after 22 years in the energy industry with roles in engineering, planning, and financial analysis. I have managed my own portfolio since 1998 and have met my goal to match the S+P 500 return over the long term with lower volatility and higher income yield. I plan to focus my writing on positions I already hold or am considering changing, however my bias is toward long-term holding unless there is a very compelling reason to sell.

Analyst’s Disclosure: I/we have a beneficial long position in the shares of PDO either through stock ownership, options, or other derivatives. 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 (30)

Risk Advisor profile picture
Great article--Can the author comment on whether or not PDO has any swaps and if so, what is the expectation for reducing the repo costs based on the average pay and receive rates?
Gary Gambino profile picture
@Risk Advisor they have swaps. They have not published holdings since 12/31/2021 but at that time their biggest swap position was paying 0.5% and receiving 3-month LIBOR. That was on notional value of $574 million, which is about 1/3 of the total repos they had outstanding. Based on where LIBOR is now, they are saving 40-50 bp on that amount.

Risk Advisor profile picture
@Gary Gambino

Excellent. Did you find that somewhere in the PIMCO PDO website or is it in another source? Also do they provide an estimate of the amount which will be credited against repo expense say on an annual basis going forward?

Three month Libor a month ago was .92%. Today it is roughly .97%. So if they were paying .5% against $574 million or $2,870,000 and are now receiving .97% against $574 million, or $5,567,800, the difference ($5,567,800 minus $2,870,000) or $2,697,800 would be credited against future interest on the repos? Or are my calculations/assumptions way off?
Gary Gambino profile picture
@Risk Advisor yes, that's from the PIMCO PDO website. The link in my original post takes you right to the spreadsheet.
The calcs look right, but keep in mind that would be for a full year assuming LIBOR stays where it is now. With 110 million shares outstanding, that amounts to $0.025 per share. Of course, if rates go up as many expect, the benefit will increase.
Jimmy Grisham profile picture
Excellent analysis. I started buying in Jan when it first went to discount at $19. Shoulda waited a bit longer, but I started small and have kept buying. Dumping all the divs from my other positions into PDO in my IRA. I'm retired, so no new contributions going in, but almost everything in the IRA pays a div so there is always money to invest. I'll keep buying as long as it's in a discount, and/or under $20. Thanks for the article, much appreciated.
Anybody that got in when a couple other pundits were beating the table are sitting on a pretty sizable loss of principal. I hope you are right as I am one of them.
Gee, let me see......a quickly declining NAV, increasing interest rates, 45% leverage and 100% taxable distributions, what's to like👎 This is garbage. There are so many better choices.
@outlook69 Absolute DOG, look at the chart. It appears to be a Pimco CEF thing. They are all just going down. Need 53 months of dividends to make up from the drop from 52 week high. Yeah, buy buy buy... what's there not to like?
ButscherDoug profile picture
@cvappone Maybe you should look at the chart again. The share price is based on sheep that don't know anything about what they are investing into. PDO is barely 1 year old. Paid a $.49 Special dividend in Dec.
Long PDO.
Very thought out analysis. PDO is one of my larger bond holdings. I’m also holding PDI, PFL, PFN from PIMCO. I continue to add on pullbacks. I’m in them for the long term. Interest rate cycles come and go and I don’t try to time them.
Incomeiam profile picture
Very satisfied with my Pdo and pdi purchase. Holding for the long term.
Quality may prove to be a factor that will impact returns going forward as well.
Once your boat is loaded with junk, there aren't many safe havens to swim to.
long but uncomfortable.
Pablo profile picture
@glyptostroboides Key perhaps is just only so much junk.
@Pablo You got that right. Is 40% too much or just so much?
Lets see what the ratings look
like for 3/31. Its an individual decision.
@glyptostroboides You can check default rates for high yield bonds on rating sites such as Moody, Currently, the default rate is around 3% for high yield.
well done I will be buying MORE
Appreciate you walking us through the leverage math. Good info.
Bought PDO last year to partially replace a maturing bond (in the IRA). Intend to do it again this summer.

Retired income investor (also long other PIMCOs)
Good analysis. Am holding on to my shares
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