Closed-end funds (CEFs) offer investors high dividends and upside potential, but they are often overlooked by income investors. With an average yield of 8.4%, CEFs invest in assets like stocks, bonds, and real estate, distributing profits as dividends. One example is the Virtus Dividend Value Fund (NFJ), which has increased its payout since its inception over a decade ago. NFJ, which yields 9% currently, achieves this by translating portfolio profits into income through strategic selling of stocks and special dividends.
Rather than investing in master limited partnerships (MLPs) or royalty trusts, which can be more complicated and volatile, investors can consider equity-focused CEFs like NFJ for high income and diversified stock holdings. CEFs like NFJ allow investors to stay invested in the stock market while earning a sizable income stream. Additionally, CEFs like the BlackRock Science and Technology Trust (BST) offer strong income potential from tech stocks like NVIDIA, Microsoft, and Apple, with BST raising its payout by over 150% since inception nearly a decade ago.
Investors can potentially benefit from buying CEFs at a discount to their net asset value (NAV), as this can lead to future profits when the market corrects and discounts shrink. For example, NFJ currently trades at a 13.5% discount, making it a cheaper option compared to BST, which has a 1.8% discount. Buying CEFs at a discount when fear is high and selling when greed returns can result in significant gains for investors. By understanding the potential of CEFs for income generation and capital appreciation, investors can make informed decisions to enhance their investment portfolios.
In conclusion, CEFs offer a unique opportunity for income investors seeking high dividends and diversified holdings. By investing in CEFs like NFJ and BST, investors can benefit from consistent income streams and potential capital appreciation. With hundreds of CEFs available in the market, investors have the opportunity to select funds that align with their investment goals and risk tolerance. By leveraging the closed structure of CEFs and buying at a discount to NAV, investors can maximize their returns and build a resilient income portfolio for the future.
