DMO: The 13% Yield Is Limiting The Growth Potential

Cain Lee8.13K FollowersFollow5ShareSavePlay(12min)Comment(1)SummaryWestern Asset Mortgage Opportunity Fund offers a high 13.3% yield but faces risks from aggressive leverage and reliance on net realized gains.DMO's performance is highly sensitive to interest rate direction; lower rates could improve operating spreads, while higher rates threaten earnings and NAV.The fund trades at a 6.94% discount to NAV, but this does not present a compelling accumulation opportunity given current risks and payout sustainability concerns.I rate DMO as a hold, with potential for improved appeal if distributions are reduced to support greater earnings stability and capital appreciation.MicroStockHub/iStock via Getty Images Overview Western Asset Mortgage Opportunity Fund (DMO) is structured as a closed-end fund that aims to provide attractive total returns from its portfolio of income-producing securities. As the name implies, DMO's portfolio is most heavily allocated toThis article was written byCain Lee8.13K FollowersFollowFinancial analyst by day and a seasoned investor by passion, I've been involved in the world of investing for over 15 years and honed my skills in analyzing lucrative opportunities within the market.I specialize in uncovering high quality dividend stocks and other assets that offer potential for long term-growth that pack a serious punch for bill-paying potential. I use myself as an example that with a solid base of classic dividend growth stocks, sprinkling in some Business Development Companies, REITs, and Closed End Funds can be a highly efficient way to boost your investment income while still capturing a total return that follows traditional index funds. I created a hybrid system between growth and income and manage to still capture a total return that is on par with the S&P.Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.