{"id":5033,"date":"2023-10-24T12:56:54","date_gmt":"2023-10-24T12:56:54","guid":{"rendered":"https:\/\/infundpros.com\/investment\/how-to-secure-9-5-dividends-for-years-and-years\/"},"modified":"2023-10-24T12:56:55","modified_gmt":"2023-10-24T12:56:55","slug":"how-to-secure-9-5-dividends-for-years-and-years","status":"publish","type":"post","link":"https:\/\/infundpros.com\/?p=5033","title":{"rendered":"How To Secure 9.5% Dividends For Years And Years"},"content":{"rendered":"
\n

The hardest part of convincing folks they can lock in high dividends for the long haul (I\u2019m talking 9%+ yields here) is that many just don\u2019t believe it.<\/p>\n

And frankly, I can\u2019t blame them. Too many people are paid a lot of money to tell investors that yields like that are impossible. But the truth is you can<\/em> get a 9.5% yield today\u2014and even more. But even at 9.5%, we\u2019re talking about a middle-class income of $4,000 per month on an investment of just a touch over $500K.<\/p>\n

Below, I\u2019ll reveal how to start building a portfolio that could get you an even bigger income stream than this today. But before that, I want to show you the three funds I suggested buying to do this over six years ago and look at how they\u2019ve performed since. It\u2019s a good way to demonstrate how a high-income portfolio can deliver the goods for many years, despite what the naysayers say.<\/p>\n

The Pre-Pandemic 9.5% Portfolio<\/h2>\n

In a 2017 Contrarian Outlook article, I suggested a portfolio of three closed-end funds (CEFs) yielding an average 8.2% between them: the Nuveen Tax-Advantaged Dividend Growth Fund (JTD), Gabelli Equity Trust (GAB) <\/strong>and Liberty All-Star Equity Fund (USA). <\/strong>This \u201cmini-portfolio\u201d was designed to do three things:<\/p>\n

<\/fbs-ad><\/p>\n

    \n
  1. Provide lower-volatility returns, thanks to broad diversification across high-cash-flow companies (JTD), deep-value companies (GAB) and large-cap value and growth firms (USA).<\/li>\n
  2. Offer a higher income stream than index funds (paying at the time, as now, less than 2% yields).<\/li>\n
  3. Offer opportunities to rebalance when fund discounts shrank too much.<\/li>\n<\/ol>\n

    How did it go? Let\u2019s take a look:<\/p>\n

    (Total return calculates if all dividends are taken simply as cash; total compounded return calculates if all dividends are reinvested into the same fund.)<\/em><\/p>\n

    Investing in this portfolio in May 2017 yielded a 70.7% return in total. Not bad! Plus, our three-fund portfolio\u2019s 8.2% yield brought in regular cash we could use elsewhere as we liked. That\u2019s a key advantage over investing in lower-yielding index funds, which would entail selling\u2014and trying to time the market in doing so\u2014to generate extra cash.<\/p>\n

    One note on the table above: the sell dates occur as of this writing (October 16), while I\u2019ve placed JTD\u2019s sell date in November 2021, when investors had the option to sell all their shares or trade them for shares in a new fund: the debt-and-stock-focused Nuveen Multi-Asset Income Fund (NMAI)<\/strong>. Because NMAI\u2019s strategy is very different from JTD\u2019s equity focus, we\u2019re assuming investors sold JTD instead of trading their shares in for those of the new fund.<\/p>\n

    It is clear by this quick look in the past that, indeed, CEFs can fund a retirement for years. But what about dividend cuts?<\/p>\n

    While GAB, in orange above, kept its dividend steady (and paid out some nice special payouts along the way, as shown by the three spikes), USA, in purple, hiked its payout overall (note that USA pays out a percentage of net asset value\u2014NAV, or the value of its underlying portfolio\u2014which is why its payout floats a bit).<\/p>\n

    JTD, admittedly, did cut its dividend by 5% from May 2017 until its merger with NMAI, but the fund still <\/em>paid 7.5% on average during this period and the overall portfolio\u2019s dividend yield didn\u2019t just cover the 8.2% I initially promised. It offered more.<\/p>\n

    Combined with GAB\u2019s and USA\u2019s 11% payouts on average (including special dividends), the portfolio ended up yielding 9.5% for years.<\/p>\n

    Replicating That 9.5% Payout Today<\/h2>\n

    Could you use GAB, USA and NMAI to replicate the same portfolio today?<\/p>\n

    While you could, it\u2019d be very different, both because NMAI isn\u2019t the same as JTD and because markets have changed a lot. In 2017, it was easy to be bullish on stocks, and while I still am, the really big yields available in bonds might mean that a diversified portfolio of bond funds, like the PIMCO Corporate & Income Opportunity Fund (PTY), <\/strong>could be a compelling alternative.<\/p>\n

    PTY is an 11.5%-yielder that brings retirement even closer (a $4,000-a-month income stream would entail a $417,391.13 investment). And with corporate bonds now yielding over 8% and mortgage rates at 8%, a fund like this, which buys corporate bonds and mortgages from banks, could provide even bigger returns than stocks if rates stay high. Last time we saw rates rise, PTY soared, too\u2014and it kept its gains as rates stayed high.<\/p>\n

    Worried about longevity? Six years is nothing. PTY has not only paid out dividends close to its current rate (dividends have fallen less than two whole pennies over the last 30 years), but it has also paid out big special dividends\u2014shown in the spikes and dips below\u2014that have brought its annualized yield upwards of 15% at times:<\/p>\n

    Those big payouts were due to uncertainty in markets in the early 2010s that PIMCO exploited. I suspect the next generation of bond uncertainty is something PIMCO will easily exploit, too, since the firm quite literally invented the concept of bond trading back in the 1970s.<\/p>\n

    Finally, let\u2019s talk valuation, because even a cursory analysis of the fund will tell you that it trades at a 20% premium to net asset value (NAV, or the value of its underlying portfolio) today. But with CEF premiums and discounts, we always need to look at historical context, too.<\/p>\n

    And the truth is, PIMCO funds almost always trade at premiums\u2014and often much larger ones than this, because of the firm\u2019s deep expertise in bond-land. And you could say PTY is undervalued, as its five-year average premium is even higher, at just under 24%.<\/p>\n

    Michael Foster is the Lead Research Analyst for <\/em>Contrarian Outlook<\/em>. For more great income ideas, click here for our latest report \u201c<\/em>Indestructible Income: 5 Bargain Funds with Steady 10.2% Dividends.<\/em>\u201d<\/em><\/p>\n

    Disclosure: none<\/em><\/p>\n<\/div>\n

    Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

    The hardest part of convincing folks they can lock in high dividends for the long haul (I\u2019m talking 9%+ yields here) is…<\/p>\n","protected":false},"author":1,"featured_media":5034,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[24],"tags":[],"class_list":{"0":"post-5033","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-investment"},"yoast_head":"\nHow To Secure 9.5% Dividends For Years And Years | inFundPros<\/title>\n<meta name=\"description\" content=\"The hardest part of convincing folks they can lock in high dividends for the long haul (I\u2019m talking 9%+ yields here) is that many just don\u2019t believe it.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/infundpros.com\/?p=5033\" \/>\n<meta property=\"og:locale\" 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