Stock market

I’m an income hunter and with a 9% yield this dividend stock looks juicy

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I’m sure many people like me are always on the lookout for new ways of earning. Inflation may be easing, but that doesn’t mean the cost-of-living crisis is over. By looking for good dividend stocks with above-average yields, I can make an easy source of extra cash.

A skilled manager

An idea that caught my eye last week. CVC earnings and growth (LSE:CVCG). It is an investment trust listed on the stock market. This means that a CVC (a private equity and debt manager) runs the trust and invests the money. The value of the portfolio at any point is called the net asset value (NAV) of the company. Consequently, the share price should closely mirror movements in NAV over time.

As a dividend investor, these trusts can be an excellent source of income. The reason is that unlike a more traditional company, the focus of a CVC is purely to generate income for shareholders while increasing the value of the trust over time.

The firm has a good track record, with a current dividend yield returning 9%. It generates funds by providing loans and other forms of credit to private companies. Given that some of these firms may struggle to secure conventional loans from major banks, interest rates can be quite high.

It focuses on Europe, so it doesn’t try to target obscure investment opportunities in other distant parts of the world.

Progress from here

The stock’s 12% move higher over the past year impressed me. It currently matches the NAV, so I don’t see it as overvalued. Looking ahead, I am optimistic about how the trust can remain profitable.

Unlike some trusts that focus only on stocks and are heavily weighted to tech, this trust has truly diversified sector exposure. The largest sectors are healthcare and beverages and food, both with 17 percent allocation. In fact, tech currently weighs just 3 percent. Based on my view which sectors can perform better next year, this is a positive thing.

One risk that people may grapple with is that trading in debt is a risky business. If a CVC is involved with a firm that defaults on a loan, that’s very bad news. I accept this as a risk, but counter it with the fact that it is mostly related to senior secured loans. This means that the loans have some form of collateral attached to them (eg a business asset). So in case of default, it is not that there is nothing left to claim against him.

All things considered, I think this is a positive option for investors with income included. I’m considering buying it when I have some free cash.


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