As part of my research in the world of closed-end funds (CEFs), I often delve into the most effective strategies for achieving substantial dividends—frequently in the realm of double-digit yields—from CEFs that hold some of the market’s premier stocks.
Examples include powerhouse companies like Microsoft (MSFT), Apple (AAPL), and Visa (V), which are commonly found in equity CEFs.
However, mere acquisition of high-yield CEFs, which typically yield upwards of 7%, will not suffice. To maximize the potential of CEF investments, one must be prepared to allocate time and effort.
But what if I told you that I’ve done the legwork for you? I’m about to reveal a straightforward three-fund portfolio that you can create today, delivering a 7.7% income stream and the confidence to hold these funds for decades.
Let’s be candid: this isn’t the most outstanding or optimal CEF portfolio, given the 7.7% yield from a million-dollar investment may appear impressive, but seasoned CEF investors are accustomed to reaping much more. Nevertheless, the $77,000 return comfortably trumps the annual $13,200 from index funds like SPDR S&P 500 ETF Trust (SPY) or Vanguard S&P 500 ETF (VOO).
Furthermore, unlike stock-only funds, our “three-buy” portfolio offers exposure to these same firms and more, including municipal bonds, known for their low volatility and minimal default rate, as well as real estate, with a stake in thousands of properties through one of the funds I’m about to introduce.
So let’s delve into an investment portfolio that you can construct today with a simple click of the “buy” button on your brokerage firm’s website (these funds trade on exchanges during standard trading hours, similar to their well-known counterparts, ETFs).
High-Yield CEF Pick #1: A Century-Old Stock Fund
The Adams Diversified Equity Fund (ADX) has withstood the test of time, tracing its roots back to the pre-Great Depression era (launched in 1929) and is the oldest CEF globally, originating from the Adams Express Company which competed with Wells Fargo & Co. (WFC) during the Civil War.
ADX is mandated to pay out a minimum yield of 6% (currently yielding 6.9%), and at times, disburses even greater amounts via special year-end dividends. The fund’s extensive history implies that long-term stakeholders have earned returns measured by thousands of percentage points.
Acquire ADX now and, if you’re feeling especially cautious, expect a 6% yield on your investment. Meanwhile, a highly competent management team is handling high-quality stocks such as Microsoft, Apple, Visa, along with other prominent entities like Alphabet (GOOGL), NVIDIA (NVDA), Amazon.com (AMZN), UnitedHealth Group (UNH), and Procter & Gamble (PG), all of which are top-10 holdings.
These entities form the backbone of the US economy, and ADX provides exposure to all of them while ensuring a 6% payout that, as indicated earlier, its returns surpass by a substantial margin. A markdown of 14.5% to net asset value (NAV) seals the deal, effectively granting us access to its portfolio at 85 cents on the dollar.
High-Yield CEF Pick #2: No-Stress Muni Bonds
The Guggenheim Taxable Municipal Managed Duration Trust (GBAB) invests in a specialized category of bonds known as industrial revenue bonds (IRBs). These bonds offer higher yields as they are taxed, unlike traditional municipal bonds, resembling stock dividends or corporate bond income.
IRBs are issued by governmental bodies to foster the development of private-sector infrastructure projects that benefit the community, thereby using the income generated from these projects to fund the distributions made by the fund.
Given that infrastructure spending is one of the rare points of consensus between different political factions, it’s no surprise that GBAB can maintain a 9% yield. GBAB has even marginally increased payouts since its IPO over a decade ago, demonstrating the long-term sustainability of the fund’s dividends, irrespective of periods with high and low interest rates.
GBAB’s holdings, revenue-backed municipal bonds, are extremely secure as they are linked to income-generating projects vital for the community, such as new toll bridges and power plants. At any rate, GBAB has provided retirees with peace of mind for an extended period, particularly during times of profound market and political turmoil.
One consideration before making a move is that it currently trades at a 4.8% premium to NAV. Nonetheless, it has consistently dipped into discount territory, most recently in September 2023, so the wait may not be lengthy.
High-Yield CEF Pick #3: Easy Real Estate Income
If you’ve ever been a landlord, you know how thankless it can be. Having rented out properties in New York City, arguably one of the most challenging markets for landlords, I can relate to your frustrations.
My experience is precisely why I opt to abstain from managing real estate properties at present and leave it to professionals who oversee real estate investment trusts, or REITs—a type of firm that pools investor funds to purchase and manage properties. In turn, these investors receive a passive share of income from the rents that tenants pay.
A CEF like the Cohen & Steers Quality Income Realty Fund (RQI) aggregates over a hundred REITs to bolster your diversification while yielding an attractive 8.2%. Furthermore, it is currently available at a 5.7% discount.
The real estate component offsets your exposure to bonds and stocks, amalgamating properties into a mini-portfolio that offers an average 7.7% yield. These three funds also flaunt extensive track records, obviating the need for regular buying and selling.
These CEFs serve to illustrate how early retirement and a lofty passive income stream are not mere pipe dreams reserved solely for the ultra-wealthy; they have been a veritable reality for countless retirees over the years.
I Urge You to Buy These 7.8% Dividends Now—Before AI’s Coming “Second Act”
If you’re akin to most dividend investors, you’ve likely observed the soaring AI trend and resigned yourself to sitting on the sidelines. After all, AI’s superstar stocks—the likes of Microsoft and NVIDIA—yield minuscule returns, with NVIDIA offering a paltry 0.03% dividend.
Upon closer inspection, this seems preposterous considering the substantial profits these companies have generated since ChatGPT entered the mainstream in late 2022.
Nevertheless, there is a method for us to partake in robust dividends from AI’s remarkable growth. I’m referring to four overlooked AI funds that hold all the AI heavyweights, including Microsoft, NVIDIA, Alphabet, and an array of burgeoning AI firms, with one significant differentiator—the massive dividends. The average yield among these four “stealth” AI funds is a remarkable 7.8%, and all four are currently trading at discounted prices.
These opportunities will be short-lived as AI transitions from a concept to an indispensable facet of daily life, prompting an influx of investors eager to come on board. I’m poised to divulge all the salient details of this time-sensitive prospect to you now. Click here to obtain the full scoop on this rare AI dividend play and access a FREE Special Report detailing all four of these 7.8%-paying funds today.
Also see:
Warren Buffett Dividend Stocks
Dividend Growth Stocks: 25 Aristocrats
Future Dividend Aristocrats: Close Contenders
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
