Author Archive: Michael Foster

Investment Strategist

This Unusual “Dividend Merger” Could Deliver a 9.2% Payout

Michael Foster, Investment Strategist
Updated: May 6, 2021

Three of the most successful closed-end funds (CEFs) in history have done something unprecedented—both for the funds themselves and the company that manages them. They merged.

PIMCO is arguably the most successful CEF manager around, and investors know it: they’ve bid up almost all the company’s funds to premiums to net asset value, or NAV (in other words, their market prices are higher than the per-share value of their portfolios). 

The company has always kept its funds separate, even though they have many similarities, so it came as a surprise when it announced that its PIMCO Dynamic Credit and Mortgage Fund (PCI), PIMCO Dynamic Income Fund (PDI) and PIMCO Income Opportunities Fund (PKO) would be merged into the same fund.Read more

3 Clicks to $4,000 a Month in Dividend Income

Michael Foster, Investment Strategist
Updated: May 3, 2021

There’s a “retirement shortcut” far too many people ignore—and it could let you hang ’em up a lot sooner than you think (and with a lot more income, too).

Retirement Investing: Most People Go Wrong at Step 1

When it comes to retirement investing, most folks lean heavily on dividend-paying S&P 500 stocks, particularly those with above-average dividend yields. And if you don’t want to manage a blue-chip stock portfolio on your own, no problem: Wall Street has you covered with the many ETFs it offers.

But this is the wrong route for a number of reasons—the main one being lame dividends!… Read more

A Hidden (and Tax-Free) Way to Cash in on the $2-Trillion Infrastructure Boom

Michael Foster, Investment Strategist
Updated: April 29, 2021

Infrastructure spending is back in vogue, and we’ve got a chance to grab a piece of it tax-free.

That would be through municipal bonds, investments most people see as sleepy (though I have no idea why) but are poised to roll as President Biden’s $2-trillion infrastructure package (or some version of it) becomes law. That’s because the law will usher in an explosion of new “muni” bonds—and there are select actively managed closed-end funds (CEFs) ready to pick up the best ones.

By buying them now, we can nicely front run this muni-bond wave.

Tax Savings Can Boost Your Payout 20% (or More)

The best part of buying muni bonds (which are issued by states, cities and some non-profit entities, like hospitals, to fund infrastructure) is that the income they generate is 100% tax-free.… Read more

This Fund Crushed Investors’ Nest Eggs (Here’s How to Dodge the Same Fate)

Michael Foster, Investment Strategist
Updated: April 26, 2021

In investing, it pays to follow the old adage from Warren Buffett: never put your money in anything you don’t understand—especially if no one can explain it.

We’ve seen the consequences of ignoring that advice play out with a mutual fund called the Infinity Q Diversified Alpha Fund (IQDAX). If you’re not familiar with the story, IQDAX investors were sideswiped when an independent analysis of the fund showed it had lost $500 million.

Losses are part of the game in investing, of course, and the fact that the fund was worth $1.7 billion means it won’t go to zero because of this situation.… Read more

CEF Investors: Here’s What to Buy in This Levitating Market

Michael Foster, Investment Strategist
Updated: April 22, 2021

One of my favorite quotes about closed-end funds (CEFs) comes from Richard Thaler. When writing about why investors bought some CEFs for more than they’re worth, he simply said: “There are idiots,” and that this was “the only satisfactory answer to this … puzzle.”

That, er, very direct, quote comes to mind now because these days, it’s actually pretty easy to pick up CEFs (which yield around 7%, on average) trading at nice discounts to net asset value (NAV, or the value of their underlying holdings). There are literally hundreds of examples, some of them extreme.

The most discounted equity CEF trades at a whopping 26.7% discount as I write this.… Read more

A 3-Fund Portfolio for 10% Dividends

Michael Foster, Investment Strategist
Updated: April 19, 2021

This “stocks-up, yields-down” market is clobbering income investors. With stock prices floating higher, yields are crumbling to dust: with the 1.3% payout on the typical S&P 500 stock—a 20-year low—you’d need to invest $2.2 million to get just $2,500 a month in dividends!

(And let’s not forget that the typical S&P 500 stock pays dividends quarterly, not monthly, so your lame income stream would also be pretty lumpy!)

The 10-year Treasury note—long an income go-to—isn’t much better. With a 1.6% yield, you’d still need $1.8 mil to get that same $2,500 a month.

An Oasis in the (Dividend) Desert

Of course, none of this is a surprise to anyone who’s been investing for income over the last decade or so—it’s a slightly worse version of the same old story.… Read more

Why I’d Sell This 8% Dividend After 46% Gains

Michael Foster, Investment Strategist
Updated: April 15, 2021

Many people spot a closed-end fund (CEF) with a high dividend, a double-digit discount and a big recent price gain and automatically hit the buy button, thinking they’ve got a clear winner on their hands.

But you need to go deeper to make sure your pick is a solid one, as one CEF, the Clearbridge MLP and Midstream Fund (CEM), clearly demonstrates.

CEM holds shares of “midstream” master limited partnerships (MLPs)—or companies that operate pipelines and storage facilities for oil and gas. The fund sports a 12% discount to net asset value (NAV, or the value of the MLPs in its portfolio) today, as well as a 7.9% dividend.… Read more

These 7.3% Dividends Are Safe (If You Follow These 3 Steps)

Michael Foster, Investment Strategist
Updated: April 12, 2021

If you’re on the hunt for big dividends (and who isn’t these days?), closed-end funds (CEFs) must be on your shopping list. As I write this, there are more than 500 CEFs in existence, yielding an outsized 7.3%, on average.

Compare that to the yield on the typical S&P 500 stock: a measly 1.4%!

Ten-Year Treasuries? A still-pathetic 1.7%, even after their recent big jump.

But as dividend-rich as CEFs are, some do cut their payouts sometimes, just like any other dividend-paying investment. (Though the good news here is that, even after a cut, a CEF’s yield will almost certainly crush that of a typical stock, because CEFs’ payouts are so large to begin with.)… Read more

This 5.2% Dividend Is 40% Off (Should You Buy?)

Michael Foster, Investment Strategist
Updated: April 8, 2021

One of the things we contrarian income seekers love about closed-end funds (CEFs) is that they often sell for less than what they’re worth.

CEFs’ discounts are especially appealing these days, as the market levitates into the stratosphere. Because when you buy stocks through a CEF trading at, say, a 10% discount to net asset value (NAV, or the value of the investments in its portfolio), you can get into great companies like Apple (AAPL), Microsoft (MSFT) or Visa (V) for 90 cents on the dollar.

This is a great trick—one you can’t find in ETFs or mutual funds. Plus, CEFs yield 7.3%, on average, today, so you get a monster payout in addition to your discount.… Read more

This 5.5% Dividend Will Profit From Last Week’s Hedge Fund Blowup

Michael Foster, Investment Strategist
Updated: April 5, 2021

This mess with Archegos Capital Management has shone a light on the use of leverage in investing. And it’s particularly relevant (in a good way!) to investors in high-yield closed-end funds (CEFs).

That’s because it:

  1. Clearly shows the difference between gambling (what Archegos was doing) and investing in smartly run, value-focused high-yield funds (what we do), and …
  2. Highlights a key misconception about leverage we can take advantage of. (We’ll look at a 5.5%-yielding fund that profits from a methodical use of leverage in a moment.)

Archegos, if you’re not familiar, is a hedge fund that had (until last week) $30 billion in positions in several stocks, including ViacomCBS (VIAC), Discovery Inc.Read more