Oxford Lane & the Allure of a 48% Dividend

My uncle, a man who once tried to corner the market on Beanie Babies, recently discovered dividend yields. He called, breathless, about a stock called Oxford Lane Capital. “Forty-eight percent!” he shrieked, as if reporting a sighting of Bigfoot. “Think of the retirement income!” I tried to explain that high yields often signal trouble, like a flashing yellow light on the highway of finance, but he was already picturing himself on a beach in Boca Raton. It reminded me of the time he invested in a company that made edible shoes. The shoes were, predictably, a disaster.

Oxford Lane, it turns out, is a closed-end fund that dabbles in the murky world of private credit. After the financial crisis of ’08, the banks, chastened and heavily regulated, became a bit…picky about who they lent money to. This created a vacuum, and private credit firms, like Oxford Lane, rushed in to fill it. It’s a bit like the wild west, only instead of six-shooters, they’re wielding spreadsheets and complex financial instruments. The appeal, of course, is the promise of higher returns. The risk, naturally, is that you end up holding the bag when those loans go bad.

The fund doesn’t actually make the loans, which feels…convenient. They invest in something called CLOs – Collateralized Loan Obligations. Think of it as a loan bundled up with other loans, sliced and diced, and sold to investors. It’s a bit like a financial fruitcake – you’re never quite sure what you’re getting. Oxford Lane focuses on the “equity tranche” of these CLOs, which is essentially the first to take a loss if things go south. It’s the financial equivalent of sitting in the cheapest seats at a sporting event – you have a good view of the disaster unfolding before you.

Now, a 48% dividend yield is…suspicious. It’s like a used car salesman offering you a deal that’s too good to be true. And, predictably, it was. The company recently announced they’re cutting the dividend in half. My uncle was not pleased. He kept muttering about “false advertising” and threatened to write a strongly worded letter. He also asked if I thought Boca Raton was still a viable option.

The stock itself has been on a downward spiral, down 57% in the last year. They even did a reverse stock split, which is a fancy way of saying they’re trying to prop up the price. It’s like rearranging the deck chairs on the Titanic. The net asset value, or what the fund actually owns, has fallen by 19%. That’s a lot of unrealized losses, which is financial jargon for “we’re losing money, but we haven’t officially admitted it yet.”

Oxford Lane is for a certain type of investor – the kind who enjoys a good gamble and doesn’t mind losing a little sleep. It’s high-risk, high-reward, and requires a level of sophistication that I, frankly, do not possess. I prefer investments I can understand, like index funds and government bonds. Boring, perhaps, but also…reliable.

The stock is currently trading below its net asset value, which means you’re buying the fund at a discount. But that discount comes with a hefty dose of risk. The new forward dividend yield is still around 22%, which is tempting, but I suspect it’s a siren song.

I’ve advised my uncle to steer clear. He hasn’t listened, of course. He’s already researching timeshares in Boca Raton. Some people just can’t resist a good deal, even if it’s likely to end in disaster. It’s a trait I both admire and deeply fear.

2026-02-06 13:12

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