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Posts Tagged ‘CEFs’

Creating Multiple Income Streams with CEFs

An income investor has several investments available to create income streams. Most turn to dividend stocks and bonds to create consistent cash flows for their living expenses. While both of these investments will provide income, there are additional vehicles to produce money flows. One I like to use is closed-end funds or CEFs. These investments trade like stocks with a market price and can be easily purchased during trading hours on all stock exchanges.

Investors have nearly 400 CEFs to choose from that pay monthly distributions (see listing included). Simply, an investor can create a diversified portfolio of CEFs to create monthly income. Most investors should look at selecting five or more CEFs in different investment categories or type of objective. There are cases with investors creating numerous CEFs such as 30 funds to average one paycheck per day. I guess you can call this one check per day or daily paychecks.

The 10-year Treasury note touched its second-lowest yield before regaining some ground to finish at around 1.51%. The 30-year Treasury was offering a yield of 2.234% last week.  Those meager yields mean that despite grousing about elevated stock valuations and poor corporate quarterly results, investors aren’t finding a lot of safe options to put their money and eke out a decent return. Bespoke statisticians say 41% of stocks on the S&P 500 offer a richer yield than the so-called long bond, or 30-year note. And more than 60% pay a better yield than the benchmark 10-year note. A great alternative is investing in CEFs.

CEFs have some differences compared to stocks such as they have a publically known net asset value or NAV. The NAV is the sum value of the funds holding or intrinsic value. The CEF may trade at a market value that us different than the NAV. This makes it easy for investors to determine if the fund is trading at a premium or discount to its true value or NAV. As an investor, you want to purchase CEFs at a discount to NAV as this can be like buying a $1 of assets for $0.90 or whatever the discount to NAV. Who doesn’t want to buy funds at a discounted price or on sale!

To create a successful CEF portfolio, an investor should create a diversified portfolio of monthly paying CEFs trading at a discount to NAV. The investor can reinvest some dividends to increase their payments over time. This investing strategy can be used to replace income from employment or to supplement other types of income.

The Western Asset Emerging Markets Debt Fund (ESD) is a closed-end fund that invests in bonds issued by emerging-market governments and corporations. As income investors, we love the 8.5% yield… And as value investors, we love that the fund is available for an 13% discount to its NAV. On top of that, bonds are traditionally safer investments than stocks, even in emerging markets. ESD has an extremely diverse portfolio of 235 different holdings. Its largest country allocation, Mexico, only accounts for 13% of its portfolio. And 97% of its holdings are denominated in U.S. dollars.

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Buy The Pullback – CEFs with 10% Yields

Recently, it has been more difficult to find high yield closed-end funds because the search for yield has increased the share prices.  Now is probably a good time to consider slowly picking up high yield CEFs that have pulled back with the market.  I reccomend you slowly add positions over time due to the negative market perception.  This perception is overblown due to politics and uncertainity of increasing interest rates. 

The VIX is the stock market’s fear gauge.  A falling VIX indicates investor complacency.  A rising VIX shows fear.    The spike in the VIX indicates that the market is due for a bounce.  Recently, the VIX closed above its upper Bollinger Band – indicating an extreme move in investor fear.  Of course, we all know the best time to buy stocks is when investors are scared – when they’re so frightened of potential losses, they’re willing to dump positions at “fire sale” prices.

I think this is a good time to enter or increase positions in monthly income stocks.  You may want to dollar-cost average into these positions over time.  Here is a list of CEFs with 10% or higher yield.

Click to enlarge

 

Monthly Income Investments with 10% Yields

It is getting difficult to find high yields in the closed-end funds (CEF) these days.  Below is a table with 5 potential candidates.  All of these CEFs trade at a premium except Alpine Total Dynamic Dividend (AOD) which is trading at a -3% discount.  PIMCO High Income is trading at a 52% premium of net asset value.  All of these CEFs pay monthly income.  These CEFs should remain on your watchlist.  If they pull back in price then you may enter a new position if you are seeking high yield investments.

Ticker Fund Name Closing Price NAV Distribution Premium /
Price Change Rate Discount
PHK PIMCO High Income Fund $13.72 ($0.06) $9.01 10.66% 52.28%
AOD Alpine Total Dynamic Dividend $6.19 ($0.02) $6.39 10.66% -3.13%
NCZ AGIC Convertible & Income II $9.63 ($0.02) $8.51 10.59% 13.13%
NCV AGIC Convertible & Income $10.36 ($0.07) $9.37 10.42% 10.62%
DHF Dreyfus High Yield Strategies $4.96 ($0.02) $4.17 10.40% 18.94%

 

PIMCO High Income Fund (the Fund) is a diversified, closed-end management investment company. The Fund’s primary investment objective is to seek high current income. Capital appreciation is a secondary objective. The Fund invests in a diversified portfolio of United States dollar-denominated debt obligations and other income-producing securities that are primarily rated below investment grade. The Fund seeks to invest at least 50% of its net assets in debt securities that are, at the time of purchase, rated below investment grade (below Baa by Moody’s Investors Service, Inc., below BBB by either Standard & Poor’s or Fitch, Inc., or unrated but judged by the investment manager to be of comparable quality), which may be represented by forward contracts or derivatives, such as options, futures contracts or swap agreements. Allianz Global Investors Fund Management LLC serves as the Fund’s investment manager. Its sub-advisor is Pacific Investment Management Company LLC.
Alpine Total Dynamic Dividend Fund (the Fund) is a diversified, closed-end investment company. The Fund’s investment objective is to invest in equity securities that provide high current dividend income. The Fund also focuses on long-term growth of capital as a secondary investment objective. In addition, the Fund has no limitations on the percentage of holdings that can be in either international or the United States companies. It invests in various sectors, including consumer discretionary, industrials, energy, information technology, materials, consumer staples, healthcare, financials, utilities and telecommunication services. Alpine Woods Capital Investors, LLC is the Fund’s investment adviser.
AGIC Convertible & Income Fund II (the Fund), formerly Nicholas-Applegate Convertible & Income Fund II, is a diversified, closed-end management investment company. The Fund’s investment objective is to provide total return through a combination of capital appreciation and high current income. It invests in a diversified portfolio of domestic convertible securities, and non-convertible, high-yield bonds rated below investment grade. It seeks to invest at least 50% of its portfolio in convertibles. The Fund invests in sectors, such as advertising, airlines, aerospace and defense, auto components, commercial services and supplies, construction and engineering, diversified financial services, healthcare providers and services, and telecommunications. Allianz Global Investors Fund Management LLC serves as the Fund’s investment manager and is an indirect, wholly owned subsidiary of Allianz Global Investors of America L.P.
AGIC Convertible & Income Fund (the Fund), formerly Nicholas-Applegate Convertible & Income Fund, is a diversified, closed-end management investment company. The Fund’s investment objective is to provide total return through a combination of capital appreciation and high current income. It invests in a diversified portfolio of domestic convertible securities and non-convertible, high-yield bonds rated below investment grade. It seeks to invest at least 50% of its portfolio in convertibles. It invests in sectors, such as advertising, apparel, auto components, banks, diversified financial services, entertainment, miscellaneous manufacturing and retail. Allianz Global Investors Fund Management LLC serves as the Fund’s investment manager and is an indirect, wholly owned subsidiary of Allianz Global Investors of America L.P. (Allianz Global). Its sub-advisors are Pacific Investment Management Company LLC, Allianz Global Investors Capital LLC and NFJ Investment Group LLC.
Dreyfus High Yield Strategies Fund (the Fund) is a non-diversified, closed-end management investment company. The Fund’s primary investment objective is to provide high current income by investing at least 65% of its total assets in income securities rated below investment grade. The fund also provides capital growth as a secondary objective. The Fund invests primarily in fixed-income securities of below investment-grade credit quality. Issuers of below investment-grade securities may include companies in early stages of development and companies with a highly leveraged financial structure. The Dreyfus Corporation (Dreyfus) serves as the Fund’s investment manager and administrator.

5 Closed-End Funds (ETFs) for Monthly Income

Yesterday, we discussed the Blueprint for Monthly Income about some rules to use for selecting monthly payers.  Today, we will look at 5 ETFs that pay monthly dividends.  These ETFs include various sectors and potential tax advantages.  You should review the ETFs before you commit to investing to make sure they are suitable to your income goal.  For example, there is little advantage to add a muni bond ETF to an IRA account.  The best posibility with these ETFs is to compound all or part of the income to create a growing income stream.  The five to watch include:

AGIC Convertible & Income: (NCV) – The Fund seeks total return with capital appreciation and high current income through investment in convertible and non convertible income producing securities. 

Price: $10.72

NAV: $9.50

Yield: 10.07%

                                                                                                                                                                                                                   Wells Fargo Adv Inc Opp: (EAD) – The Fund seeks current income and capital appreciation through investment in below investment grade debt securities, loans and preferred stocks.

Price: $10.55

NAV: $10.06

Yield: 9.67%

Helios Advantage Income: (HAV) – The Fund seeks high current income with capital appreciation through investment in non investment grade debt securities.

Price: $7.90

NAV: $8.50

Yield: 9.01%

Invesco Insured Muni Income: (IIM) – The Fund seeks current income exempt from Federal income tax through investment in insured investment grade municipal bonds.

Price: $14.29

NAV: $14.69

Yield: 6.13%

Reaves Utility Income: (UTG) – The Fund seeks high current income with capital appreciation through investment in domestic and foreign utility companies and various money market instruments. 

Price: $24.62

NAV: $24.29

Yield: 6.09%

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