EIC - Eagle Point Income: A Less Risky CLO Alternative To ECC

2024-04-22 17:34:29 ET

Summary

• Eagle Point Income offers a high monthly distribution with a yield of 15.4%.
• EIC has outperformed the S&P 500 in terms of total return, thanks to its high cash flow and distributions.
• The price of EIC currently trades below its average premium to NAV, indicating a potential opportunity for entry.
• EIC primarily holds CLO debt in comparison to ECC's CLO equity. This is less risky due to the position of repayment on the capital structure.
• Higher interest rates have benefitted EIC as the company has been able to obtain higher NII levels while actively deploying capital towards new investments.

Overview

High yielding monthly income is something that has already been appealing to me. As an investor that values income, I'm always on the hunt for opportunities to increase my annual passive income. Eagle Point Income Co Inc ( EIC ) offers a monthly distribution with a high yield of 15.4%. EIC operates as a closed-end fund with a primary focus on CLO debt. While entities like this can certainly carry a certain level of risk, it's important to understand what these funds are made up of. I aim to provide an easy-to-understand analysis of EIC and why it may deserve a spot in your portfolio.

We can see that over the last year, EIC has slightly outperformed the total return of the S&P 500 ( SPY ). While a direct comparison to the SPY doesn't really mean much in this context, it does help paint a clear picture of the power of high distributions over time. A comparison to the SPY doesn't really align with the main purpose of EIC, which is to produce income. While a total return profile that closely aligns in the short term is great, investors in a closed-end fund aren't typically after a higher total return. Instead, they are usually looking for consistent income generation that can be used to fund their daily lives. Despite the price of EIC moving up only 6.7% for the year, EIC's total return is superior because they were able to generate high levels of cash flow in this higher interest rate environment to support the distributions. Despite the fund's history only starting in 2019, the performance has been strong so far....

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