Summary
Some of the top performers among taxable income CEFs are in the mortgage bond category.
The best of the category are paying over 10% with sustainable earnings backing the distributions.
On a range of filters, DMO rises to the top, but it has its negatives as well.
I compare the top fund to the high-yielding, 2x leveraged, mREIT MORL and, in my view, there's no contest.
In follow up reports to my survey of taxable income CEFs, I pulled out two PIMCO funds for close look: the PIMCO Dynamic Income Fund (NYSE:PDI) and the PIMCO Dynamic Credit Income Fund (NYSE:PCI). I noted that PDI most recent report showed it holding 2/3 of its portfolio in mortgage securities. For PCI it's 1/3 of the portfolio. What I want to do in this article is look at the subset of the taxable income CEF category that invests in mortgage bonds which stands out as the star sector in the broader category. I'll open with a brief look at some other mortgage bond opportunities.
Investors looking for high yields inevitably turn their gaze to mortgage bonds, most typically in the form of mortgage REITs, a landscape that is littered with wreckage. Some are favorite topics here at Seeking Alpha. Annaly Capital Management Inc Stock Chart (NYSE:NLY) is one such. American Capital Agency (NASDAQ:AGNC) is another. At the risk of offending their advocates, I'll say neither has been particularly impressive despite their exceptional yields (11.85% and 12.65%).
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Others, with less Seeking Alpha fanfare, do better. New Residential
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