These 8.9% Dividends Are Shockingly Cheap Following the Crash

Michael Foster, Investment Strategist
Updated: November 5, 2018

If you’re still fearful about stocks as we pick up the pieces from the market’s grim October, let me ease your mind with one chart:

Stocks Still a Long-Term Winner

As you can see, that’s the market’s return over the last 10 years. As you can also see, stocks have returned nearly 2.5 times a person’s original investment in just a decade! Few other investments can make that claim.

The real problem? Income.

The average S&P 500 stock pays a lousy 1.9%, but let’s say you need 8% of your portfolio in monthly income to pay your bills in retirement. If you buy the popular SPDR S&P 500 ETF (SPY) and withdraw 8% monthly, you’ll be forced to sell in a falling market like the one we’ve seen. That will amplify your losses without letting you take advantage of the market’s tendency to snap back.

Fortunately, there’s a better way. You just need to buy a fund that doesn’t need to sell holdings to maintain that 8% income stream.

Sounds impossible, right? It isn’t. In fact, there’s a group of closed-end funds (CEFs) that’s designed to do just that: provide reliable income with minimal portfolio turnover, especially during moments of market weakness, where fund managers are scooping up deals left and right.

The key is to find a safe, reliable sector that provides a high income stream and doesn’t go down every time the market does. That sector exists: utilities.

In the last month, every single sector has fallen, even the supposedly safe and defensive consumer staples sector, with only one exception: utilities.

Utilities Buck the Trend

The reason for this is straightforward: with the markets (wrongly) panicking that the economy is about to take a turn for the worse, there’s a sudden thirst for reliable income, and utilities have provided that for decades.

This does mean that the Utilities SPDR ETF (XLU) and its 3.4% dividend yield are particularly compelling right now, but don’t settle for that; we can do much better with 10 CEFs that more than double up XLU’s payout.

The average income from a utility CEF right now is a whopping 8.5%, or two and a half times greater than what XLU pays. So a $100,000 investment would get you $708.33 per month in income from these CEFs, much better than the $283.33 you’d get from XLU.

Utility CEFs Deliver Big Dividends

Source: Contrarian Outlook / CEF Insider

What’s more, all but one of these funds have impressive long-term annualized returns of over 6%, with 4 delivering double-digit returns over the long haul:

Strong Returns Across the Board

In fact, 4 of these funds have beaten the S&P 500, and half of them have beaten the utilities index fund. But even that strong track record isn’t the best reason to buy these funds now.

With two (very big!) exceptions, all of these funds are priced at a discount to their net asset value (NAV), meaning you’re buying their holdings for less than their true intrinsic value. Three of these funds have double-digit discounts:

Utility CEFs Are on Sale (except for 2)

Source: Contrarian Outlook / CEF Insider

While GUT and DNP might best be avoided right now because of their high premiums, the combined big discounts and strong long-term returns with MGU, UTF, MFD and UTG make them all attractive buys. On top of that, buying these 4 funds would get you a diversified utility portfolio with a whopping 8.9% yield—even higher than the average yield for all utility CEFs.

5 More “Pullback-Proof” Dividends to Buy on This Dip

If you want to survive (and thrive) in this schizophrenic market, you need a portfolio that keeps your capital safe while paying you an outsized 8%+ dividend.

But don’t take my word for it: ask our lucky utility CEF buyers, who are pocketing payouts this size and may well have wondered what all the fuss has been in the last month!

Lucky for us, these 10 utility CEFs aren’t the only way for us to get in on this placid combo of nest-egg protection and huge dividends. I’ve got 5 other funds for you that throw off 8%+ payouts but much larger discounts than our utility “10 pack.”

Heads You Win, Tails You Win

In fact, these 5 funds’ discounts are so ridiculous that I expect each of them to simply trade flat the next time the market falls on its face. Plus those huge markdowns set us up for market-crushing gains when stocks ignite!

Either way, we’ll collect their outsized 8%+ cash dividends in peace, happy in the knowledge that our nest egg is protected. And with the next market wobble likely just days away, the time to buy these 5 proven “lifeboats” is now.

I just released the full story on these 5 “pullback-proof” dividends, and I can’t wait to show them to you. Just click here and get ALL my research now—names, tickers, my complete analysis of all 5 of these funds and everything you need to know before you buy!