Our Favorite CEF’s NAV Just Dropped: Buy, Hold, or Sell?

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Our Favorite CEF’s NAV Just Dropped: Buy, Hold, or Sell?

“There it is – Freddo’s Ice Cream. It should be right next door,” I half-heartedly explained to my wife.

And with feigned confidence, I added, “I’ll be right back.”

I crossed the street once, then again… and walked up toward this monolith:

I didn’t see a teller window, so I walked around into the ice cream shop. Maybe that was the entrance.

Nope, just a wall. So I circled back, and the door on the left “buzzed” at me. I tried to pull it open—to no avail.

It buzzed again. I tried pushing this time, and it opened. Inside there were two teller windows, both guarded by bulletproof glass.… Read more

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The Perfect Income Portfolio: Take Your 2% Dividends Up to 8%

If this were any “normal” time, we’d be able to buy safe bonds and collect enough income on our nest egg to fund our retirements. Unfortunately, this is the “new normal” where the Fed is not the friend of us current and hopeful retirees!

Jay Powell is afraid for his job, which means he’s going to cut rates and keep them low for a long time. This means we must look beyond traditional bonds for meaningful income.

What about blue chip dividend-paying stocks? Well, an 11-year stock market rally has ruined that idea. Anyone putting new money in a pricey dividend aristocrat is “buying and hoping” that the stock continues to levitate while the firm dishes its dividend.… Read more

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I Love CEFs – But I Hate These 212 Loser Funds

Closed-end funds (CEFs) are increasingly becoming favorites of retirees looking for income. And why not? Many pay 5%, 6% and even 7% or more today. In a world where stocks yield 2% and bonds just 3% or so, the extra dividends can be the key to a comfortable retirement.

The “closed” in CEF technically means that the fund’s pool of shares is fixed. Which is why these vehicles can have wild price swings above and below the values of their actual assets. (Good for us contrarian income seekers – we can buy below fair value to maximize our yields and upside.)

They are also closed in their actual communications with the financial world.… Read more

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How to Turn A 6.9% Yield into a 16% Annual Dividend

A crazy stock market is perfect for covered call writers. When volatility is high, so are option premiums, which means this popular income strategy should be a profitable one throughout 2019.

New to covered calls? Here’s how they work:

  1. You buy at least 100 shares of a stock or fund. You now own these outright. (Why 100? Because one covered call contract covers 100 shares of underlying stock.)
  2. You then sell (“write”) covered calls at a price around or above the stock’s current price for additional income. In doing so, you are agreeing to sell the stock at that price – the “strike” – in exchange for money today.

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These 1-Click “Dividend Machines” Yield 8.8% with 56% Upside

Certain closed-end fund (CEF) investors are getting a little desperate for dividends. It’s tough to blame them for reaching for 5%, 6% and even 7%+ yields in a 2% to 3% world.

But by grossly overpaying for funds, they are risking too much capital to bank these payouts. If you own any of the five popular funds I’m about to call out, you should consider selling them immediately.

(There are bargain replacements, after all. I’m talking about funds trading as cheap as $0.88 on the dollar and yielding 7.2%. We’ll discuss specifics in a moment.)

“First-level” income seekers can be greedy one minute and fearful the next.… Read more

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How to Buy Rate-Proof and Crash-Proof 8%+ Bonds

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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3 CEF Traps (237 Funds in Total) You Must Avoid

The term closed-end fund (CEF) is a bit of a double entendre. An unintended one, I’m sure – and one we can leverage for safe 6%, 7% and even 8% yields with upside to boot.

The “closed” in CEF technically means that the fund’s number of shares are fixed. Which is why these vehicles can have wild price swings above and below the values of their actual assets. (Good for us contrarian income seekers – we can buy below fair value to maximize our yields and upside.)

They are also closed in their actual communications with the financial world. Fund information is often limited (sometimes to one-page fact sheets) and it’s difficult to get management to talk to you.…
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4 “Safe” Dividends That are Anything But

Don’t take any stated yields for granted these days! The financial news has been flooded with dividend cuts lately, with Teva Pharmaceutical (TEVA) and Mattel (MAT) taking the hatchet to their payouts, and telecom Windstream (WIN) dropping its dividend too.

It’s dangerous to buy headline yields – or even supposedly “safe” blue chips with more modest dividends – without looking at the profits funding these payouts. Companies with high payout ratios (how much in earnings, funds from operations and other measures a company pays out in the form of dividends) are a twofold risk:

  1. High payout ratios can lead to a slowing in dividend growth, which means your payout is increasingly likely to fall behind inflation.

…
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This Last Safe 10% Bond Yield Won’t Last Long

Is there a bond bubble? There’s certainly more froth than not, with investors recklessly reaching for the riskiest of yields.

But there’s one last 10% dividend on the board worthy of our consideration. It’s available thanks to investors’ misunderstanding (and laziness) – we’ll discuss details in a minute.

But first, let’s review three key rules that will help us navigate this budding bond bubble.

Rule #1: Maximize Your Upside

Our favorite second-level thinker Howard Marks noted in an op-ed for Barron’s that Netflix (NFLX) bond buyers – who recently scooped up €1.3 billion of Eurobonds paying just 3.625% – might have exposed themselves to significant downside without much upside.…
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