{"id":22687,"date":"2023-09-27T17:18:15","date_gmt":"2023-09-27T17:18:15","guid":{"rendered":"https:\/\/microloannexus.com\/investing\/these-9-paying-funds-are-must-buys-today\/"},"modified":"2023-09-27T17:18:16","modified_gmt":"2023-09-27T17:18:16","slug":"these-9-paying-funds-are-must-buys-today","status":"publish","type":"post","link":"https:\/\/microloannexus.com\/?p=22687","title":{"rendered":"These 9%-Paying Funds Are \u2018Must Buys\u2019 Today"},"content":{"rendered":"
\n

If there\u2019s one thing we need to remember when we buy high-yield closed-end funds (CEFs), it\u2019s this: always demand a discount.<\/em><\/p>\n

Well, make that two: always demand a high dividend! Because CEFs are renowned for their high\u2014and often monthly\u2014payouts, with the average CEF yielding around 8% today.<\/p>\n

But back to discounts. Luckily for us, they\u2019re common in the CEF world: of the 433 CEFs tracked by the CEF Connect screener, some 390 trade at discounts to net asset value (NAV).<\/p>\n

These discounts are basically free money because they let us pick up, say, Mastercard
\n
\n MA
\n <\/fbs-ticker> (MA)<\/strong> for 83 cents on the dollar through a CEF like the Gabelli Dividend & Income Trust (GDV). <\/strong>This fund, run by value-investing guru Mario Gabelli, has MA as its top holding and trades at a 17% discount as I write this.<\/p>\n

Another bonus of buying through a CEF is, of course, the aforementioned dividend. MA shares yield just 0.6%. But if you buy through GDV, you\u2019ll get a 6.7% dividend <\/em>instead\u2014and GDV makes that payout monthly instead of quarterly, like MA.<\/p>\n

<\/fbs-ad><\/p>\n

Discounts to NAV only<\/em> exist with CEFs. Mutual funds and ETFs issue shares whenever they want, fixed each day at NAV. This is why the popular SPDR S&P 500 ETF Trust (SPY
\n
\n PY
\n <\/fbs-ticker>
\n
\n SPY
\n <\/fbs-ticker>)<\/strong> is never cheap.<\/p>\n

When It Comes to CEF Discounts, Context Is Everything<\/strong><\/p>\n

Unlike mutual funds and ETFs, CEFs have fixed share counts, with their funds trading like stocks. As a result, their shares and per-share NAVs often trade at different levels\u2014and usually at a discount.<\/p>\n

But there\u2019s one more piece to the story here, as simply buying a CEF with a deep discount and calling it a day is a recipe of ho-hum (at best!) returns. That\u2019s because, just like some stocks are always cheap (or are cheap for a reason) some CEFs\u2019 discounts never<\/em> change.<\/p>\n

So we need to dig deeper and make sure management has a plan to close the CEF \u201cdiscount window.\u201d<\/p>\n

That includes not only looking at the current discount to NAV, but also the current discount in relation to its history. <\/em>To see what I\u2019m getting at here, consider the Cohen & Steers Infrastructure Fund (UTF), <\/strong>a fund that\u2019s done a couple of tours of duty in my Contrarian Income Report <\/em>high-yield investing service.<\/em><\/p>\n

These days, as it did then, UTF holds a mix of electric utilities (currently 33% of the portfolio), pipelines (around 11% now) and infrastructure plays, such as toll roads (7.5%). Its current top holding is NextEra Energy
\n
\n NEE
\n <\/fbs-ticker> (NEE),<\/strong> a renewable-energy leader that\u2019s rarely cheap. But thanks to UTF, we have a shot at buying it at a rare \u201cdouble discount\u201d today\u2014more on that in a bit.<\/p>\n

UTF\u2019s first stint in CIR <\/em>started back in February 2016, when it yielded around 8.8%, and ran to December 2019. As with all of our CEF buys, our play here was all about the closing discount. In that time\u2014a bit less than four years\u2014UTF\u2019s discount collapsed from an unusually wide 16% when we bought to around 4% when we sold.<\/p>\n

That drove the price higher in lockstep, to the tune of about 38%. And when you include UTF\u2019s (monthly paid) dividend, which yielded 8.8% then and pays just a hair more\u20149%\u2014today, you get a 94.6% total return in just under four years.<\/p>\n

That, by the way, highlights another danger of CEFs\u2014judging them by price returns alone. That\u2019s an easy mistake to make because popular screeners like Yahoo Finance and Google Finance only show price returns. But because CEFs give us so much of our income as dividends, we have to look at total-return charts to properly judge their performance.<\/p>\n

But (once again!) I\u2019m getting off track here. I mention UTF now because it\u2019s a CIR<\/em> holding once more, and its current discount, at around 7%, is once again below the long-term trend\u2014its five-year average is right around par. Sure, that\u2019s not the 16%-off deal we had in front of us back in \u201916, but the disappearance of the discount alone would drive a 6% price increase.<\/p>\n

There\u2019s more: utilities are essentially bond proxies, so their prices have fallen as rates have shot up. But as the economy slows, rates will move lower. And while we wait for price upside, we\u2019ll happily collect UTF\u2019s monthly paid 9% dividend. That\u2019s the second part of our \u201cdouble discount\u201d here.<\/p>\n

And here\u2019s something else few folks realize about CEF discounts: they can help secure a fund\u2019s dividend. In the case of UTF, its yield based on its discounted market price is 9%, while the yield based on its per-share NAV is 8.4%. That second number is important because it\u2019s what the fund needs to earn to cover the payout. To be sure, that\u2019s not a massive difference, but it does give the payout a bit of extra cushion.<\/p>\n

Finally, with rates topping out and likely headed lower, UTF will face less \u201cdividend competition\u201d from the likes of Treasuries. That, too, should help it catch income investors\u2019 attention\u2014and further narrow its discount.<\/p>\n

Brett Owens is chief investment strategist for <\/em>Contrarian Outlook<\/em>. For more great income ideas, get your free copy his latest special report: <\/em>Your Early Retirement Portfolio: Huge Dividends\u2014Every Month\u2014Forever.<\/p>\n

Disclosure: none<\/em><\/p>\n<\/div>\n

Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

If there\u2019s one thing we need to remember when we buy high-yield closed-end funds (CEFs), it\u2019s this: always demand a discount. Well, make that two: always demand a high dividend! Because CEFs are renowned for their high\u2014and often monthly\u2014payouts, with the average CEF yielding around 8% today. But back to discounts. Luckily for us, they\u2019re<\/p>\n","protected":false},"author":1,"featured_media":22688,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[49],"tags":[],"class_list":{"0":"post-22687","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-investing"},"yoast_head":"\nThese 9%-Paying Funds Are \u2018Must Buys\u2019 Today | Micro Loan Nexus<\/title>\n<meta name=\"description\" content=\"If there\u2019s one thing we need to remember when we buy high-yield closed-end funds (CEFs), it\u2019s this: always demand a discount. 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