When it comes to high-yield closed-end funds (CEFs), I’m a big fan of the “three Ds”: discounts, diversification and — of course — dividends!
These days, a “3D” portfolio is a snap to put together, with CEF dividends at multi-year highs and oversold discounts everywhere across the asset class.
Below, we’ll look at a three-fund, bargain-priced “3D” CEF portfolio you can buy today. It yields 8% now and gives you the diversification you need to reduce your volatility — and collect your payouts in peace.
I know that preaching diversification at a time when bonds, stocks and everything else is down might sound a bit outdated, but over time, this time-tested strategy always pays off. As we’ll see below, the assets held by one of these three funds are basically flat this year — a performance many folks who staked it all on profitless tech stocks would love to have right now!
“3D” CEF No. 1: An Oversold Global Titan Throwing Off an 8.1% Payout
Members of my CEF Insider research service will recognize the BlackRock Enhanced Dividend Trust (NYSE: BGY). It’s been a favorite of mine for years, largely because of its management team: BlackRock isn’t just a big Wall Street institution, it’s the biggest money manager in the world.
It’s hard to get your head around the amount of cash the company administers: its $10 trillion in assets equates to half of America’s annual GDP and a tenth of the entire planet’s GDP! BlackRock is so big that it has access to talent and research resources that individual investors can only dream of.
That’s important for a fund like BGY, which holds companies in Europe, Asia, Latin America and the U.S. With overseas stocks like AstraZeneca (AZN), Sanofi (SAN), Diageo (DGE) and Taiwan Semiconductor Manufacturing among its top holdings, BGY gives you exposure to a variety of assets that aren’t always easy for Americans to buy. It then turns profits from these holdings into dividends that have remained steady for four years—right through the pandemic (and now rising-rate) panics.
BGY’s “Third D”: A Big Discount
The kicker? BGY trades at a 10% discount to net asset value (NAV, or the value of its portfolio), much lower than its long-term average. Get BGY now, collect the income and wait for the discount to shrink for more gains as investors realize how oversold this well-managed and diversified fund is.
“3D” CEF No. 2: A “One-Stop” Real Estate Fund Yielding 7%
I have written glowingly about the real estate-focused Cohen & Steers Quality Income Realty Fund (NYSE: RQI) numerous times in the past, like in December 2020, when I said its 8% dividend yield was an obvious reason to pick it up. RQI has demolished the market since then and is still up solidly, even after the latest crash.
RQI Still Ahead
Now is another time to buy the now 7%-yielding RQI (its yield has gone down because its price has gone up), thanks to the market’s wide sell-off of real estate, which took down quality assets that still hold tremendous rental-income potential.
RQI’s biggest holdings are some of the most lucrative real estate properties out there — American Tower Corp. (NYSE: AMT), which profits from our strengthening cell phone addiction, and self-storage REIT Public Storage (NYSE: PSA), which profits during boom times (when consumers buy more stuff and need somewhere to store it) and recessions (when people downsize — and need to store their stuff).
Meantime, RQI has wisely snapped up shares of warehousing and logistics-focused Prologis Inc. (NYSE: PLD), which will continue to benefit from the long-term growth of e-commerce. There’s no reason why these firms should be oversold, but they are, which makes RQI more than worthy of your attention now.
These holdings, and the fund’s 183 other investments, get you tremendous diversification, not just among a bunch of firms, but also the many thousands of different real estate holdings those companies own, making RQI about as robust as it can be.
“3D” CEF No. 3: Beat the Energy Panic With GUTs
Soaring energy prices have made some investors skittish about utilities, many of which use pricier commodities — mainly natural gas — to generate power. But keep in mind that utilities have almost broken even in 2022, going by the performance of the sector benchmark Utilities Select Sector SPDR ETF (NYSE: XLU), at a time when the market keeps flirting with bear territory.
Consistent Income Keeps Utilities Afloat
There’s really no more compelling evidence of how important diversification is than this chart. But we can do much better than XLU with a CEF called the Gabelli Utilities Trust (NYSE: GUT).
GUT Blows Past the Index
Not only has GUT consistently chosen winning utilities for over 20 years now, but its 8.2% dividend yield is extremely compelling.
Plus, GUT has spread its investments around, with over 200 holdings from a variety of utility firms, including NextEra Energy Inc. (NYSE: NEE) to Duke Energy Corp. (NYSE: DUK), as well as some exposure to the oil and gas production, through companies that run utilities and produce these commodities, like National Fuel Gas Co. (NYSE: NFG).
“3D” Portfolio: Volatility Buffer While You Collect Your 8% Dividend
Put these three CEFs together and you’ve got a portfolio spanning the globe, covering America’s premier real estate properties and including the utilities that make America hum. These firms aren’t going anywhere — even if they’ve been oversold by a panicky market.