Remember a decade or so back, when we heard over and over again that the coming decades would be all about China?
If you ignored that prediction and stuck with well-established US investments (especially dividend-paying US stocks and funds), you made a smart move.
Our conviction continues to be that the USA is the best place to find top dividend payers—including our favorite high-yielding closed-end funds (CEFs).
I’ll give you 16 such US-focused CEFs to consider in a moment—as well as specific looks at two 17%+ (!) yielding CEFs to avoid and one 6%+ payer that’s worth your attention now.
But first, back to China, because I find that every year things seem to get worse for folks who put their money in the country—spurring me to issue a new warning.
In January 2022, I wrote that Chinese funds, including a CEF called the Morgan Stanley China A Share Fund (CAF), were traps, noting that “there’s still much more downside ahead” and that investors were “still mostly holding fast to their Chinese assets, despite the ever-increasing risk of doing so.”
That forecast downside is exactly what came to pass.
The 37.5% decline in CAF since then shows that those risks remained too great to make the country investable, which is why in February of last year I wrote that the risks in China still meant investors should stick to American funds: “I continue to recommend holding the bulk of your portfolio in proven US stocks with long-term histories of profits.”
And now that even more desperate measures have come in (like President Xi Jinping making short selling illegal), it’s a good time to remind ourselves that when it comes to building long-term wealth, investing in the US beats investing in China every time.
The good news on the CEF front is that there are a lot of high-yielding CEFs that invest exclusively in US firms at a time when American GDP growth is strong, inflation is increasingly coming under control and consumer confidence is rising.
Here are 16 such CEFs with yields as high as 18% (!) for you to consider:
CEF Table
CEF Insider
There’s a lot of data here, but let’s zero in on two of the highest yielders first: the Cornerstone Total Return Fund (CRF), which pays 17.4%, and the 18.1%-yielding Cornerstone Strategic Value Fund (CLM).
These two funds are evidence that, while we’re bullish on the US generally, not all US equity CEFs are good investments.
In terms of CLM and CRF, while those fat payouts look compelling on the surface, we need to keep in mind that both funds are trading at significant premiums to net asset value (NAV), meaning investors are willing to pay more for these funds than their portfolios are worth.
Those premiums are a warning sign because fund premiums tend to fall quickly when a rising market hits a speed bump, pulling their market prices down with them.
And with the S&P 500 up nearly 4% this year, when we’re only just into February, there is the possibility of such a short-term pullback. That makes this pair a “no-go” for us.
On the other side of the coin, we have the more modestly priced Gabelli Dividend & Income Trust (GDV), run by well-known value investor Mario Gabelli. As you can see in the table above, Gabelli’s fund is a good deal, too, trading at a 16.2% discount, well below its long-term average of 10.6%.
Its portfolio is also a snapshot of heavyweight American companies, with a top-10-holdings list headlined by Mastercard (MA), JPMorgan Chase & Co. (JPM), Microsoft (MSFT) and American Express (AXP).
GDV also has a much more sustainable 6.1% dividend yield, and its track record is impressive, with Gabelli and his crew more than doubling their shareholders’ money in the last decade.
Moreover, the fund’s more modest 6.1% yield leaves room for that payout to grow. And that’s exactly what it’s done, rising some 22% in the last decade. The fund has also paid three special payouts in that time, too.
That makes GDV a reliable income generator that’s likely to hike payouts further, thanks to its strong historical returns. And that, in turn, is likely to entice more investors and cause its discount to shrink further.
Michael Foster is the Lead Research Analyst for Contrarian Outlook. For more great income ideas, click here for our latest report “Indestructible Income: 5 Bargain Funds with Steady 10.9% Dividends.”
Disclosure: none
