What if you took out a loan to buy so much of a fund that paid a higher yield than the loan interest rate? So that you could cover the loan payments and have some left over?

Example: DNP Income fund is paying a 6.5 cent dividend. Roughly 7.31% annual yield. What if you took out a loan of $10.67M to buy 1M shares, at a current price of $10.67/share? Could you get a loan with a low enough interest rate to get the shares and pay off the loan with dividends and bank the rest?

1 million shares would give $65k per month. A 30 year loan for $10.67M at even 5% would be a monthly payment of about $57k. You could bank the other $8k per month and pay the capital gains tax and still come out ahead, right?

Aside from needing the fund to pay out every month for the next 360 months, what could possibly go wrong?

This is all just speculation and conjecture. I have no ambition to take out a $10M loan to do this. It  fun to dream.

There-in lies the problem; what happens if it doesn't pay out? How was the loan secured? Did you take the loan out against some other property you own?

Typically in a down-turn of the economy is when you would see low dividend payouts; that is also when you will have low share prices.

What is the exit plan?

Example: you follow through with proposed plan, all it good for a few years, then economy tanks. DNP Income fund is paying out no dividends, your loan payment is due, and DNP Income fund is selling at $6 per share.

Your options are:
Sell other assets (likely also at a lower value due to economic situation) to cover loan payment
Sell DNP Income shares at a 44% loss to cover loan payment
Let loan default and you lose all of whatever you used to secure the debt

Neither option is good, options 1 & 2 are your best bet but they will absolutely kill any gain you had ever hoped at making with this scheme.

VERY RISKY, but if you swing and knock it out of the park the reward will be VERY BIG as well. OTOH, if you swing and miss, or swing and hit a foul ball you're at best, back where you started, at worst you're bankrupt living out of your car.

Ever strategy needs and exit-plan.

I have wondered this as well but to me it's chicken or the egg.   If I had big dollars I would t take the risk, but if I did this I would want lots of cash to cover the risk.

I am sure the bank would require collateral so I don't know what you would do there.

In regards to DNP, is the 7.31% yield before or after the 1.6% expense ratio?  Are you actually getting 6.5 cents per share or is that before the expense ratio kicks in?

DNP is paying 6.5 cents per share. Gotten so many notices over the months I know when they come and glance at them and file them without thought.

I got a $20k pre-commissioning loan from USAA that was unsecured and had zero interest for either 12 or 24 months (I forget which) upon which the APR was 2% (didn't accrue during the 2 years or whatever).  I immediately dumped it in a NC SECU mutual fund that was giving a return of 4%.  Once I had to pay up I just made payments out of the fund and built credit.  Eventually used part of the loan to buy a car but it really was a great way to build credit for me.  I know building credit is different than making money like you're saying

Pretty straightforward loan arbitrage.

There are risks as others said, usually most I see use 'no interest' credit card offers like others have said, they tend to work pretty decently overall.

The tax rate on dividends is 15% (or 20% for higher income earners). On $65k, that would be $9,750 in taxes. That would leave $55,250 in remaining income. You would have to get under a 4.7% interest rate on a 30 year loan to make any money. And that's assuming that nothing happens to DNP's dividend, but it has been a solid dividend for like 30 years. Even then, at 4.7%, you wouldn't make any money and would be relying on DNP to increase in price over 30 years.

It's gone up a whopping $0.25 in the past 29 yrs.  I think inflation just ate your lunch (and anything else you thought you might get from this).

on edit:
At the end of the hypothetical 30 years you would own the same quantity of stocks, worth roughly the original cost.  But are you prepared to say that the dividends will cover the cost for 30 yrs straight?  It only takes a couple months of missing the mark to put you in to default, even if the dividends resume you would still be wrecked.

If you're in a position to secure a $10 M loan, you don't need that kind of small time crook trick

People do this on a smaller scale with 0% interest credit cards. Seems like a lot of effort to me.

Times seem pretty good for stocks right now, but they could suck for several years and then you could be screwed.