By Brett Owens
aEURoeBrett, where the heck do I find cheap dividends in this market?aEUR
A desperate reader asks this question almost daily.
IaEURtmll be honest: with the market up double digits this year, itaEURtms been tough for me to sift out cheap aEURoe pullback-proofaEUR 7%+ payers to recommend. (But not impossible: IaEURtmve turned up two absurdly cheap funds yielding up to 10%; see below.)
aEURoePullback-ProofaEUR Dividends Are EndangeredaEUR"But Not Extinct
You probably noticed I said aEURoepullback-proofaEUR a second ago. By that I mean stocks with the secret ingredient everyone craves: high dividends you can pocket without the underlying stock melting away in a meltdown.
That, by the way, is the opposite of what classic defensive food stock General Mills ( GIS ) does. This dividend dumpster fire boasts a so-called aEURoegenerousaEUR payout (current yield: 4%) and is (too) widely seen as safe because people have to eat, no matter what the economy does.
The truth is, GIS is neither safe nor generous! But folks get lured in time after time, and I hate to see it.
GIS Steals ShareholdersaEURtm Income
This chart shows the fate suffered by the poor souls who took the bait in January 2018. A year later, theyaEURtmd eaten a 34% loss (on a price basis). ThataEURtms 10 yearsaEURtm worth o f dividend payout s, GONE in just 12 months.
So much for safety!
The fix is in again: GIS rallied 32% in the last four months and now trades at a ridiculous 20.2-times earnings, nearly double its December multiple:
aEURoeSafeaEUR Pick About to Inflict More Pain
I refuse to bet my golden years on a schizophrenic stock like thisaEUR"especially now! ( Click here for more on why GIS is a deadly dividend you must avoid at all costs.)
How to Prevent a 2008 Portfolio Repeat
One proven way to shield your nest egg from the next crash is to add stocks trading below their true value. Even better if you can find these aEURoeunicornsaEUR now, when almost everything is up sharply.
It only makes sense! If a stock is dirt-cheap with the market on a high, itaEURtmll have a tough time getting cheaper in the next pullback.
Which brings us back to the question: where do we find these stout payers?
The answer is not with GIS and its ilk. We need to go further, to one of my favorite income plays: closed-end funds (CEFs) .
These funds are so far off the radar that 80% of them trade for less than theyaEURtmre worth today! ThataEURtms crazy when you consider there are plenty of CEFs boasting steady dividends of 6% and up.
LetaEURtms dive into why these funds are such terrific bargains now. Then IaEURtmll show you two CEFs yielding up to 10% that have crushed the market and still have plenty of gains ahead.
An Income HunteraEURtms Paradise
First off, donaEURtmt let the jargon-y name fool you: CEFs are dead ringers for mutual fundsaEUR"mostly. But they do boast a key difference (aside from their outsized 6%+ dividends).
Unlike mutual funds and ETFs, most CEFs trade wildly out of stepaEUR"and usually at a big discountaEUR"to the value of their portfolios.
How big of a discount?
Deals of 15% and more are common. And when these markdowns snap shut, they aEURoeslingshotaEUR the CEFaEURtms price to a huge gain. IaEURtmve seen it happen time and time again.
Which brings me toaEUR