Dividend Hunter

I’m an income-hunter and this dividend stock with a 9% yield looks juicy
Story by Jon Smith
The Motley Fool

I’m sure there are many like me always on the prowl to find new ways to make income. Inflation might be moving lower, but that doesn’t mean the cost-of-living crisis has disappeared. In finding good dividend stocks with above-average yields, I can create a handy source of additional money.

A specialist manager
One idea that caught my eye was CVC Income & Growth (LSE:CVCG). It’s an investment trust listed on the stock market. What this means is that CVC (a private equity and debt manager) runs the trust and invests the money. The value of the portfolio at any point is referred to as the net asset value (NAV) of the company. As a result, the share price should closely mirror the movements in the NAV, over time.
As a dividend investor, these trusts can be a great source of income. The reason is that unlike a more traditional company, the focus of CVC is to purely generate income for shareholders while aiming to grow the value of the trust over time.

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

It focuses on Europe, so doesn’t try and get too fancy in targeting obscure investment opportunities in other far flung parts of the world.

Growth from here
The 12% move higher in the stock over the past year impresses me. It currently matches the NAV, so I don’t see it as being overvalued. Looking forward, I’m optimistic about how the trust can continue to profit.

Unlike some trusts that focus just on stocks and have a heavy weighting to tech, this trust has a really diversified sector exposure. The largest sectors are healthcare and beverage & food, both with a 17% allocation. In fact, tech has just a 3% weighting at the moment. Based on my view on which sectors could outperform over the next year, this is a positive.

One risk that people could flag up is that trading in debt is a dangerous business. If CVC is involved with a firm that defaults on the debt, it’s seriously bad news. I accept this as a risk, but do counter it with the fact that it mostly deals in senior secured loans. This means there’s some form of collateral attached to the loans (eg a business asset). So in the case of a default, it’s not like there’s nothing left to claim against.

Putting things all together, I think this is a positive option for investors to consider, including for income. I’m looking at buying it when I have some free cash.

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Current yield 7% Discount to NAV 3.1%