12% Dividend Yield? What's Not to Love?

You don't get the chance for a 12% dividend yield very often.

But that's what's on offer right now at (EDD Quote)Morgan Stanley's Emerging Market Domestic Debt fund (EDD).

Yep, 12%.

Anyone who buys into this fund is getting an awesome double whammy. Emerging-market government bonds have sold off in an irrational panic sparked by the subprime mortgage meltdown, so you're getting a great deal. (Bonds are like seesaws: When the price falls, the yield rises.)

And then you're getting a second boost because shares in this fund, a closed-end that trades on the stock exchange, have themselves been dumped in the panic.

Morgan Stanley (MS Quote) launched this fund last spring, raising about $1.5 billion. As usual, those who invested in the fund in the IPO got the fuzzy end of the lollipop. They paid $1.05 for each $1 in assets, the difference going to financial middlemen.

Today? Shares in the fund have crashed to just $16.60. That is a thumping 9% below the already-depressed net asset value per share.

The fund has been punished especially hard because it is so new. Few investors know much, if anything, about it. While it pays dividends quarterly, they don't start until next month.

Bottom line? During the IPO, Morgan Stanley predicted the fund would offer a yield of 10% to 10.5%. On a $20 share price, that meant dividends of $2 or more per share.