HSM is a closed end fund that invests in mortgage related securities, cmbs, rmbs and all of the other BS that is still around after the debacle. HSM announced on Friday that going forward it will be paying 5.6 cents monthly in dividends adjusting the dividend down from 7 cents. At today's current price that works out to a yield of 10.9 pct which given that it is paid monthly is very attractive considering fed funds rates etc.
Some investors look at these funds and get hung up on the discount or premium to NAV and that is all good and well, but unfortunately it is not the premium or the discount to NAV that pays the bills but the coupon that the fund pays out and consequently one should be more worried about the fund's ability to pay the coupon than with the premium or the discount.
Now that HSM has adjusted its coupon rate to a manageable level for its portfolio there should be significantly lower risk of a coupon cut going forward.
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U.S. Government / Agency and AAA Rated 62%
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AA Rated 10%
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A Rated 7%
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BBB Rated 8%
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Below-Investment Grade 13%
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Catalyst
The catalyst occurred with the dividend reduction whereby the risk in coupon in the security has been adjusted to reflect the portfolio's income generating ability.
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