A nice thing – and probably the nothing but The nice thing about the market sell-off in 2022 is that it has given us dividend investors the opportunity to achieve 10% returns that we can count on in the long run.
They come to us from closed-end funds (CEFs), a (too) long-neglected asset class that frankly looks better and better every day for those who want to retire on dividends alone – and frankly, we all should be.
I do want to emphasize the long term here, though, because at this stage of the market correction, you can put some money to work effectively, either by raising individual funds here and there or by building dollar cost averaging (DCA) into your increase revenue stream (and portfolio) at a reasonable cost.
To understand what I mean, think back to the recession of 2008. If you had started buying then, regardless of the stage of the crash, you would be fine today, 14 years later, even with the 2022 tire fire. used to be.
CEFs put you in a better position because you receive a large portion of your returns in cash. The three funds listed below can give you a return of around 10%, which equates to $100 a month in passive income for every $12,000 you put into them. Bring that investment up to $600,000 and suddenly you’re getting over $5,000 a month in passive income just for holding three funds you own diversify across hundreds of companies and thousands of assets.
Then there’s the upside: The deep net asset value (NAV) discounts these funds boast are a plus in any market – if stocks continue to rise, these discounts should disappear, pushing their market prices higher. In a declining market, a broad discount helps maintain a fund’s price as it attracts bargain hunters.
That is the strategy at play here. Now let’s talk about tickers.
Start with a 9.7% return from Small Cap Tech…
The black rock
In addition to smaller techs like Monolithic Energy Systems (MPWR), Biotechnology
BlackRock, the world’s largest investment firm, oversees this portfolio of large, medium and small companies, and the company’s in-depth research resources and strong talent base help it maintain its 9.7% payout, while exposing you to 88 high-quality companies at the same time.
… Then add a CEF real estate trade with 12% discount …
Even with the work-from-home revolution, real estate demand has soared, causing many commercial and residential properties to appreciate in value. That’s partly due to people looking to move to the suburbs or small towns and partly due to the demand for different types of office space to suit the post-COVID work culture. This is why a fund like the CBRE Global Real Estate Income Fund (IGR) is now worth a closer look.
Attractive are the dividend yield of IGR (9.6%) and the discount (3.7%), the latter of which is lower than the 1% discount traded in mid-June. The fund’s portfolio is backed by a portfolio of 86 different real estate investment trusts (REITs), which themselves own hundreds, sometimes thousands, of different properties in the US and around the world.
CBRE is one of the world’s largest real estate investors, with offices in all countries where it invests, giving it a wealth of hands-on experience. Buy these and you essentially become a global landlord without having to do the work that “regular” landlords do. And you will also receive a 9.6% dividend!
… Finally, think of this ESG game as a short-term purchase based on discounts
The Nuveen Core Plus Impact Fund (NPCT) is one of the most interesting CEFs out there. With an ESG mandate, it focuses on making sustainable investments from an environmental, social and governance perspective through companies such as Renewable energy
However, that hasn’t quite happened yet. With a 12.3% discount on the NAV, NPCT has seen a limited buy-in. But there’s a good reason for that: the fund was launched in mid-2021 and got off to a good start.
NPCT’s ESG focus did not detract from returns, and the fund far outperformed the broader high-yield corporate bond market. But when the bear market hit corporate bonds in 2022, the fund’s discount to net asset value fell, although we see it starting to bounce back.
Buying into a fund whose discount shows upward momentum is a proven way to build wealth in CEFs. If NPCT’s discount reaches the 2% it traded at when the fund outperformed the market, we could see 11% capital gains on top of the fund’s 10.2% dividend. That would come on top of capital gains from the rising value of his portfolio, which has already seen a recovery of nearly 7% since the market’s last bottom in June.
All in all, we’re looking at the potential of a 40% total return in the near term if NPCT continues its current trajectory – and the strength of the ESG trend (at least for now) suggests that this kind of gain could be on the table.
But also remember that interest in ESG tends to increase and decrease with the broader economy, so this may not be the long-term position that the above two funds are. You want to keep a close eye on NPCT and be ready to sell if the declining discount gets stuck or changes course.
Putting it all together
These three funds give you a wide spread across stocks, bonds and real estate, with an added touch of trending ESG investments. Plus, you’re getting an outrageous return of 10%, and I think you’ll agree that such a large payout is attractive in any market, including today’s.
Michael Foster is the principal research analyst for: Contrary Outlook. For more great income ideas, click here for our latest report »Indestructible Income: 5 bargain funds with safe 8.4% dividends.”