Part of the allure of dividend-paying securities is that they pay back your initial investment directly. Amazingly, many closed-end mutual funds have distribution rates that are so high that at current values the sum of future dividends would equal your initial investment inside of a decade.
I estimated the next thirty years of dividend payments for CEFs listed at a discount by the closed-end fund association as of October 28th, 2011. This calculation takes into account fund expenses, and that many CEFs distribute capital (principal funds) in addition to income, which makes the future base for dividends in the fund shrink over time.
Here is a table of CEFs that pay back investors inside of 30 years:
Closed-End Fund | Market Return | Discount | Exp Ratio | Income Only Yield | Div Yield | Required Return | Payback Period |
First Tr Active Div Inc (FAV) | -6.40% | -6.41% | 1.66% | 11.34% | 13.25% | 11.9% | 9 years |
Wells Fargo Gl Div Oppty (EOD) | -6.86% | -5.71% | 1.14% | 9.73% | 14.04% | 10.6% | 9 years |
Putnam Premier Income (PPT) | -7.45% | -0.52% | 0.85% | 9.78% | 12.04% | 10.2% | 9 years |
Putnam Mstr Intmdt Incom (PIM) | -13.02% | -5.89% | 0.94% | 9.82% | 9.07% | 10.4% | 11 years |
Credit Suisse Income (CIK) | 5.73% | -0.82% | 0.76% | 8.76% | 9.36% | 8.9% | 11 years |
Nuveen Mtge Oppty Term (JLS) | -9.16% | -7.61% | 1.30% | 7.32% | 10.03% | 7.2% | 13 years |
Nuveen Mtge Oppty Term (JLS) | -9.16% | -7.61% | 1.30% | 7.32% | 10.03% | 7.2% | 13 years |
Global High Income (GHI) | -5.76% | -4.80% | 1.47% | 5.76% | 12.00% | 5.1% | 15 years |
Transam Income Shares (TAI) | 1.02% | -2.16% | 0.80% | 6.61% | 7.44% | 6.4% | 15 years |
Nuveen Mtge Oppty Term 2 (JMT) | -9.13% | -8.25% | 1.45% | 5.68% | 9.88% | 5.1% | 16 years |
Nuveen Mtge Oppty Term 2 (JMT) | -9.13% | -8.25% | 1.45% | 5.68% | 9.88% | 5.1% | 16 years |
Cohen & Steers CE Oppty (FOF) | 1.46% | -9.12% | 0.95% | 5.64% | 8.94% | 5.7% | 16 years |
Nuveen Tx-Adv Float Rate (JFP) | -6.39% | -11.43% | 0.59% | 5.85% | 7.73% | 6.4% | 16 years |
Western Asset EM Debt (ESD) | 5.86% | -8.59% | 1.02% | 6.88% | 7.30% | 6.9% | 16 years |
Western Asset EM Debt (ESD) | 5.86% | -8.59% | 1.02% | 6.88% | 7.30% | 6.9% | 16 years |
Putnam High Income Secs (PCF) | -0.96% | -2.83% | 0.93% | 6.60% | 7.08% | 6.3% | 16 years |
Western Asset EM Income (EMD) | 3.80% | -9.04% | 1.23% | 6.76% | 7.24% | 6.6% | 16 years |
Fort Dearborn Income Sec (FDI) | 6.39% | -6.49% | 0.70% | 4.91% | 8.40% | 4.9% | 17 years |
Western Asset Wrldwd Inc (SBW) | 3.49% | -8.38% | 1.37% | 6.47% | 6.92% | 6.0% | 17 years |
Western Asset Wrldwd Inc (SBW) | 3.49% | -8.38% | 1.37% | 6.47% | 6.92% | 6.0% | 17 years |
Invesco Muni Inc Opp (OIA) | 1.03% | -6.34% | 0.72% | 6.28% | 6.65% | 6.4% | 17 years |
Invesco Muni Inc Opp 2 (OIB) | -0.83% | -6.42% | 0.71% | 6.29% | 6.60% | 6.4% | 17 years |
Invesco Muni Inc Opp 3 (OIC) | 0.36% | -5.93% | 0.82% | 6.14% | 6.65% | 6.1% | 17 years |
DWS Glbl High Income (LBF) | -3.62% | -11.51% | 1.68% | 6.53% | 7.02% | 5.9% | 18 years |
Rivus Bond (BDF) | 5.20% | -8.92% | 0.79% | 5.76% | 6.29% | 5.8% | 18 years |
Westn Asst IG Def Opp Tr (IGI) | 3.16% | -3.18% | 0.81% | 5.60% | 6.19% | 5.3% | 18 years |
Western Asset Mun Hi Inc (MHF) | 0.28% | -1.97% | 0.70% | 5.70% | 5.92% | 5.4% | 18 years |
MFS Intermediate Income (MIN) | -0.66% | -1.10% | 0.74% | 3.76% | 9.33% | 3.4% | 19 years |
Western Asset Income (PAI) | 5.29% | -4.23% | 0.76% | 5.78% | 5.74% | 5.6% | 19 years |
MFS Govt Markets Inc Tr (MGF) | -1.24% | -3.99% | 0.80% | 4.19% | 7.72% | 3.8% | 20 years |
Nuveen CA Muni Value 2 (NCB) | -0.85% | -6.60% | 0.72% | 5.35% | 5.50% | 5.2% | 20 years |
NFJ Div Int Prem Strat (NFJ) | 13.24% | -9.16% | 0.97% | 3.54% | 12.20% | 3.2% | 21 years |
Nuveen NY Muni Value 2 (NYV) | -2.55% | -6.84% | 0.74% | 5.04% | 5.31% | 4.9% | 21 years |
Nuveen NY Muni Value 2 (NYV) | -2.55% | -6.84% | 0.74% | 5.04% | 5.31% | 4.9% | 21 years |
Westn Asst Mu Def Opp Tr (MTT) | 2.21% | -1.22% | 0.70% | 5.11% | 4.83% | 4.7% | 21 years |
Invesco VK Bond Fund (VBF) | 4.80% | -1.91% | 0.52% | 4.61% | 4.86% | 4.4% | 22 years |
Strategic Global Income (SGL) | 3.56% | -6.80% | 1.18% | 4.22% | 17.49% | 4.0% | 25 years |
Strategic Global Income (SGL) | 3.56% | -6.80% | 1.18% | 4.22% | 17.49% | 4.0% | 25 years |
ING Gl Eq Div & Prem Opp (IGD) | -3.88% | -2.79% | 1.07% | 3.16% | 12.96% | 2.5% | 25 years |
Invesco Ins CA Muni Sec (ICS) | 1.75% | -9.07% | 0.72% | 4.53% | 4.59% | 4.4% | 25 years |
Western Asset Var Rt Str (GFY) | 0.70% | -10.06% | 1.09% | 5.09% | 4.44% | 4.7% | 25 years |
Delaware Inv MN Muni II (VMM) | 4.28% | -8.16% | 0.56% | 4.35% | 4.31% | 4.3% | 25 years |
Delaware Inv MN Muni II (VMM) | 4.28% | -8.16% | 0.56% | 4.35% | 4.31% | 4.3% | 25 years |
Delaware Inv CO Muni Inc (VCF) | 2.98% | -4.20% | 0.56% | 4.31% | 4.24% | 4.1% | 25 years |
Delaware Inv Natl Muni (VFL) | 0.28% | -7.11% | 0.65% | 4.64% | 4.14% | 4.5% | 25 years |
Delaware Inv Natl Muni (VFL) | 0.28% | -7.11% | 0.65% | 4.64% | 4.14% | 4.5% | 25 years |
Montgomery Street Income (MTS) | 0.89% | -9.06% | 0.82% | 4.28% | 4.62% | 4.0% | 26 years |
The number of years it takes for an investment to pay you back is called the payback period. It is a simple and crude measure of risk. Notice that the ordering of required return and payback period does not always match up. This is because required return takes into account how dividend distributions in earlier years are worth more than the same dollar value paid out later in the future. (You would be able to reinvest the earlier distribution and earn a return on it, making it worth more.)
Since many dividend investors are attracted to high-paying dividend companies on the premise that they can ignore what the markets do and simply focus on their dividend income, the payback period provides a reality-check for what income investment will likely feel like. If you want to ignore what prices your securities fetch in the markets, you could be waiting a long time to get paid back. Fortunately, for many CEFs, approximately one decade is not that long of a wait.
Disclaimer: This article was written to provide investor information and education, and should not be construed as investment advice. I have no idea what your individual risk, time-horizon, and tax circumstances are: please seek the personal advice of a financial planner. This article uses third-party data and may contain approximations and errors. Please check estimates and data for yourself before investing.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
