PTY: Despite Varying Tax Bills, 10% Yield Worth Considering

seekingalpha05-24

PTY: Despite Taxes, Big Yield Worth Considering - Blue Harbinger PM ImagesPIMCOPIMCO's Corporate and Income Opportunity Fund (NYSE:PTY) is an income-investor favorite. However, before investing, you ...

Source Link

Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.

Comments

We need your insight to fill this gap

Leave a comment

{"i18n":{"language":"en_US"},"isChannel":false,"data":{"share":"https://ttm.financial/m/news/2437708043?lang=en_US&edition=fundamental","thumbnail":"https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1445810162/image_1445810162.jpg","is_english":true,"pubTime":"2024-05-24 13:27","share_image_url":"https://static.laohu8.com/e9f99090a1c2ed51c021029395664489","id":"2437708043","market":"sg","top_or_hot":-1,"title":"PTY: Despite Varying Tax Bills, 10% Yield Worth Considering","media":"seekingalpha","content":"<div>\n<p>PTY: Despite Taxes, Big Yield Worth Considering - Blue Harbinger PM ImagesPIMCOPIMCO's Corporate and Income Opportunity Fund (NYSE:PTY) is an income-investor favorite. However, before investing, you ...</p>\n\n<a href=\"https://seekingalpha.com/article/4695421-pty-despite-varying-tax-bills-10-percent-yield-worth-considering\">Source Link</a>\n\n</div>\n","source":"seekingalpha_fund","html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>PTY: Despite Varying Tax Bills, 10% Yield Worth Considering</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nPTY: Despite Varying Tax Bills, 10% Yield Worth Considering\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-05-24 13:27 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4695421-pty-despite-varying-tax-bills-10-percent-yield-worth-considering><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>PTY: Despite Taxes, Big Yield Worth Considering - Blue Harbinger PM ImagesPIMCOPIMCO's Corporate and Income Opportunity Fund (NYSE:PTY) is an income-investor favorite. However, before investing, you ...</p>\n\n<a href=\"https://seekingalpha.com/article/4695421-pty-despite-varying-tax-bills-10-percent-yield-worth-considering\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"BK7104","symbol_name":"黄金","start_time":0,"source_url":"https://seekingalpha.com/article/4695421-pty-despite-varying-tax-bills-10-percent-yield-worth-considering","article_id":"2437708043","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1445810162/image_1445810162.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2437708043","pubTimestamp":1716528467,"sourceInfo":{"source_id":"seekingalpha_fund","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"PTY: Despite Taxes, Big Yield Worth Considering - Blue Harbinger PM ImagesPIMCOPIMCO's Corporate and Income Opportunity Fund (NYSE:PTY) is an income-investor favorite. However, before investing, you s","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"BK7104":"黄金","PFN":"PIMCO Income Strategy Fund II","NZF":"Nuveen Dividend Advantage Munici","PDI.AU":"PREDICTIVE DISCOVERY LTD","PAXS":"PIMCO Access Income Fund","PFL":"太平洋投资管理策略收益基金","NAD":"NAD股息市政基金","RCS":"RCS全球政府基金","PCM":"PCM Fund","NAC":"NAC股息基金","NRK":"Nuveen New York AMT-Free Munic","PGP":"PIMCO全球StocksPLUS收益基金","PDI":"PIMCO Dynamic Income Fund","PCN":"太平洋投资管理企业投资基金","NEA":"Nuveen AMT-Free Municipal Inco","PHK":"太平洋投资管理高收入基金","NAC.AU":"NAOS EX-50 OPPORTUNITIES CO","NEA.AU":"Nearmap","BK7503":"科技股","PTY":"PIMCO企债收益机会基金","BK7016":"应用软件","MYN":"黑岩纽约市政收益保险基金","NVG":"Nuveen Dividend Advantage Muni","MUC":"黑岩加州投资基金","PDO":"PIMCO DYNAMIC INCOME OPP FD"},"translate_title":"PTY：尽管税单不同，10%的收益率值得考虑","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"US10Y.BOND":1,"PDI.AU":1,"PDO":1,"PFL":1,"PFN":1,"PGP":1,"PHK":1,"PTY":1,"RCS":1,"PDI":1,"US12M.BOND":1,"US2Y.BOND":1,"US30Y.BOND":1,"US3Y.BOND":1,"US5Y.BOND":1,"US6M.BOND":1,"US7Y.BOND":1,"PCN":1,"PCM":1,"PAXS":1,"NZF":1,"NVG":1,"NRK":1,"NEA.AU":1,"NEA":1,"NAD":1,"NAC.AU":1,"NAC":1,"MYN":1,"MUC":1,"US912797GK78.BOND":0.6,"US912797GL51.BOND":0.6,"US912797HE00.BOND":0.6,"US912797GW17.BOND":0.6,"US912797GB79.BOND":0.6,"US912797FS14.BOND":0.6,"US912797FH58.BOND":0.6},"content_text":"PTY: Despite Taxes, Big Yield Worth Considering - Blue Harbinger PM ImagesPIMCOPIMCO's Corporate and Income Opportunity Fund (NYSE:PTY) is an income-investor favorite. However, before investing, you should first consider your individual tax situation (because it will have a major impact on how much bottom-line income PTY generates for you). In this report, we first review important details on PTY’s big 10% yield (paid monthly), and then dig deeper into four important tax considerations. We conclude with our strong opinion on investing in PTY and some general (but very important) advice on building a big-yield investment portfolio to optimize your after-tax income. About PTY The PIMCO Corporate and Income Opportunity Fund is a closed-end fund (“CEF”) and it has been an income-investor favorite for years (thanks to its big monthly distribution payments, as you can see in the chart below). CEF ConnectAnd one thing that makes this fund particularly compelling (aside from those big distributions) is the price has been fairly steady (aside from a few “blips” over time) as compared to other big yielders (many have experienced more significant price declines over time). CEF ConnectSpecifically, some investors don’t even mind the current price premium (relative to net asset value--more on this later) because the price of PTY is still fairly close to the same $15 it traded at way back in 2002 (and as long as those big distributions keep rolling in). PTY Objective: And consistent with the income and price strength over time, PTY’s investment objective is: Seeks maximum total return through a combination of current income and capital appreciation.  And as you can see in our earlier charts, this fund has done a decent job of achieving its objective over time. Here is another look at the price return and total return (i.e. price gains plus distributions as if they were reinvested in the fund), as compared to the S&P 500. YChartsAs you can see above, the fund’s total return has outpaced the S&P 500, and the price has remained fairly steady. If you are an income-focused investor, PTY’s track record has been excellent. Important CEF Considerations: Before investing in any CEF, there are a handful of very important things you should consider, as we have described in the following graphic. Blue HarbingerSo let’s quickly run through these questions. (1) We’ve already covered the objective, but if you are looking for big income and a fairly steady price over the long-term, PTY has done an excellent job of achieving this goal by investing in a variety of big-yield bonds from across varying market sectors (as you can see in the table below). PIMCO(2) And as you can see in our earlier chart, yes—the distribution has been fairly consistent (with a little volatility), plus an occasional special dividend too. (3) The distribution source is an important concept, and as you can see in the table below, the income on PTY’s investments has not been fully covering the distribution lately (which means PTY has been sourcing at least part of the distribution form price appreciation (short and long-term capital gains) as well as a potential return of capital). Capital gains are fine, but return of capital is not a sustainable strategy over the long-term because it reduces the NAV and thereby reduces the fund’s earnings power (but it’s still okay from time to time in order to maintain the big distributions). And as you saw in our earlier chart--NAV has been somewhat fairly steady over time—a good thing. PIMCO(PCM) (PCN) (PDI) (PHK) (PFL) (PFN) (RCS) (PGP) (PDO) (PAXS) (4) Importantly, PTY does use leverage (or borrowed money). Leverage can magnify income and price appreciation in the good times, but also magnify losses in the bad times. Leverage is a risk factor, but considering the lower volatility of the bonds PTY invests in (versus the stock market) a little leverage (recently 21.7%) is prudent and highly beneficial for this fund. (5) PTY does trade at a large premium to NAV (recently 25.9%). This is a risk that some investors don’t mind as long as the big monthly distribution payments keep rolling in. And for what it’s worth, PTY often trades at a large premium (as you can see in our earlier price versus NAV chart). (6) The expenses on this fund are significant, but reasonable for a PIMCO fund. The management fee was recently 0.65% per year and the cost of leverage (i.e. the interest expense on borrowing) was recently 2.92%. These expenses detract from your returns, but again as long as the big income keeps rolling in—many investors don’t mind a bit. PIMCO(7) PIMCO is the best in the business when it comes to bond CEFs. The company has deep resources and experience that allows them to effectively invest in bonds that ordinary investors don’t have access to, and they can apply leverage more effectively than the typical investor can too. PTY Managers (PIMCO)4 Important Tax Considerations The above review indicates that PTY may be worth considering for a lot of income-focused investors. However before investing, you should consider your individual tax situation (because it will impact your bottom line income from PTY). Here are four ways each individual PTY investor's tax bill may vary.  (1) Account Type (IRA vs. Taxable) As an investor, there are tax-advantaged accounts (such as Individual Retirement Accounts and Roth IRAs) and taxable brokerage accounts. And your bottom line is impacted dramatically depending on which type of account you own PTY in. For example, if you own PTY in an IRA then those big monthly distributions aren’t taxed at all (at least not until you start making withdrawals), but if you own PTY in a taxable brokerage account then each monthly distribution gets hit with a tax bill. Keep that in mind because if you own 0% dividend yield investments instead—they can appreciate over time with no annual tax consequences (unless you sell at a gain—then you get hit with capital gains tax—but that is under your control and at your discretion—PTY distributions are not).  (2) Your Tax Rate (Income vs. Qualified) Your personal income tax rate impacts your bottom line as a PTY investor if you own it in a taxable account, and to a lesser extent if you own it in an IRA. For starters, a significant portion of PTY distributions may not be “qualified” meaning they don’t qualify for the lower qualified dividend tax rate (15% for most people, but depending on your tax bracket, as you can see in this report). Rather, PTY distributions may largely be taxed at your ordinary income tax rate, so if you are in a higher tax bracket, PTY pays you even less bottom line income. And if you live in a state with a high state tax rate then you get even less bottom line income from PTY. Also, keep your tax rate in mind if you own PTY in an IRA because when you do finally start taking distributions from your IRA you are taxed on that income at your ordinary income tax rate (unless you own it in a Roth IRA, in which case you paid taxes on the money before you put it in the account so you’re not taxed on withdrawals). There is a whole science around which types of investments you should hold in which types of accounts to minimize the tax consequences effectively. Keep that in mind as a PTY investor. (3) PTY Opportunity Costs (vs. Less-Taxable Alternatives) Another important consideration before investing in PTY is the opportunity cost (i.e. the alternatives you forgo to own PTY). For example: Tax Free Muni Bond CEFs: There are tax free municipal bond CEFs available (such as those in the table below) that offer lower yields than PTY, but after adjusting for the tax consequences the muni-bond CEFs can be more compelling (strong bottom line net of tax returns with arguably much less risk) for some investors. For example, if you live in a state with a high state income tax (such as California) and you are in a high income tax bracket, you may actually be better off investing in municipal bonds because of the potentially huge tax savings. Be sure to consider the “tax equivalent yield” when comparing non-taxable versus taxable big-yield investments. data as of 5/22/24 (Stock Rover, CEF Connect)  (NEA) (NAD) (NVG) (NZF) (NAC) (MUC) (NRK) (MYN)  Qualified Dividends: Investments that pay qualified dividends are taxed at a lower rate (15% for most people, but less if you are in a lower tax bracket). A significant portion of PTY distributions are generally not qualified, so you pay taxes on them at your ordinary income tax rate (which is typically higher than 15% for most people). There are not a lot of qualified dividends nearly as high as PTY's distribution yield, but considering alternatives that come close may behoove you, depending on your individual tax situation. Using long-term gains for spending cash: Companies that pay qualified dividends (i.e. taxed at a lower rate) frequently have much higher long-term price gains than PTY (recall our earlier chart of PTY’s price—which remained relatively flat, versus the S&P 500—which offered a lower yield but much higher price returns). And long-term capital gains are also taxed at a lower rate (15% for most people, sometimes less if you’re in a lower tax bracket). So if you can handle generating some of your spending cash from long-term capital gains, you can potentially save a ton on money in taxes. For example, you might want to brush up on “the 4% rule” (i.e. this gives you an idea of how much of your nest egg you can safely spend each year, assuming it will be more than replenished over time through price gains).  (4) PTY Distribution Sources Another important tax consideration for PTY investors is how the fund sources the distribution (because this impacts your taxes). For example, distributions sourced from net realized \"long-term\" capital gains may be eligible for the lower long-term capital gains tax rate. But as you see in the table below, capital gains have not recently been used to fund the distributions. PTY Semi-Annual ReportAdditionally, the fund has been using some \"Paid-in Surplus or Other Capital Sources\" which PIMCO's semi-annual report explains: \"Occurs when a fund distributes an amount greater than its accumulated net income and net profits. Amounts are not reflective of a fund’s net income, yield, earnings or investment performance.\" And depending on how things progress over time, \"paid in surplus or other capital sources\" can ultimately result in a Return of Capital from a taxation standpoint, which may not be taxed immediately, but can reduce your cost basis in the fund ultimately resulting in a larger tax when you do finally sell your position. For example, we recently wrote more about \"other capital sources\" (specifically related to Section 19 Notices) for another popular PIMCO CEF in this report: PDI: 13.7% Yield Attractive, Despite Section 19 Notices The Bottom Line: PTY is attractive if you can get comfortable with the premium price versus NAV and depending on your individual tax situation. PIMCO is the premier bond fund manager, and PTY has a long track record of success. However, if you own PTY in a taxable account, your bottom line income will be different, and you may want to consider diversifying by adding some alternative income securities too (to benefit from less taxes on capital gains and qualified dividends, and depending on your personal situation). We currently own shares of PTY (and PDI, mentioned earlier) in our prudently diversified \"High Income NOW\" Portfolio. However, these are not the only positions, and they are not even among the largest positions. Ultimately, you need to do what is right for you, based on your own personal situation. Prudently-diversified, goal-focused, long-term investing continues to be a winning strategy.  Editor's Note: This article covers one or more microcap stocks. Please be aware of the risks associated with these stocks.","kind":"highlight","is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":0},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.3","shortVersion":"4.29.3","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2437708043"}