3 funds for 10% dividends and a rapid rise

These days, I hear from many CEF investors who are struggling to find cheap dividends. If you are one of those people, I understand. In fact, I’m here with you!

Even for those of us who spend all our time daytime looking for CEF bargains this market has been a chore making it harder than ever to find high, reasonably priced dividends to recommend to you in CEF initiate.

(But we’re out of luck here. Today we’re going to take a look at three over 10% growers who speculative now plays, beyond the 13 recommendations to buy at attractive prices in our CEF insider portfolio, which I continue to recommend for the lion’s share of your CEF investments.)

From FECs to lumber, high prices are everywhere …

The reason for high CEF prices is the same as stocks, real estate, lumber, bikes, microchips – you name it: growing demand. Check out this list of the main CEF indices that we follow in CEF insider:

CEF take off

As you can see, each of them is up 10% or more, the buy-write sub-index (which tracks CEF stocks that generate additional income by selling options on their portfolios) up nearly 20%. These are big moves for relatively stable income-producing investments like FECs.

Discounts and dividends go down, but the buys are still there

This rapid increase has reduced CEF’s discounts to net asset value (NAV, or the value of stocks and bonds in their portfolios) to the lowest levels I’ve ever seen: just 1.8% as of this writing. these lines.

The rise in prices of CEFs also reduced their yields. Over the decade I have followed CEFs, their returns have averaged between 6.8% and 7.2%. As of July 23, 2021, the average CEF paid 6.1%. That’s still high compared to S&P 500 stocks (which are returning a pathetic 1.3% today), but it’s a low point for CEFs.

For those of us who have been investing in CEE for years, this is all great; we are taking advantage of Johnny-come-latelies, and will continue to do so.

And there are still opportunities. Which brings me back to those three more speculative CEFs that I mentioned up front.

… But these returns of over 10% are still available

Let’s start with the Clough Global Equity Fund (GLQ), which invests its $ 202 million of assets in a variety of stocks perfectly positioned for a reopening of the US economy, with Reserve assets (BKNG) as its largest position, followed by Royal Caribbean Group

RCL
(RCL), Carnival Corp. (CCL) and American Financial First (FAF), which is already benefiting from increased demand for single-family homes (FAF offers title insurance for homebuyers).

A broader shift in these stocks has driven up the GLQ this year, and they have room for further gains as more of the world gets vaccinated.

GLQ returns a large chunk of its profits to investors in the form of dividends, with a 10% return well above the CEF’s average of 6.1%.

For another return of nearly 10%, let’s look at GLQ’s sister fund, the Clough Global Opportunities Fund (GLO). The positions of the two funds are broadly similar, but with one key difference: GLO is more aggressive. While GLQ holds nearly 10% of its assets in cash and US government bonds to provide liquidity in the event of a crash, the 9.9% GLO is betting on assets that can maximize returns. This explains its gains of almost 20% so far this year.

That means this $ 404 million fund is earning nearly double its dividend, which secures payouts for now.

Pint Size Completes Our Double Digit Yield Portfolio Guggenheim Credit Allocation Fund (GGM), a $ 209 million FEC that uses its small size and institutional weight to strategically invest in places larger funds cannot.

Here is what I mean: GGM can lend money to small businesses like Cengage (CNGO) when they want to issue debt, which bigger bond funds just can’t do, because small business bonds won’t make them move the needle. Additionally, GGM’s management company Guggenheim claims $ 270 billion in assets under management, which makes it an important player in the markets, ideally positioned to find small opportunities that it can then pass on to this fund.

This is how GGM makes it possible to bring in 10.3% and gets profits from investors like this.

This 15% year-to-date return more than covers GGM’s dividend for the year, and its small fund advantages with a large fund allow it to continue paying those big dividends for a long time.

Michael Foster is the Senior Research Analyst for Contrary perspectives. For more great income ideas, click here for our latest report “Indestructible Income: 5 windfall funds with secure 7.3% dividends.“

Disclosure: none