Sep 30 2015

My Latest Buy: EHI

Not too much to say about my latest buy. I bought an additional 170 shares of Western Asset Global High Income Fund Inc (EHI), bringing it up to 370 shares total. With this new buy, EHI now has an average yield of 12%, which is pretty sweet. However, the total weight of EHI’s dividend payouts is now over 5.5%, so it’s time for me to stop right there. I don’t want to make the same mistake I made with NCV and let myself be seduced by high yield.

Before NCV recently cut its dividend from 9 cents to 6.5 cents, NCV’s dividend payouts accounted for just a little over 10% of my total dividend income. In hindsight, I should have limited NCV to only 400-450 shares, thus limiting my exposure to dividend cuts or a severe drop in NCV’s stock value. But no, I got greedy and went for 700 shares. NCV’s recent dividend cut hurt, reducing monthly dividend income by $17.50.

The 170 EHI shares pays $16.25 per month, but that’s not quite enough to completely negate NCV’s dividend cut, but it’s close. I have often referred to my dividend quest as a “4 steps forward, 1 step back” process, and that has proven to be an accurate description. If I had not experienced any dividend cuts, I would probably be making over $800 per month by now <sigh>.

Dividend investing lesson for the month: Limit your dividend stock’s payout weight (the percentage of the average monthly dividend income). Before its dividend was cut, NCV’s dividend payout had a weight of over 10% (now it’s a little over 7%). If I had limited its weight to 5-6%, then the damage from the cut would have been more limited. Because I plan on owning approximately 20-25 stocks, I aim to limit each stock to a weight of approximately 4-6%. Of course, right now I have a few high weighted stocks that need to be pruned back, but given the current volatility of the market these days, that won’t be happening any time soon.

Image Credits: PublicDomainPictures (shopper, money), (pixabay.com); NYSE logo © New York Stock Exchange