New York, NY – Successful investing requires managing risk rather than avoiding it, according to renowned investor Benjamin Graham. Income investors often seek safe sources of income while preserving capital, but high yield distribution CEFs like Oxford Lane Capital (OXLC) come with their own set of risks. Some analysts caution against OXLC’s 19% distribution yield, citing extreme risk, while others advocate for buying shares for income while the premium is low and the distribution yield remains stable.

As a retired income investor focused on passive income, opportunities to invest in high-yield dividend-paying stocks and funds are key in growing future income streams. Many CEFs in the Income Compounder portfolio offer monthly distributions, with reinvestment helping to increase future income. OXLC, trading at a slight premium to its NAV, presents challenges in estimating NAV due to factors affecting CLO pricing.

While not an expert on CLOs, confidence in OXLC’s ability to manage a CLO fund is high. Monthly estimated NAV for OXLC fluctuates, with the recent March estimate indicating a slight increase despite a dip in NAV from February. OXLC’s current 1.6% premium to NAV is lower than historical averages, reflecting investor apprehension about its high-yield distribution.

OXLC’s 19% yield, a primary reason for holding the stock, is supported by core NII, a key metric in determining distribution coverage. Quarterly undistributed core NII offers potential for future distributions, hinting at potential dividend raises. The upcoming fiscal Q4 report may reveal further insights into OXLC’s financial performance, with CEO Jonathan Cohen’s comments suggesting strong returns on CLO investments.

The company’s DRIP policy enhances returns for investors by reinvesting distributions into more shares at a discount to NAV. This strategy can lower the cost basis of holdings, increasing future income potential for investors. Despite risks associated with CLO equity, OXLC presents a compelling opportunity for income investors willing to accept the associated risks.

The landscape of CLO funds offering high yields to investors is growing, with other options like ECC, EIC, CCIF, and more available. While OXLC boasts the highest yield among these funds, its concentration in equity tranches presents unique challenges. However, historical data on CLOs’ low default rates and high recovery rates offer reassurance to investors.

Overall, OXLC remains a buy for income investors seeking a steady high yield income stream, given its stable NAV, slightly discounted premium, and strong core NII coverage. With macroeconomic factors potentially influencing CLO returns, OXLC’s performance remains promising for investors looking for a reliable income source.