Markets
MFV

My 3-Step Secret to 9.4% Dividends and 55% Gains (works every time)

By Brett Owens

Ignore the punditsaEURtm petrified bleating over rising interest rates. Sure, the yield on the 10-Year Treasury has spiked to 2.9%, but youaEURtmre still not retiring on it!

Look at it this way: if you dropped, say, $500,000 into Treasuries tomorrow, youaEURtmd still only get $14,500 in income. ThataEURtms just a hair over the poverty line of $14,342 for two people aged 65+ living under one roof.

ThataEURtms an insult after a lifetime of hard work!

And itaEURtms exactly why IaEURtmm going to show you 3 simple steps you can take to rack up safe dividends that average 6.6% now (and some go well beyond 9.4%).

ThataEURtms more than double the yield on the 10-Year and triple the pitiful 1.9% youaEURtmd get from the typical S&P 500 stock. Plus thereaEURtms easy double-digit upside for you here, too.

The Key to Retiring Rich

At the core of my 3-step income secret is a set of poorly understood investments called closed-end funds. (If youaEURtmre not familiar with CEFs, donaEURtmt worry; our CEF aEURoeprofessor,aEUR Michael Foster, has written a simple-to-follow primer you can access here .)

CEFs deserve a spot in your portfolio for one simple reason: dividends! Look at the latest numbers from BlackRock showing the average yields on the main CEF sectors.

Where the Biggest Yields Live

Source: BlackRock October 2017 Closed-End Fund Market Review

When you average these sectors out, you get a gaudy 6.6% payout. So if we swing back to our investor sitting on a cool half-mil, theyaEURtmd be getting a tidy $33,000 income stream from your aEURoeaverageaEUR CEF. ThataEURtms more like it!

(CEFsaEURtm high dividends are the reason why IaEURtmve included them in my powerful new aEURoe8% Retirement Portfolio.aEUR ItaEURtms custom build to hand you a safe $40,000 income stream on your $500k investment. You can read all about it here .)

The aEURoeStodgyaEUR Dividend Play That Pops Like a Small Cap

Which brings me to the other benefit you might love even more than CEFsaEURtm outsized payouts: a predictable shot at fast double-digit upside.

That stems from one figure you can easily find on any CEF screener worth its salt: the discount to net asset value ( NAV ), or the difference between a CEFaEURtms market price and what itaEURtms underlying portfolio is worth.

We donaEURtmt have to get into detail here; the upshot is this: getting in on a CEF trading at a big discount to NAV can unleash exciting gains as that markdown slams shut (or better yet turns into a premium to NAV).

This is the fun part of investing in CEFsaEUR"and itaEURtms exactly what happened for folks who bought the MFS Special Value Trust ( MFV ) in February 2016. At that time, MFV traded at a totally unusual 12% discount to NAV.

Fast-forward to today, and it trades at a 2.6% premium. That huge swing acted like an afterburner on the share price, driving it to a huge gain in just 2 years:

Disappearing Discount Ushers in a 27% Win

It gets better: if you throw in MFSaEURtms massive dividend (it yields 9.8% as I write), you get a return that easily tops the market:

Putting It All Together

And donaEURtmt forget that half of that gain was in cash!

Today, with MFV well into premium territory, that aEURoediscount afterburneraEUR is spentaEUR"and I never buy CEFs at a premium, especially when there are still plenty of bargain funds out there .

Which brings us to the first step in my 3-part CEF-buying strategy:

Step 1: Watch theRelativeDiscount

A hefty discount isnaEURtmt much good if that window never closes. ThataEURtms why you need to look beyond a fundaEURtms current discount to its historical discount to see if youaEURtmre seeing an unusual pattern you can profit from aEUR

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


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

In This Story

MFV NAV GDV DCF OPP

Other Topics

Options

Latest Markets Videos

    BNK Invest

    BNK Invest Inc. provides investment services and information. BNK Invest owns and operates a market news family of websites including DividendChannel, ETFChannel, StockOptionsChannel, and others, which make up an investor community featuring stock message boards, ratings, research, and strategies. BNK Invest caters to investing firms and individual investors internationally.

    Learn More