Buy This, Not That: These 7%+ Alternatives Crush High Yielding Stocks

Michael Foster, Investment Strategist
Updated: October 8, 2020

The market’s fall pullback is starting to reverse itself, but don’t worry: there are still bargain dividend payers yielding 7.4%+ dividends to be had out there.

But investing (along with everything in our lives!) has changed. You simply won’t get safe, high payouts by clutching to old habits and buying big-name, high-yielding S&P 500 stocks. The real dividend bargains are in closed-end funds (CEFs), which give you higher payouts, greater safety and often better returns over the long haul.

To show you what I mean, let’s line up three S&P 500 “dividend darlings” against the CEF competition and see how they compare. (Spoiler: it’s a blowout win for CEFs!)

AT&T: Big Dividend Lousy Return

AT&T (T) is a stock so old my grandmother has had it in her portfolio since before my mother was born. Ma Bell has been known as a huge income producer, with enticing 5%+ yields; today the stock’s yield is above 7%.

Such a big payout sounds like a slam dunk, so why not pick it up? To be honest, there are many reasons why this would be a bad move.

For one, AT&T’s net income fell 25% in 2019 from the prior year and has so far fallen 31.1% in 2020. As well, the company’s assets are barely growing as fast as its debts. Even if we ignored all of that, AT&T has badly underperformed the market over the long haul, even when you include its dividend:

AT&T Lags the Index, Even With Its Big Dividend

The stock has done much worse than the alternative I’d suggest: the Liberty All-Star Growth Fund (ASG), which is full of companies that have beaten AT&T over the long haul, like (AMZN), Microsoft (MSFT) and Alphabet (GOOG). 

Source: Liberty All-Star Growth Fund June 30, 2020, quarterly update

Plus, ASG gives you much more diversification than buying a single telecom stock: the fund boasts 121 holdings spread over a range of sectors.

Source: Liberty All-Star Growth Fund June 30, 2020, quarterly update

ASG’s timely stock selection has helped it dominate over the last 10 years, returning 329% to the S&P 500’s 256% and AT&T’s 72%. ASG also pays a 7.4% dividend, which is above AT&T’s payout, so you can lock in that big income stream while also buying into companies that are doing much better than AT&T.

Sometimes it’s hard to give up what seems like a winning play—which is why my grandmother has ignored my advice to sell AT&T for over a decade. But when we hold onto old beliefs in investing, we give up the big profits that emerging technologies provide. Just ask anyone who bought Amazon or Apple (AAPL) in the ’90s.

Tobacco Stocks: All Smoke, No Fire

Speaking of clutching to old beliefs, let’s talk about tobacco stocks, whose high yields—Philip Morris International (PM) pays 6.3% today, while Altria Group (MO), yields 8.7%—have always lured some investors in.

But of course, smoking has been on the outs for decades. And even the vaping fad, which is already fading fast, couldn’t help these companies. Over the last decade, both stocks have struggled to provide reliable returns, even with dividends included:

Cigarette Makers Leave Investors Cold

That’s why you’re better off with a CEF like the Gabelli Equity Trust (GAB). Its manager, famed value investor Mario Gabelli, has built GAB on sound principles of fundamental investing and buying high-quality stocks that are oversold. That’s a far better strategy than buying companies like Philip Morris, which are cheap for a reason—their businesses are shrinking.

GAB’s diversified portfolio is a healthier option, with stocks like PepsiCo (PEP), which deftly pivoted to healthy drinks, bottled water and snacks when consumers got more health-conscious. This shows you that Gabelli not only identifies companies that are cheap but also firms that can adjust to changing tastes. And that’s why GAB wipes the floor with the cigarette makers when we look at profits and payouts.

Gabelli Extinguishes PM and MO

Plus, GAB pays out a lot more. Its yield is 11.7% now—far more than either tobacco stock pays, and with much more diversification, too.

These Incredible CEFs Make Money 98.4% of the Time

Here’s something that I think you’ll love about CEFs: just by adding these proven income plays to your portfolio, you’re going a long way to cutting your risk of loss over time.

Because get this: of the 326 CEFs that are a decade old (or older), only 16 have lost money in the last 10 years.

That’s a 95% win rate!

There’s more: of the 16 CEFs that did lose money, all but 5 were in the energy sector. Dump those 11 laggards and these CEFs’ win rate jumps to an incredible 98.4%!

And because these statistics include dividends, as I said above, you’re getting much of your return IN CASH. And with the average CEF yielding just over 7% as I write this, these funds can pay your bills through a crisis. Thanks to those payouts, you may not have to sell a single share to generate the income you need.

My 5 Top CEFs Could Pay You $41,000 in Dividends in Just 12 Months

The best news is, my 5 top CEFs to buy now yield an outsized 8.2% today, and thanks to their completely bizarre discounts to net asset value (NAV, or the value of their underlying portfolios), they’re primed to jump 20%+ in the next 12 months.

A $500K nest egg generates $41,000 in dividends! And that’s before you even consider the price upside on offer here.

Don’t miss your chance to pick up these 5 remarkable funds while they’re still cheap. Get everything you need to know—names, tickers, complete dividend histories and more—right now.