Galeanu Mihai/iStock via Getty Images There are different methodologies to investing, and while some gravitate toward plowing their capital into index funds, others may become intrigued with disruptive growth companies. Often investors will figure out an investment mix that is curtailed to their objectives, and investors rarely take identical paths. I know a lot of people who have formulated an investment strategy and while there are many overlapping characteristics, there are certainly differences. Some investors will say that their primary focus is to reach a specific account value. Others will say they invest in the markets because interest rates in savings accounts or CDs generate low returns. Others would articulate that they are trying to generate passive income through income-producing investments. Suppose you lean toward a primary focus of maximizing your account value over an extended period. In that case, S&P index funds or big tech investments that have outpaced index funds over the past decade will probably appeal to your investment style. If you’re an income investor that is starving for yield, then the PIMCO Dynamic Income Fund (NYSE: PDI ) is an interesting choice.
I am a hybrid investor, and I allocate my capital to index funds, individual equities that I believe will beat the market, selective growth companies that I believe can become industry disruptors, and income investments. I have an income section of my portfolio where I am growing my stream of passive income and reinvesting each dividend and distribution. By the time I retire, I plan to utilize the stream of income I have built to offset my income loss. Whether you’re building a stream of passive income for the future or looking for income investments to live off of, PDI has generated a 10.53% yield and paid its distribution on a monthly basis since its inception in 2012. Over the years, PDI has traded sideways, and you’re not going to see 100% or 200% returns in its market price. On 5/30/2012, PDI traded at $25.30, and almost a decade later, it trades at $24.85. PDI won’t be on the radar for investors seeking growth or capital appreciation, but it should be for income investors. PDI has traded sideways and generated a large distribution for almost a decade providing downside risk mitigation with large yields over the past decade. I have added PDI to my Dividend Harvesting Series on Seeking Alpha as it fits my criteria for an income investment. Seeking Alpha My criteria for an income investment
When I research individual equities or a fund for an income investment, I am primarily looking for a vehicle that will mitigate my downside while generating consistent income. On this portfolio, capital appreciation plays second fiddle to income generation. Suppose I am looking at an individual company. In that case, I am looking at their dividend yield, payout ratio, years of continuous dividend increases, revenue growth, net income growth, and free cash flow (FCF) growth. When I look at a fund, I look at its investment strategy, holdings, dividend history, how many dividend increases they have provided, and how the price trades to its NAV.
I am less concerned with capital appreciation and more concerned with growing my income stream. Within my income investment thesis, I plan to reinvest each dividend and allow the powers of compounding to work in my favor. For instance, PDI pays $2.65 per share and yields 10.53%. If I purchased 100 shares of PDI for $2,497, it would generate $265 in income annually. By reinvesting each distribution, my forward income increases each month. As long as my initial capital trades sideways, I am perfectly happy locking it up to generate large yields. PDI has been a tremendous income investment over the years.
If you go to PIMCO’s website for PDI and click on historical prices and distributions , you can see every distribution PDI has delivered to its investors. Since its inception in 2012, investors have received income every month. PDI has paid its normal dividend distributions, special cash dividend distributions, long-term capital gains distributions, and short-term capital gains distributions. You can export the file into Excel and also do some calculations. PIMCO PDI started paying its distributions in August of 2012. If you had purchased shares when PDI was created around the $25 mark, each share would have generated $33.11 in income over the past 9 ½ years. The regular distributions would have generated $24.12, then you would have been paid $7.62 in special distributions, $0.90 in long-term capital gains, and $0.46 […]
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