Stocks are surging--but they're also developing a case of "bad breadth." That is, most of the gains are coming from a small slice of the market (I'm looking at you, tech).
That's good news for us contrarians because this shift has left us some sweet dividend deals in other corners of the market. We're going to capitalize through 3 discounted closed-end funds (CEFs) yielding up to 11.8%.
Together, they form a tidy "mini-portfolio" that includes blue chips (sans tech), bonds and infrastructure plays. Two of these funds offer payouts that roll out monthly, too.
Start With Stocks--and the Gabelli Equity Trust (GAB)
GAB stands out for another reason beyond its hefty 10.6% payout: It's one of the few US-stock-focused CEFs whose top-10 holdings aren't heavily weighted toward tech.
Sure, Texas Instruments (TXN) is here, but most of the rest hail from sectors like financials, like Mastercard (MA), and manufacturing, with names like aircraft-parts maker Curtiss-Wright (CW), Deere & Co. (DE) and UK-based Rolls Royce Holdings.
Building a portfolio with minimal tech exposure isn't easy these days, given that IT and communication services--that latter category includes Alphabet (GOOGL), Meta Platforms (META) and Netflix (NFLX)--together make up 47% of the S&P 500.
But GAB's bias to other sectors comes as no surprise when you consider that it's run by value investor (and Buffett disciple) Mario Gabelli.
And GAB itself is a solid value now. You can see that in two ways: First, it's trailed the market this year, and it really fell behind around late March (in purple below), right around the time tech started its ascent, pulling the S&P 500 (in orange) higher:
GAB Pulls Back as Tech Boots Up the S&P 500
That's the first sign GAB is a bargain. The second? GAB's own discount to NAV, which is 3.6%, far below the 10% premium at which it started the year:
GAB's Discount Falls, Flatlines--Then Sets Up to Bounce
This wider discount is because GAB recently completed a rights offering, under which it offered current shareholders the right to purchase additional shares at a below-market price.
That deal is now closed. The resulting dilution caused by the new shares is behind the wider discount, but I expect that to narrow over time, especially as mainstream investors eventually look beyond tech.
That, plus the fact that GAB pays 10X what the S&P 500 does, makes the fund a sweet index-fund alternative. And if you buy today, you'll start pocketing GAB's high payout while you wait.
Next, We'll Hire the "Bond God" to Scour the Credit Markets for Us
Next up, bonds--and for those we're turning to the "Bond God," Jeffrey Gundlach. He runs the DoubleLine Income Solutions Fund (DSL), a holding of my Contrarian Income Report service that yields 11.8% and pays dividends monthly.
With DSL, Gundlach can go after income wherever he sees fit, and he's built that 11.8% divvie on high-yield corporate bonds, emerging-market issues and a dash of mortgage-backed securities. (Don't let ghosts of 2008 spook you--these are more regulated than ever.)
He then "tweaks" the portfolio with around 21% leverage. That's a sweet spot for us--enough to make a meaningful difference as rates fall (which I see as AI caps wage growth) but not enough to be a problem if rates unexpectedly rise.
This savvy approach has driven the fund's total return ahead of the corporate-bond benchmark State Street SPDR Bloomberg High Yield Bond ETF (JNK) in the last five years.
The Bond God Beats His Benchmark
Even so, DSL trades at a 4% discount to NAV, well below the 1.4% premium it held as recently as September. That's overdone, and we're happy to step in and take advantage.
Finally, "Build" Your Income With This 11% Dividend (Paid Monthly)
The NXG NexGen Infrastructure Income Fund (NXG) is a textbook "pick-and-shovel" play on AI. Management does not try to pick winners here.
Instead, like the shopkeepers of the California Gold Rush, it sells the "picks and shovels"--electricity, engineering expertise and chips--the AI kingpins need. And NXG goes further, with companies toiling away on "old school" projects like roads, airports and bridges:
Source: NXG NexGen Infrastructure Income Fund fact sheet
Every query to ChatGPT, Claude or Gemini drives AI's power use higher. And while renewables are growing, gas is still key, especially when the sun isn't shining and the wind isn't blowing. So we're happy to see pipeline operators like Energy Transfer LP (ET) and ONEOK (OKE) among the fund's top-10 holdings.
But the really overlooked side of infrastructure is outside tech, in America's crumbling roads, bridges and highways. To be fair, the government has put up serious cash here, with $5.4 trillion slated to be poured into infrastructure between 2024 and 2033, according to the American Society of Civil Engineers (ASCE).
But that's still not enough to get everything in good working order: Another $3.7 trillion still needs to be spent. And it will be.
NXG is set up for that next wave of infrastructure spending through stocks like construction firm MasTec (MTZ) and Argan (AGX), an engineering company geared to utility and industrial clients. And of course, utilities benefit from all of this--putting Constellation Energy (CEG) and electrical-gear maker GE Vernova (GEV) in a great spot here.
Management's smart approach to the infrastructure boom has paid off, with NXG (in purple below) outrunning the S&P 500 (in orange) in the last five years:
NXG Rides the Infrastructure Boom
Despite that, NXG's valuation has gone the other way: After peaking at a 16% premium last year, it's pulled back to a 4.6% discount. That's because, like GAB, NXG has conducted a rights offering.
Given the infrastructure gap (both physical and digital) we just talked about, this discount represents another opportunity, especially as management invests the proceeds of the offering.
Where does all this leave us? With a three-fund "mini-portfolio" that:
- Goes beyond tech (while still grabbing a slice of AI's growth).
- Holds top blue chips, bonds and infrastructure plays.
- Pays a gaudy average yield of 11%.
- Is a bargain, to boot.
That's a sweet combo in a "greedy" market like this one. I don't expect these discounts to stick around.
Start With These Three. Then Add This 11% Monthly Payer (While It's Cheap)
Two of the three CEFs above pay dividends monthly. Let's even that out.
How? By making it a foursome and adding my favorite monthly paying fund, which:
- Pays an 11% dividend with a history of growth.
- Pays dividends monthly (of course!)
- Trades at a deep discount, and ...
- Is run by a manager who's beaten his benchmark, in the long run and the short.
That discount, and the high dividend, make this fund a "heartburn-free" pickup now. That's key in a volatile market like this.
Simply click here and I'll introduce you to this 11% income play and give you a free Special Report revealing its name and ticker. Buy this unloved fund now and you'll be lined up to get its first monthly payout in just a few weeks!
Also see:
Warren Buffett Dividend Stocks Dividend Growth Stocks: 25 Aristocrats
Future Dividend Aristocrats: Close Contenders
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
