I made an investment last year into PIMCO StocksPlus Small Fund (PCKTX). I didn’t understand it much (that should have been my first clue to not invest) but the dividend yield was around 17% at the time and I decided to take the plunge. I knew full well a dividend of that size would mean that it would be more risky. Nothing pays out that high for a long time. But, I thought it would drop into something more reasonable while holding onto its value. It did neither.
I’m retired and investing for income today. Not 20 years from now. I couldn’t afford to wait while this holding stopped paying out a distribution That fund hasn’t paid a distribution for the last 2 quarters. To top it off the value of my holding dropped some 15%. I hate buying high and selling low but I had no choice as thousands of dollars where sitting there producing no income. I can tolerate a loss in principal to a point if the holding is still paying out a dividend. I had to make a change and close out that position.
PIMCO StocksPlus Small Fund (PCKTX) seeks total return which exceeds that of the Russell 2000 Index. Here’s a link to their prospectus.
I replaced PCKTX by dividing the money from that holding into two PIMCO Closed End Funds. I purchase equal dollar amounts of PIMCO Corporate & Income Strategy Fund (PCN) and PIMCO Income Strategy Fund II (PFN). Both pay out monthly and have a dividend yield of 10.7% and 11.54% respectively. I fully understand these are both higher risk holdings as well but the track record of these two funds are longer and are on the low side price wise per share. Both are rated Borderline Safe by Simply Safe Dividends. So while I do expect the dividend yield to fluctuate I expect the principal to stay the same or grow over time.
PIMCO Corporate & Income Strategy Fund
Using a dynamic asset allocation strategy that focuses on duration management, credit quality analysis, risk management techniques, and broad diversification among issuers, industries and sectors, the multi-sector fund seeks high current income, with a secondary objective of capital preservation and appreciation.
Under normal market conditions, the Fund seeks to achieve its investment objective by investing at least 80% of its net assets plus borrowings for investment purposes in a combination of corporate debt obligations of varying maturities, other corporate income-producing securities, and income-producing securities of non-corporate issuers, such as U.S. Government securities, municipal securities and mortgage-backed and other asset-backed securities issued on a public or private basis.
The fund may invest a maximum of 25% of its total assets in non-U.S.-dollar-denominated securities. The fund will normally maintain an average portfolio duration of between zero and eight years.
The portfolio manager attempts to identify investments that provide high current income through fundamental research, driven by independent credit analysis and proprietary analytical tools, and also uses a variety of techniques designed to manage risk and minimize exposure to issues that are more likely to default or otherwise depreciate in value over time.Corporate & Income Strategy Fund – PIMCO
PIMCO Income Strategy Fund II
Employing a multi-sector approach, the fund seeks high current income consistent with the preservation of capital by investing in a diversified portfolio of floating and/or fixed-rate debt instruments.
The fund has the flexibility to allocate assets in varying proportions among floating- and fixed-rate debt instruments, as well as among investment grade and non-investment-grade securities. It may focus more heavily or exclusively on an asset class at any time, based on assessments of relative values, market conditions and other factors.
The fund will not invest more than 20% of its total assets in securities that are, at the time of purchase, rated CCC/Caa or below by each ratings agency rating the security, or that are unrated but judged by PIMCO to be of comparable quality. The fund’s duration will normally be in a low to intermediate range (zero to eight years), although it may be longer at any time.
Consideration of yield is only one component of the portfolio manager’s approach. PIMCO also considers capital appreciation and principal preservation through intensive fundamental, macroeconomic, industry and company-specific research.Income Strategy Fund II – PIMCO
I will also close out my holding in PIMCO Income Fund I2 (PONPX) today. The proceeds of that will be split evenly across the two PIMCO funds mentioned above. While PONPX has performed okay the yield is not high enough (5.1%) to make up for the loss of PCKTX. Putting the money in the other two funds gets me back to a level of income that is close to where I was before PCKTX stopped paying distributions.
I hope I made the correct decisions this time around!