Dow futures collapsing

Wow, that's an attractive dividend. I tend to follow the old Peter Lynch philosophy of "invest in what you know". I looked up OXLC and here's what I found:

Interesting that they're able to spin a 20% dividend off of that...

I assume you and your wife make a pretty healthy income. Why a high dividend stock (taxed as ordinary income) vs. something that can be used to generate LTCG?

 

I'm not as fancy in my investing as QGator. Not all dividends are taxed the same, I believe qualified dividends are taxed at cap gains rate. Much of my dividends are qualified.

Dividends in general are great, but for someone retired they do have a small drawback. Right now, I can generally figure out my tax burden to within a hundred dollars because I no longer receive a paycheck or bonus. My tax planning allows me to carefully tap my Trad IRA or sell stock to fill up tax buckets while not pushing into to high a bracket. Dividends are forced on you, so I have less control over the taxation.

 

Hard to turn down 20% even with the non qual dividends. And the history to stand on. It did cut the dividend during Covid but has slowly been building it back. Yes we are paying higher than long term cap gains/qualified dividends on this one. But how many qualified dividend plays yield over 10%?

But it is a good point. Ironically I own more MO than anything. I was buying it up in the high 30s/low 40s when it was yielding almost 10%. Figure people are not going to listen and stress the healthcare system so may as well hedge against it.

And I own a lot of OXLC in IRAs…

 

Good post. I will eventually shift my strategy and holdings as we get closer to retirement.

I use to have the goal of putting everything in muni bonds to avoid federal taxes as a jaded move. That said. Will probably move to a large position there as we get closer to retirement.

 

I saw the S&P 500 is down 0.15% today after 9 days of positive gains ... @ETGator1 and @okeechobee have something to celebrate!

 

Buffet’s assessment that a significant (40%) correction is due bothers me. Vast majority of what we have is in the market.
Buffet’s sell off of his “forever stock” APPL bothers me as we have a chunk.

Unsure though what the prudent move would be.

 

We still keep an aggressive mix even though I am retired. We are both athletic and eat very healthy so we should live past the average. With both boys in school, we spend a lot less than we used to even though we travel even more. Food bill is substantially less now, it's crazy how it jacks up when they are here on break.
I do have bond MF and ETFs, one of which is tax exempt (USATX).

 

That seem weird. Inflation adjusted S&P 500 has grown at 5.5% CAGR since Jan 2005. That doesnt seem like a crazy overvalued market to me. My credentials dont quite compare to Buffet in case you were curious.

Inflation Adjusted S&P 500 Index Price Charts, Data (gurufocus.com)

 

Yeah, we're retired and I'm trying to decide if we need to go a little more conservative. 60/40 equities now.

 

Q: was curious given the dividend so I did some basic digging.

This stock is a head scratcher to me.

Since its IPO in 2011, the share price is down almost 75%. By their own recent valuation, the NAV per share is 8% less than the current market share price. And the PE is below 5. By comparison AAPL and AMZN are each up 20-25x since OXLC IPO.

So the question becomes what kind of debt instruments are they investing in to generate a yield of 20% or more while the market at the same time has absolutely no confidence in the stock (which is seemingly validated by their own lower NAV estimates). Plenty of companies have their yield expanded while their share price plummeted. That’s how the math works. But ultimately the dividend is usually cut as the performance doesn’t support it.

What do you see here fundamentally beyond a 20% dividend today that I would guess is likely unsustainable and possibly a further slide in share price wiping out the dividend gains? What am I missing?

 

Not a bad time to lock in attractive rates with a short to mid term bond ladder for your debt side and then continue to evolve your mix as those mature into a likely lower rate environment. Buys you some time to adjust but still leaves you with good liquidity in the not too distant future.

 

It's a crap shoot but I would certainly try to honestly look at life expectancy and adjust accordingly. Given I have a military pension, I could go much more conservative but that will be a gradual thing as I have to keep an eye on capital gains. We pare down stock every year and move that into bonds and international but I'm not in a hurry and want to stick to my tax plan.
What I really need to do is try to spend more but we don't need stuff and already travel quite a bit.

 

All fair assessments. I started buying at $10 when their yield was just over 10%. Then Covid killed them. There was a point in Covid that you could have picked it up at $2.50 after they cut the divided to $0.0675. They have slowly increased it back to $0.09. I love the history of paying the dividend.

Here are some thoughts on it from a piece out on the web…

https://seekingalpha.com/article/46...cef-core-nii-easily-supports-19-percent-yield

 

This thread aged well.

 

If he owns the dividend producer in an IRA there is no immediate tax consequence.

 

Hmmmm. Markets slightly down yesterday and slightly up today but HD up pretty good both days.
Impending rate cut boosting HD? Not sure but if it is still up after my ride, time to take my last cap gains for the year.

 

You aren’t missing anything. This is a terribly risky stock. They are purchasing loans made to corporations (mostly PE backed for LBOs and dividend recaps). I deal with similar firms (mostly BDC’s which actually issue the debt that a company like this then acquires) on a daily basis, but candidly don’t understand why they exist. They are awesome when you are trying to buy a company, but not for the shareholders. They put up anywhere from 50-87% of the capital structure (87% is the highest I’ve personally ever gotten on a deal). They share in none or very little of the equity upside but take 50-87% of the downside risk.

They claim to be investing in first lien, senior, secured loans. They have to be doing something funky to be able to pay 20% dividends from senior secured loans. That is a high rate for even mezzanine loans. Just look at the Credit Suisse index performance for their asset class. Nearly every year the returns are in the single digits for the class. Since they are only providing capital, they aren’t differentiated and I can’t think of a way to juice returns outside of financial engineering or using a loan to own strategy where they acquire the debt, hope the company misses a cash interest payment then collect on the assets and equity through an equity pledge.

That’s just from the info on their website, which could be misleading but these things go bankrupt all the time.

 

When I get to a point where I want to take gains but still like the idea of potentially holding the shares. I sell covered calls.

You could sell a covered all for 372.5 right now for the 30th and get probably $3.50 a share to go with your $2.25 on the 29th. It it continues to go up then you may sell your shares at the 372.5 which is another $1.50. But if it goes down a little by the 30th. You can then still sell on Tuesday. You really only cost yourself one day of it going lower than you may want. Assuming you like selling it where it is now…

 

There is truth to this. However they have maintained basically double digit dividend returns since they started paying it. That said. It is way down from its ipo.

No guarantee for sure. It’s having a good day for equity today. Up 2%

 

If you like that asset class, PSEC has an attractive yield. I’ve worked with them in the past, and they do far more homework on their investments than their peers from my experience.