We live in a low-interest rate world.
In some cases, that is fantastic news.
You can get a mortgage for under 3% right now.
Low interest rates are fantastic news for the stock market.
Its means higher asset valuations, giving the stock market some upside potential and possible downside support.
But there is a downside to low interest rates… and it’s most significant for those investors who are retired or close to retirement.
In periods of sustained low interest rates like we are experiencing right now, it is impossible to get an adequate risk-free return rate on your money.
The days of 7% Treasuries and fully insured CDs are a distant memory.
The Fed has told us that rates are going to stay low until at least 2023.
All there is to do now is wait and see for interest rates. Investors will have to beat the bushes to find the yield they require to fund a happy retirement.
Closed-end funds can help. Closed-end funds are mutual funds with a fixed number of shares and trade on the major stock exchanges.
Brokers sell them to the public via an IPO, and after that is complete, they will trade like any other stock.
This creates an opportunity for us. When funds are out of favor or just being ignored by investors, they will trade at what we call a discount.
The shares will sell for less than the value of the stock and bonds in the portfolio.
If we focus on funds that invest in income, we can produce a unique portfolio. We can have professional management, broad diversification, and a regular income.
Best of all, if we do our homework, we can buy all of this for less than its worth at the time of purchase.
Because the closed-end fund universe is so diverse, we can find less traditional funds to collect a regular income stream.
Here are the two best high-yield dividend stock funds to buy now…
High-Yield Dividend Stock Fund to Buy No. 2
The Nuveen Pref and Income Opportunities Fund (NYSE: JPC) invests in preferred stocks and convertible preferred stock to collect the income. You may recall that preferred stock is a hybrid that combines characteristics of a stock and a bond.
Preferred stocks are considered equity and trade on the exchanges but pay a fixed coupon to shareholders.
The Nuveen Preferred and Income Opportunities Fund invests in preferred stocks of leading banks, brokers, insurance companies, utilities, and food companies worldwide.
The fund is yielding 7.5% right now, and the dividends are paid monthly.
The fund’s shares trade at an almost 6% discount to the value of the portfolio’s investments.
That is more than double the average 2.4% discount on average over the last year.
High-Yield Dividend Stock Fund to Buy No. 1
The Calamos Convertible and High-Income Fund (NYSE: CHY) invests in convertible bonds. These are income-producing bonds that can be converted into the underlying common stock of the issuing company.
It is a little bit of the best of both worlds. If the stock price rises above the conversion price, the bond begins to act like a stock. If the stock doesn’t not rally, we own an income-producing bond that pays regular income.
Most of us will never get a chance to buy a convertible bond. These hybrid securities can be quite complex and are usually sold only to institutions.
Much like shares of initial public offerings, if members of the general public can buy one of these bonds, they probably shouldn’t!
The availability would tell us that the pros had passed on these securities, and we should too.
The Calamos fund gives us a chance to invest in these bonds with a portfolio managed by a man who wrote the book on convertible bonds. John Calamos is widely acknowledged as an expert on convertible bonds.
He opened Calamos and Company back in 1977, so he has been through a market cycle or two.
Right now, the fund is trading at a more than 12% discount to the value of the portfolio. The fund is yielding 8.7%, and the dividend will hit your account every month.
Investors who need income are costing themselves money and opportunity if they ignore closed-end funds. There is no better way to build a portfolio of broadly diversified strategies at a discount to their assets’ value.
Many funds pay dividends monthly, so you can create a paycheck replacement plan.
— Garrett Baldwin