An 11% Yielding Insider Buy 11% Below NAV

For whatever reason, insider buying stalled last week. It could be all the talk about an impending recession or because of summer-like temperatures hitting parts of the country for the first time this year. As a result, our choices for this week’s column were limited.

Investors that are seeking high yields might look at High Income Securities Fund (PCF). It currently pays an annual dividend of $0.72 per year and the stock last traded at $6.58. Quick math says that’s an annual yield of 11.02%.  Income investors might like that PCF pays out monthly, providing a steady stream of income. (1)

PCF Director Phillip Goldstein recently bought 19,510 shares in a pair of transactions at $6.39 and $6.41 for almost $125,000. The director has been building his position in the fund since the start of March. (2)

Maybe, Goldstein has moved into PCF because the fund currently trades at a discount to its Net Asset Value (NAV), which represents the value of an investment fund and is calculated by adding the total value of the fund’s assets and subtracting its liabilities. For example, if a fund has investments worth a total of $100 million and liabilities of $50 million, the NAV equals $50 million. If there are 1 million shares, then the fund has an NAV of $5 per share.

PCF’s net asset value is $7.43 as of the close of trading on 4/14/2023. Meanwhile, the fund closed at $6.58 on the same day. That means PCF last traded at an 11.44% discount to its NAV, which is twice the 5-year average of -5.59%, according to Y-Charts. (4) Interestingly, Goldstein was a seller in 2021 when High Income Securities Fund traded above its NAV.

Management has already announced that the fund will pay a monthly dividend of $0.064 per share through June 2023. That’s the same amount PCF has paid to shareholders since the start of 2023. Payouts are subject to change. The fund suspended its dividend for 11 months between July 2018 and August 2019. (5) Typically, the fund pays out the announced dividend at the start of the year throughout the entire year. There are some exceptions, but not many.

The High Income Securities Fund is a closed-end fund that invests in a diversified portfolio of high-yield bonds and other income-producing securities. The fund’s objective is to provide a high level of current income and capital appreciation.

PCF invests primarily in corporate bonds rated below investment grade, also known as “junk bonds”. These bonds typically have higher yields than investment-grade bonds to compensate investors for the higher risk of default. The fund may also invest in other income-producing securities, such as preferred stocks and convertible securities.

The fund’s portfolio is actively managed, meaning that the portfolio manager makes investment decisions based on market conditions and individual securities. The fund uses leverage, or borrowed money, to enhance its returns, which also increases the fund’s risk.

OVERVIEW: High Income Securities Fund (PCF) could be worth consideration for investors seeking high yields, especially since the fund trades at well below its five-year average price to NAV. However, it’s only for those with well-above average risk tolerance and who are not seeking price appreciation.


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