One Step for “Crash Insurance,” 3X Your Dividends

Michael Foster, Investment Strategist
Updated: July 23, 2020

Here’s a critical mistake anyone can make while hunting for big dividends in a market like today’s: you can buy the right stocks at the right times—and still lose money!

2020 is a good example: even though the S&P 500 is back now positive on the year, you almost certainly suffered some degree of the following wipeout, no matter which stock you would have bought at the start of 2020:

The Headache of Going All in on Stocks

Ask anyone and they’ll likely say the market has been totally unhinged this year; bulls will say stocks shouldn’t have fallen as far as they did in March, and bears will say they shouldn’t have recovered so quickly. Wherever you stand, you may be right—eventually. But in the meantime, as the chart above shows, you can still lose by being right in a market that’s completely irrational.

Protect Your Income. Hedge Your Downside.

I want to show you a simple way to get around this problem. There are really just two steps: diversify beyond S&P 500 stocks and include another critical element—a high dividend yield. For this example, we’ll use a closed-end fund (CEF) yielding 5.2%, nearly triple the payout on your average S&P 500 stock.

That would be the BlackRock Taxable Municipal Bond Trust (BBN). BBN’s payouts aren’t tax-free, as is the case with most other municipal-bond CEFs, but it makes up for that with its low volatility, high, steady payout and history of strong returns. Check out BBN’s performance versus the benchmark iShares Municipal Bond ETF (MUB):

BBN Beats the Muni-Bond Index

Now let’s say we have a $100,000 portfolio with 80% in the S&P 500–tracking SPDR S&P 500 ETF (SPY) and 20% in BBN, originally bought three years ago.

And let’s also say we engaged in some portfolio rotation here, to show the value of active management: when the market fell in late 2018, we shifted to 100% in SPY to take advantage of the dip. Then, when the market got to its pre-crash level in mid-2019, we went back to an 80/20 split. Again at the start of the year, we went to 100% BBN and, finally, when the market crashed this year, we went back to our 80/20 split.

As you can see above, by diversifying into a fund that gets you a big income stream and rebalancing when markets get hot or cold, you end up with nearly $40,000 more than if you just stuck with the S&P 500.

This is the power of diversification and strong active management (like you get with a high-yield CEF), two critical elements for investment success, especially in a market as divorced from reality as 2020’s has been.

My 4 NEW CEF Picks Boast 9.4% Dividends, 20%+ Upside

A safe, diversified portfolio is exactly what you get with the 4 CEF picks I just released. They come from across the economy: utilities, REITs, blue-chip US stocks and more.

These 4 stout income plays pay an outsized 9.4% average dividend—and, thanks to their massive discounts, I’m calling for 20%+ price upside in the next 12 months, even if the market only moves up slightly from here.

And if stocks sell off again?

These 4 funds’ big discounts will help stabilize their prices, hedging our downside … and letting us enjoy their 9.4% dividends in peace! The best part is, they all boast strong human managers we can count on to make the right moves at the right times.

Click here for the full story on all 4 of these funds—names, tickers, dividend histories, my full, unvarnished take on management and everything else you need to buy with confidence.