What CEF Dividend Cuts Mean (It’s Not What You Expect)

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Plenty of CEF investors worry about dividend cuts. And for sure, they’re something to keep in mind. But CEFs are not the same as stocks. When we invest in high-quality CEFs, there are a couple other things we need to remember when we catch wind of a cut:

  1. High-quality CEFs will sometimes reduce payouts by a small amount so they can redeploy capital into oversold bargains. I’ll have more to say on this in a moment, but the upshot is that it holds the potential for us to make more in gains from this move than we lose in dividends.
  2. As mentioned, these cuts are usually small, reducing the yield only a small amount (again, we’ll demonstrate this below).

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’Tis the season for us contrarian income investors to “bottom fish” the bargain bin for dividend deals. Let’s grab these discounted generous payouts while we can—these are the best weeks of the year to secure 7%+ payouts in 2022 and beyond.

For the next week or two, unloved 7%+ paying closed-end funds (CEFs) will be sold in the spirit of “tax loss” season. Wealthy investors and money managers are looking for 2021 losers to book against recent gains.

And thanks to the epic sector rotation we’re seeing now, the dogs of ’21 are likely to become the darlings of ’22. Fortunately we can buy them cheap—and we can identify these values using a “one-click” CEF valuation tool.… Read more

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