High Income Investments: A Warning

Yields are a seemingly easy to understand attribute of investments, making them a focal point for many investors.

The salience of yield is no secret to financial product manufacturers, resulting in products being manufactured and marketed based on their high distribution yields.

But distribution yields are not investment returns, they are not sufficient to assess expected returns, and, in the way that they are used to market financial products, often to unsophisticated investors, they can be misleading.

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[BlinkPls]

Thanks Ben. Ignore the haters; some of us really appreciate your valuable content.

[SeaJay]

Loving the juicy yields being put out by this channel lately, Ben.

[iraforleiter]

Now you tell me! I was one of those "unsophisticated" investors that chased after juicy distribution yields and I learned on my own how dumb that was. Your videos are often incalculably helpful!

[Aenion]

I'm glad you're back to making videos on your own channel.
1.5 years ago I found your channel through Andrei Jikh (of all people lol), and you showed me the light.
I'm now a happy, stress-free broad market index ETF investor rather than a degenerate gambler chasing junior mining stocks

[ldg]

Some people have just never learned to ask "is this too good to be true?".

[dietbajablast]

Thanks for setting the record straight. These short videos are great!

[WinstonBoogie]

I have seen other dividend investors I've met telling me about ZIM, ORCC, or these other horrible CEFs. One guy told me about this CEF that paid 16%. The return has been -30% and I look at him like "you lost money! You didn't make 16%. You lost 14% of your worth." I'll keep the companies I have with a low dividend to FCF. It'll probably take longer but I want my companies to keep money to reinvest into the business.

[petert]

Glad you made this video. I've been watching Bloomberg/BNN during the day and ads are bombarding viewers with higher and higher yielding products. It's really obvious.that they are primarily targeting retirees (or those trying to retire early and focusing on creating an adequate dividend/distribution flow) who want more income out of their portfolio, and so we're not just seeing covered-calls or leverage anymore, but combinations of those now!

Unfortunately, I've found it hard to knock the idea through people's heads that total return is most important, because they mostly just want a combo of income flow and never having to sell units. So even if their ETF trails the underlying stocks in total return, as long as it doesn't crash in price and still provides a strong distribution flow then it is attractive to them.

[nicholasbailey]

Great video. Individual stocks are also guilty of this - I lost my shirt in high-yield stocks like AT&T where the dividend was manufactured by taking advantage of low-interest debt and accounting tricks.

[luisoncpp]

I think there is something else worth of highlighting for people that is thinking "I'm not going to sell the stock, so, I don't care if its price goes down after I buy it, and because of that I only care about the yield": if the price goes down and the distribuition is a percentage of the price, then the distribuition is going to go down as well.

[masonleite]

Very timely! I work as a financial planner and just finished explaining this to my coworkers

[woodytobiasjr.]

Bravo. Required viewing for the followers of Passive Income Investing and Beavis Wealth. Rarely do they discuss total return. They do believe that the covered call premiums are sufficient to cover the distributions and they still have upside potential. They don't understand ROC and view covered calls as a free lunch.

[PiroTechnique]

Good (GREAT AWESOME FANTASTIC) to have you back with even more videos in a shorter /simpler format.

[robinimpey]

I like these short videos, I can "almost" keep up! 😄

[ItsSvetsi]

Ben's channel has the most juicy yields of all.

[azhp]

After watching this video I think I have a very good idea of what a yield is not but still don't know what a yield is

[helloken]

Nice video specifically addressing those super high dividend funds that have popped up in the last few years...especially JEPI since it's been out for a handful of years now we can compare to S&P500. Sure it gets a ~10% yield give or take, but in past ~3 years it has returned almost nothing while the S&P500 has returned around 50% in gains. It more than makes up for the difference in yield...

As Ben has taught us in past videos, one of the strongest predictors of a fund's performance is the fees. Low cost funds are often a better choice over high cost funds...

[CalmerThanYouAre]

Among companies, growing return on invested capital is everything. For investors, portfolio total return net of fees and taxes is everything.

[guillaumefournier]

Thank you Ben! that was a great video.

[themusic]

The thing a lot of income investors also don’t understand about these super high yield funds is they don’t increase their dividend and if they do it’s at a snails pace, and if they cut it then it’s substantial because the high yield is eating at the funds NAV, which is why these funds return on capital sucks because it’s essentially return OF capital. There’s large cap US equities out there…Home Depot, Visa, Mastercard, United Health, MSCI, Costco and Eli Lilly come to mind that have dividend CAGR’s of 15% plus per year while their share price is compounding at a rate exceeding the market average. But of course all a new investor is going to look at is how cheap is the share price and how high is the starting yield.