The Prudent Investor’s Guide to Dividends Over 9% From the Big Sale
If you’re looking for dividends over 9% and an income stream you can retire on without selling stocks in your portfolio, closed-end fund (CEF) offer you a great opportunity now.
That’s because this selloff has set us up with bargains in the space, including many CEFs (like two we’ll describe below) throwing back 9% and even 13.7% dividends.
My CEF Insider Members know I’m excited to buy CEF at these levels, as long as you’re investing for the long term and can deal with more volatility because there’s likely to be more before the stock markets finally find their place.
A glimmer of hope from the Fed?
The good news is that last week we learned that we might get a reprieve sooner than we thought. That, in turn, could mean an earlier and more sustained rise in equities (and equity-focused CEFs).
It’s no secret that this sell-off is about the Federal Reserve’s rapid pivot to aggressive rate hikes to rein in inflation. That – and the central bank’s plan to shrink its balance sheet – is draining liquidity from stocks, hence the sell-off.
The Fed’s balance sheet is swelling. Next Move: Down
But all of that has been incorporated into the actions at this point. It therefore follows that any movement a way rate hikes would remove a large overhang in the markets, paving the way for another bull run.
And a thinly covered quote from Atlanta Federal Reserve Chairman Raphael Bostic might hint that another pivot, toward a less aggressive policy stance, is not far off. Bostic, who is close to Fed Chairman Jerome Powell, recently spoke with the Rotary Club of Atlanta, where he said the Fed may be moving on rates too quickly.
Here’s what he said: “I have a basic view where, for me, I think a break in September might make sense. Once we get through the summer and think about where we are in terms of politics, I think a lot of it will depend on the dynamics on the ground that we start to see. My motto is to observe and adapt.
Certainly, a single speech by a member of the Federal Reserve is not enough on its own to change the course of the central bank. But Bostic deserves attention, due to his close relationship with Powell. His pragmatic and common-sense approach could prevail, especially if inflation continues to fall over the next few months.
We have seen some indications of this lately, such as in the latest reading of the Personal Consumption Expenditure (PCE) Price Index, the Fed’s preferred measure of inflation. The PCE rose 4.9% from a year ago in April. That’s still high, but it’s only up 0.2% from March and well below the 0.9% month-over-month increase from February to March.
Long-term CEF investors win both ways: 2 big returns to consider
The bottom line here is that there are good reasons to add to your positions now, especially if you’re shopping in the CEF bargain aisle.
Here are two CEFs to consider.
CEF #1: An oversold tech fund with a 13.7% return (paid monthly)
One of the biggest bargains in CEFs today is the BlackRock Innovation and Growth Trust (BIGZ), which trades at a 13% discount to net asset value (NAV, or the value of its portfolio) and yields 13.7%.
These big numbers are the result of the fund holding mostly smaller tech stocks, which have been hit hard by the sell-off. Major holdings include as Entered
Admittedly, these are more speculative choices, and BIGZ is a young fund, which was just launched in March 2021. But it Is have the backing of BlackRock, the world’s largest asset manager with $7 trillion under their care, so we can be sure we are being guided by knowledgeable experts with an in-depth toolbox of research assets.
And here’s an additional measure of strength: the fund has kept its dividend (which is paid monthly) steady during the COVID crash, as well as the 2022 pullback.
CEF no. 2: a diversified equity fund yielding 9.5%
Our second fund is the Liberty All-Star Growth Fund (ASG), which is more diverse than BIGZ. Sure, 29% of his portfolio is in technology, but that’s offset by large holdings in healthcare (20%), industrials (13%), consumer discretionary (12%) and financials (10%). %), among others.
He also sports a decided inclination towards the big names, with Visa (V), UnitedHealth Group
Even better, you can buy ASG with a 9.5% dividend now. One thing to keep in mind, however, is that payment Is fluctuate with ASG’s net asset value, with management aiming to pay distributions equal to approximately 8% of net asset value per annum.
Another plus? ASG uses almost no leverage, so if you’re worried about rising borrowing costs hitting CEFs, you can put that fear aside with this fund.
One more thing: ASG is trading at a modest 2.9% premium as I write this, but this is still below the 3.8% it has traded at, on average, over the past 52 weeks, so we’re still getting a deal here, but not as good as we would if that bonus was a discount.
Michael Foster is the Principal Research Analyst for Opposite perspectives. For more revenue ideas, click here for our latest report »Indestructible income: 5 advantageous funds with safe dividends of 8.4%.”