Wednesday, December 14, 2011

How to Get Monthly Income from Convertible Bonds

With the exception of a few micro-bonds that trade like stocks and pay interest quarterly, most bonds pay interest semi-annually. Convertible bonds are investments which can be converted into a specified number of shares of stocks. So if the company stock rises, the investor can convert the bond to stock and sell the shares. If the stock doesn't go up, the investor still receives regular income. If the company goes out of business, bonds are paid off first before the stockholders, so the convertible bonds provide additional security plus capital appreciation potential.

Bonds generally trade with minimum denominations of $5,000, and most bond brokers have minimum investments per trade of $10,000 to $25,000. So what's an investor do to if they want to put their money into convertibles, and want diversification with monthly income? Convertible bond closed end funds or CEFs are an option.

One convertible CEF example listed at is the Advent Claymore Convertible Securities & Income Fund (AVK), which yields 6.6%. The fund trades at an 11.4% discount to net asset value, and incurs a 0.92% management fee. Advent has been paying dividends since 2003.

The Calamos Convertible & High Income Fund (CHY) which generates a high yield of 8.8%. It can also be purchased at a discount, currently about 6.5%. The management fee is a bit on the high side at 1.13%. The Calamos CEF has also been paying since 2003.

For other monthly dividend CEFs, including convertible closed end funds, check out the list at, which can be downloaded, sorted and updated.

Disclosure: Author didn't own any of the above at the time the article was written.


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