II hear many dividend investors suffering from the ‘bull market blues’: While stocks have skyrocketed, increasing the value of their portfolios, they don’t know what to do with their earnings – because stocks have soared ( and yields plunged)!
It’s a vicious cycle that doesn’t seem like it’s going to end anytime soon, and it has even hit what are traditionally the most neglected corners of the market.
Take my favorite high-yielding investments, closed-end funds (CEFs), which regularly offer huge returns of 7% or more. CEFs invest in everything from energy and utilities to corporate bonds and US stocks. And overall, they’ve gotten expensive too (but there are still some deals to be had in the space, as we’ll see shortly).
Source: CEF Insider
Before the pandemic, the average market price of CEF was 5.2% lower than the net asset value (NAV) of its portfolio. And while that discount widened in the height of the panic of March 2020, the latter part of the year saw a recovery that turned into a shopping spree in early 2021. Now the discounts hover around 1.7%, far from their historical average of 6.2%.
A wide rally
Since we’re talking about averages here, is it possible that a few overvalued funds are skewing the average, which would mean that there are a lot of well-rated CEFs that investors ignore?
This seems likely, since it has been the case throughout most of the modern history of these funds. As you can see below, the PIMCO High Income Fund (PHK), for example, traded at premiums above 60% (almost unheard of for CEFs!) Between 2011 and 2015.
The ridiculously high PHK fades (but are still too high!)
Then its premium would pick up for a short time (albeit to a lower level) and then fall further. But despite this, investors are still willing to pay $ 1.19 for every dollar of PHK assets! Very popular CEFs like PHK would inflate the average discount on the market in the past, but the situation today is very different.
In August 2021, there were fewer CEFs than usual with prices well above or below the average 1.7% discount. This narrows down our shopping list as we don’t have that many big discount funds to choose from.
That 6.3% dividend is still a bargain (for now)
But there are still some deals to be found, as some CEFs have not benefited from the sharp price increase that other funds have. For example, the General American Investors Fund (GAM) trades at a 16% discount to the net asset value at the time of writing, despite yielding 6.3% in the past 12 months (GAM pays most of its dividends in the form of a special end-of-year payment).
GAM has also done this in the long term:
Strong long-term returns
GAM has also achieved an annualized profit of 7.7% over the past 15 years, thanks to a strong portfolio of blue chip stocks: its biggest investments are Microsoft (MSFT), Republic Services (RSG), Alphabet (GOOG , GOOGL) and Amazon.com (AMZN).
The history, participations, dividend and discount of this CEF make it well suited to today’s market. In the meantime, now is not the time to buy a fund like PHK: with its 19% net asset value premium, this fund is priced perfectly, and even though its premium is down from historical levels. , it is still too high, leaving PHK to fall more than upside down.
And although their holdings are very different (PHK invests primarily in corporate bonds), it should be noted that PHK has underperformed GAM since its IPO.
It just goes to show that even in an expensive market there are dividend deals out there somewhere. And the often irrational CEF market is always a great place to look.
Top 5 CEFs to Buy for Guaranteed Profits, 6.9% Dividend
CEFs offer another level of security that hardly anyone knows about.
Understand this: Of CEFs that have been around for a decade or more, 96% have made money in the past 10 years. And when you remove CEFs in the hard-hit energy sector, that number jumps to 99%!
It’s as close to a lossless investment as it gets! And because of the massive CEF returns, you’ll collect most of your return as cash dividends as well.
Right now I’m sharing my top 5 CEFs with the public, and I want you to start collecting their massive payouts (I’m talking about an average dividend of 6.9% here) and be in a big bullish position as well. . My latest forecast calls for price gains of over 20% of these funds over the next 12 months!
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.