The Amazing 10.9% Dividend Left for Dead (time to buy)

Shutterstock photo

By Michael Foster

Today IaEURtmm doing something unusual: IaEURtmm changing my call on a popular closed-end fund ( CEF ) .


Because this fund has gone on sale, and itaEURtms just too good of a deal to overlook. If history is any guideaEUR"and with this fund it almost always isaEUR"itaEURtms in for some nice upside very soon. In the meantime, buyers will grab a hefty and safe 10.9% cash dividend!

So if you dropped, say, $100k into this fund tomorrow, youaEURtmd get nearly 11% of your investment backaEUR"in cashaEUR"just one year from now (and I should also mention that it pays dividends monthly , too).

IaEURtmm talking about the PIMCO Global StocksPLUS & Income Fund ( PGP ). ItaEURtms attractive now after doing this in 2018:

A Bad Fall

If youaEURtmre a regular reader of my articles on Contrarian Outlook , you may be surprised to hear this.

In early 2018, I warned that PGP was a fund to avoid following a 17% dividend cut. And IaEURtmve beaten up on PGP many times before. Nearly a year ago, I urged readers to run away after the fund had risen 25% in the first half of 2017 .

So you can say that IaEURtmve been a PGP critic for a long time.

The reason is simple: a lot of investors were getting enticed by PGPaEURtms massive payouts, so the fund was trading at a huge premium to net asset value (NAV, or the market price of the fundaEURtms underlying assets).

But hereaEURtms the key thing: after the dividend cut, PGPaEURtms dividend has become extremely sustainable relative to how itaEURtms been in the last few yearsaEUR"in fact, PGPaEURtms dividend is covered enough that we arenaEURtmt likely to see another cut for a long time.

However, the market isnaEURtmt pricing PGP for thataEUR"in fact, now, itaEURtms being priced for a cut to come soon, although thataEURtms unlikely. We see that in its lower premium. At their height, PGP shares were selling for a 75% premium to NAV, meaning for every $1 in assets, you had to shell out $1.75 just to get in. And then that premium collapsed:

Falling Further and Further

ThataEURtms why PGP is attractive now. At 27.9%, PGPaEURtms premium is actually less than half of its 10-year average premium of 53.3%. And while paying a premium is often a bad idea, paying it with PGP can often work out well for you, in large part because PGP always trades at a premium thanks to the fundaEURtms ability to cover its massive dividend and grow its NAV, as it has been doing in 2018.

But the real story here is how you can capture PGP at a lower premium compared to its historic average, then sell when it goes over that average (and get PGPaEURtms 10.9% dividend while you wait). ThataEURtms easy to doaEUR"as IaEURtmll show you now.

Timing Unusual Fund Bargains

LetaEURtms look at history to see how you would have made out by aEURoeworkingaEUR PGPaEURtms premium in the past.

The last time PGPaEURtms premium fell below 30% was brief, in mid-2015. If you remember, that was when the market was panicking about a looming rise in interest rates (sound familiar)? And when investors ran away from PGP because of their rate-hike fears, they gave up these returns:

PGPaEURtms Premium RisesaEUR"and so Do Returns

Within a year, the fundaEURtms premium had risen to 106.6% (yesaEUR"people were paying over $2 for a buck worth of PGPaEURtms assets!), and investors had gained a 58.2% total return.

Investors with bad timing, however, got the exact opposite. Anyone who bought PGP when its premium reached its height in September 2016 got burned over the next year:

Buying High Means Losing Big

Over the year following PGPaEURtms price apex, the fundaEURtms premium fell 45.3%, and investors lost 10.4%.

The takeaway: you can make a lot of money in CEFs by following the relationship between their market price and NAV and investing accordingly; you can also lose a lot of money if you donaEURtmt. PGP is one of those classic funds thataEURtms great to avoid when its premium gets ridiculously high but is also great to buy when the market is overly cautiousaEUR"like in mid-2015 or right now.

Proven Profit Signal Reveals 4 More Must-Buy CEFs

Most of the so-called experts on Wall Street or in the financial media will tell you that any dividend over, say, 4% is dangerous and headed for a cut.

So instead, they tell us, we have to settle for the pathetic 1.8% the average S&P 500 stock pays.

TheyaEURtmre dead wrong aEUR"because very few of these aEURoeprosaEUR have even bothered to look at the eye-popping yields CEFs deliver all the time.

Take the 17 funds in my CEF Insider serviceaEURtms portfolio . Right now, subscribers who hold these 17 stout income plays are pocketing a safe 7.4% average CASH dividend year in and year out.

That works out to $7,400 in cash on every $100,000 invested, 4 TIMES more than the misers of the S&P 500 pay! And this unique portfolio is stuffed with bargains spring-loaded for quick 20%+ upside too.

This is a far better strategy than staking huge sums on one fundaEUR"PGP in this caseaEUR"because my CEF Insider portfolio spreads your money across almost every sector you can name: US stocks, high-yield REITs, floating-rate bonds, foreign stocks and more.

The bottom line? YouaEURtmre getting safety, incredible income and quick double-digit upside here.

And hereaEURtms the best partaEUR"right now, IaEURtmm letting a select few investors aEURoekick the tiresaEUR on these 17 retirement lifesavers through a no-risk 60-day trial you can jump on right here .

ThataEURtms not all. Along with immediate access to this carefully crafted income portfolio, IaEURtmll GIVE you my latest Special Report FREE!

This exclusive guide reveals the names, tickers, buy-under prices and more on my 4 very best CEFs to buy now.A Grab these 4 cash machines now and youaEURtmll grab a 7.6% average income stream and position yourself for 20%+ upside in the next 12 months!

DonaEURtmt wait.A CLICK HERE now to get your copy of this revealing FREE report and instant access to my full 17-fundA CEF Insider A portfolio .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Options
Referenced Symbols: CEF , PGP

More from BNK Invest


BNK Invest

BNK Invest

Market News, Investing

Research Brokers before you trade

Want to trade FX?