A High-Yield Stock You Likely Haven’t Considered
When it comes to earning a monthly income from the stock market, investors usually think of real estate investment trusts and business development companies. Today, I’m going to show you a high-yield investment that belongs to neither of these two categories.
Calamos Convertible & High Income Fund (NASDAQ:CHY) is a high-yield closed-end fund. It invests mainly in convertible securities and high-yield corporate bonds.
As the name suggests, convertible securities are those that can be converted into other securities. There are mainly two types of convertibles: convertible bonds and convertible preferred stocks. Convertible bonds issued by a company can be converted into a predetermined amount of shares of the company’s common stock. Well, it’s the same story with convertible preferred stocks. When an investor owns convertible preferred shares of a company, they can choose if and when they want to convert those preferred shares into common shares. In some cases, it’s the issuing company that determines when the conversion occurs.
Here’s the neat part: while convertible securities can provide some upside potential through capital appreciation, bonds and preferred stocks themselves are great income-generating instruments. This allows CHY fund to earn a predictable stream of cash flow and distribute that to investors.
Right now, the fund pays monthly distributions of $0.10 per share, which translates to an annual yield of 10.09%. If you have been following monthly income stocks, you would know that the most popular ones in today’s market rarely offer a yield north of six percent. In other words, the CHY fund’s double-digit payout can go a long way towards boosting the return of an income portfolio in the current environment.
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High-yield bonds are not known to be the safest bets, which is why you wouldn’t want to lend all your money to a single company. The good news is that CHY fund has put a lot of effort into diversification. Its current portfolio consists of convertibles, corporate bonds, preferred stock, common stock, and synthetic convertibles of companies operating in 11 different sectors. The fund’s three largest sector exposures are information technology (23%), consumer discretionary (18%), and healthcare (17.7%). Its three largest holdings are convertible bonds from Tesla, Inc. (NASDAQ:TSLA), Intel Corporation (NASDAQ:INTC), and Microchip Technology Inc (NASDAQ:MCHP). (Source: “Convertible And High Income Fund (CHY),” Calamos Investments, last accessed October 13, 2017.)
Of course, like all funds, CHY charges a fee for its service. By creating and maintaining a diversified portfolio of income-generating securities, these monthly income fund charges total annual fees and expenses of 1.29%. The amount is higher than most index funds, but note that CHY is actively managed rather than following an index.
Final Thoughts on This Monthly Income Fund
While this is a closed-end fund, Calamos Convertible and High Income Fund trades on a major stock exchange (the NASDAQ). Using its ticker symbol “CHY,” investors can easily find this fund and purchase its shares through a regular brokerage account. For those that are looking for a high-yield investment that pays monthly, closed-end funds like CHY could be a good place to start looking.