Unveiling the Opportunity in 8.3% Dividend Yields Unveiling the Opportunity in 8.3% Dividend Yields

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Investors are often driven by fear, and recent inflation concerns have triggered market anxieties. However, it’s precisely during such fretful times that contrarian opportunities become ripe for the taking. One such unconventional move involves turning to high-yielding closed-end funds (CEFs) focusing on real estate, particularly real estate investment trusts (REITs), which are currently available at discounted prices.

Questioning Inflation Fears

Amidst the recent hoopla surrounding inflation figures, it’s crucial to dissipate the misgivings and delve into the core of the issue. The consumer price index reflected a 3.1% inflation rate in January, slightly surpassing the coveted sub-3% level. The concern? If inflation exceeds 3%, the fear is that the Federal Reserve might refrain from cutting rates, fearing an acceleration in inflation and consequently, a market downturn akin to the one experienced in 2022.

However, studies indicate a different trend. The year-over-year price growth of 3.09% is an improvement from December’s 3.14%, pointing to a gradual slowdown. More notably, this figure represents the lowest reading since July 2023. Moreover, much of this inflation surge can be attributed to rising shelter costs, predominantly driven by escalating rents, a clear sign of a robust economy.

Real Estate Investment Trusts: A Reassuring Picture

Market reaction affirms the optimism, with stocks picking up post the inflation revelation. Notably, real estate investment trusts (REITs) rebounded sharply in the wake of this data, with the SPDR Dow Jones REIT ETF (RWR) experiencing a surge despite the year-to-date downturn. This contrarian backdrop sets the stage for compelling investment prospects, particularly in the realm of REITs.

The Superiority of RQI

As investors consider their options, it’s imperative to look beyond the obvious choices. While the SPDR Dow Jones REIT ETF may be on the radar, the 3.9% yield it offers pales in comparison to the superior 8.3% yield presented by the Cohen & Steers Quality Income Realty Fund (RQI). With a track record of consistently delivering high income, RQI has surpassed RWR in total returns since its inception, primarily credited to its astute management and selection of high-quality REITs.

RQI: A Lucrative Bargain

What adds to this allure is the fact that RQI is currently trading at a discount to its net asset value (NAV), a disparity that’s steadily diminishing. This anomaly, coupled with the outperformance exhibited by this 8.3%-yielding REIT CEF, solidifies its appeal as a promising investment option.

Widening the Scope: AI-Focused CEFs

Not limited to REITs, the CEF realm extends its charm to tech stocks, particularly those involved in artificial intelligence (AI). Despite the inherent attractiveness of these investments, CEFs focused on AI stocks, marked by deep discounts and substantial dividend yields of 7.8%, present an opportunity to tap into the burgeoning AI trend for high yields. This trend, although currently underappreciated, is slated to gain significant traction, making it an opportune moment for shrewd investors.

We have a unique chance to delve into this atypical AI dividend play, which is bound to witness a surge in interest as AI continues to galvanize the US economy. This strategic move allows investors to acquire the equivalent of tech behemoths like Microsoft, NVIDIA, and Alphabet at prices lagging behind by weeks, if not months. The time is ripe to seize this moment before the AI surge draws the attention of a wider investor base.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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