The Amazing 10.9% Dividend Left for Dead (time to buy)

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Today I’m doing something unusual: I’m changing my call on a popular closed-end fund (CEF).

Why?

Because this fund has gone on sale, and it’s just too good of a deal to overlook. If history is any guide—and with this fund it almost always is—it’s in for some nice upside very soon. In the meantime, buyers will grab a hefty and safe 10.9% cash dividend!

So if you dropped, say, $100k into this fund tomorrow, you’d get nearly 11% of your investment back—in cash—just one year from now (and I should also mention that it pays dividends monthly, too).…
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If you take the mainstream financial media at face value, you might be under the impression that all high yield bonds are in big trouble with interest rates on the move.

Wrong.

The best bond portfolios haven’t actually budged since the recent market insanity began. Take, for example, our favorite PIMCO play. Its net asset value (NAV, the actual market value of its holdings) held steady while the stock market was dropping sharply:

What Crash? This NAV is Steady

The fund’s price, meanwhile, eased down 2.2% from peak to trough. But we shouldn’t confuse price with value – we should focus on the latter, which is a more accurate measure for investing profits.…
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In investing, it’s just as important to know what to buy as what to avoid.

And if there’s one thing you need to keep away from at all costs, it’s a dividend cut like the huge 50.6% slash the PIMCO Global StocksPLUS & Income Fund (PGP) announced on January 2.

It caught first-level investors completely off guard (though it shouldn’t have, as I’ll explain in a moment).

Here’s how they responded:

And Down She Goes

If you’re a regular reader of my articles on ContrarianOutlook.com, you’ll recognize PGP, a PIMCO fund that mixes stocks and bonds to give investors the biggest dividend possible.…
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Closed-end fund (CEF) investors are going crazy again. This time, they’re grossly overpaying.

Today we’ll discuss five incredibly popular funds that are not likely to become more celebrated, and should be sold immediately.

Yes, first-level income hounds can be as greedy as they are fearful. In January 2016, they wanted nothing to do with CEFs. Exactly when many funds were about to embark on an 18-month tear!

Yet today, they’re willing to pay $1.49 for just $1 in assets. This is a recipe to lose money. Or at best, see your portfolio trade sideways.

This Discount/Premium as Margin of Safety (or Lack Thereof)

CEFs, unlike their mutual fund cousins, have fixed share counts.…
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Something tragic happened at the start of this month—but it’s such a familiar tragedy that no one should have been surprised.

If you held the PIMCO CA Municipal Income III Fund (PZC), however, I bet you were surprised—and now you might be panicking. A closed-end fund (CEF) that was soaring for months all of a sudden crashed, going from being up 12% year-to-date to down 2.8%:

Look Out Below

Until July 3, PZC was one of the best-performing municipal-bond funds in the world. While the CEF Insider Tax-Free Bond Index was up 6.1%, PZC had nearly doubled it, gaining a stunning 11.6%.…
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At the start of June, I warned investors to avoid a certain fund like the plague.

It’s down almost 10% since then.

Of course, anyone long the fund was turning a blind eye to the very real dangers lurking behind it. Today I want to talk about the mistake they made and how we can avoid repeating this blunder in the future.

First, let me tell you what fund I’m talking about. It’s run by one of the greatest investment companies in the world, with one of the best track records out there; in fact, it’s one of the few companies that has consistently beaten the market for over a decade across most of its investments.…
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My friend is a young 41-year old millionaire. And the poor guy is basically broke!

Meanwhile there’s a conservative yet savvy grandma in the Midwest raking in more monthly income than my boy, on a modest $387,000 in savings.

What’s her secret? We’ll get to that in a minute. First, let’s lament my man’s millionaire curse.

His stash of cash does him no good, other than giving him something to worry about. His million-dollar problem? He doesn’t know how to turn his green pile into a steady, sustainable income stream.

And since he believes in efficient markets, he has no interest in exploring investments that could pay him 7% or 8% annually – providing him with $75,000+ in yearly income while leaving his capital intact (or better than intact) to boot.…
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It’s a complaint I hear about closed-end funds all the time: they charge high fees but still underperform the market.

To be honest, this is true of some funds—but not all of them. In fact, some CEFs have racked up breathtaking returns far bigger than those of the market as a whole.

I’ve written about funds that have beaten the benchmark index before, such as the 14 funds that crush Vanguard’s passive funds while also offering superior dividend yields.

Then there are the actively managed Vanguard funds that beat Vanguard’s own passive funds and have done so for years. And of course, CEF Insider subscribers know of several closed-end funds that have beaten the S&P 500 for a decade or longer and are still outperforming.…
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So far, 2017 is shaping up to be a great year for US stocks, but there are plenty of funds that are doing much better than your typical passive index fund.

In fact, some funds are so hot that they’ve already shot up over 30% in 2017 and show little sign of slowing down.

Two big trends are at work here, and each has far-reaching implications, not only for these funds but for the economy and stock market as a whole. Both are also extremely important trends that few investors truly understand.

What am I talking about? The US dollar’s weakness and the future of rising interest rates.…
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Stocks are going gangbusters, but some closed-end funds—including three I’m going to tell you about below—have gotten way ahead of the market.

That means it’s time to sell. Yesterday.

But don’t let that turn you off the whole CEF space. Truth is, there’s still a treasure trove of hidden gems here, including some that crush the S&P 500 while paying incredible 7%+ dividends. It’s just that investors sometimes go overboard and bid certain CEFs above their actual value.

How is this possible?

Because unlike ETFs and mutual funds, which always trade at or near their net asset value (NAV, or what a fund’s underlying assets are worth), CEFs often trade at big premiums or discounts to NAV.…
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About Author

Brett

Hi, I’m Brett Owens – and I’m a financial junkie. My “problem” started incollege, when I got a little dose of the stock market – man, was I hooked…in no time, I was reading the Wall Street Journal religously.

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