Payback Periods For Discount CEFs With Dividends

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by: Dividend Dog

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 (NYSE:FAV)

-6.40%

-6.41%

1.66%

11.34%

13.25%

11.9%

9 years

Wells Fargo Gl Div Oppty (NYSE:EOD)

-6.86%

-5.71%

1.14%

9.73%

14.04%

10.6%

9 years

Putnam Premier Income (NYSE:PPT)

-7.45%

-0.52%

0.85%

9.78%

12.04%

10.2%

9 years

Putnam Mstr Intmdt Incom (NYSE:PIM)

-13.02%

-5.89%

0.94%

9.82%

9.07%

10.4%

11 years

Credit Suisse Income (NYSEMKT:CIK)

5.73%

-0.82%

0.76%

8.76%

9.36%

8.9%

11 years

Nuveen Mtge Oppty Term (NYSE: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 (NYSE:GHI)

-5.76%

-4.80%

1.47%

5.76%

12.00%

5.1%

15 years

Transam Income Shares (NYSE:TAI)

1.02%

-2.16%

0.80%

6.61%

7.44%

6.4%

15 years

Nuveen Mtge Oppty Term 2 (NYSE: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 (NYSE:FOF)

1.46%

-9.12%

0.95%

5.64%

8.94%

5.7%

16 years

Nuveen Tx-Adv Float Rate (NYSEMKT:JFP)

-6.39%

-11.43%

0.59%

5.85%

7.73%

6.4%

16 years

Western Asset EM Debt (NYSE: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 (NYSE:PCF)

-0.96%

-2.83%

0.93%

6.60%

7.08%

6.3%

16 years

Western Asset EM Income (NYSE:EMD)

3.80%

-9.04%

1.23%

6.76%

7.24%

6.6%

16 years

Fort Dearborn Income Sec (NYSE:FDI)

6.39%

-6.49%

0.70%

4.91%

8.40%

4.9%

17 years

Western Asset Wrldwd Inc (NYSE: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 (NYSE:OIA)

1.03%

-6.34%

0.72%

6.28%

6.65%

6.4%

17 years

Invesco Muni Inc Opp 2 (NYSE:OIB)

-0.83%

-6.42%

0.71%

6.29%

6.60%

6.4%

17 years

Invesco Muni Inc Opp 3 (NYSE:OIC)

0.36%

-5.93%

0.82%

6.14%

6.65%

6.1%

17 years

DWS Glbl High Income (NYSE:LBF)

-3.62%

-11.51%

1.68%

6.53%

7.02%

5.9%

18 years

Rivus Bond (NYSE:BDF)

5.20%

-8.92%

0.79%

5.76%

6.29%

5.8%

18 years

Westn Asst IG Def Opp Tr (NYSE:IGI)

3.16%

-3.18%

0.81%

5.60%

6.19%

5.3%

18 years

Western Asset Mun Hi Inc (NYSE:MHF)

0.28%

-1.97%

0.70%

5.70%

5.92%

5.4%

18 years

MFS Intermediate Income (NYSE:MIN)

-0.66%

-1.10%

0.74%

3.76%

9.33%

3.4%

19 years

Western Asset Income (NYSE:PAI)

5.29%

-4.23%

0.76%

5.78%

5.74%

5.6%

19 years

MFS Govt Markets Inc Tr (NYSE:MGF)

-1.24%

-3.99%

0.80%

4.19%

7.72%

3.8%

20 years

Nuveen CA Muni Value 2 (NYSE:NCB)

-0.85%

-6.60%

0.72%

5.35%

5.50%

5.2%

20 years

NFJ Div Int Prem Strat (NYSE:NFJ)

13.24%

-9.16%

0.97%

3.54%

12.20%

3.2%

21 years

Nuveen NY Muni Value 2 (NYSE: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 (NYSE:MTT)

2.21%

-1.22%

0.70%

5.11%

4.83%

4.7%

21 years

Invesco VK Bond Fund (NYSE:VBF)

4.80%

-1.91%

0.52%

4.61%

4.86%

4.4%

22 years

Strategic Global Income (NYSE: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 (NYSE:IGD)

-3.88%

-2.79%

1.07%

3.16%

12.96%

2.5%

25 years

Invesco Ins CA Muni Sec (NYSE:ICS)

1.75%

-9.07%

0.72%

4.53%

4.59%

4.4%

25 years

Western Asset Var Rt Str (NYSE:GFY)

0.70%

-10.06%

1.09%

5.09%

4.44%

4.7%

25 years

Delaware Inv MN Muni II (NYSEMKT: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 (NYSEMKT:VCF)

2.98%

-4.20%

0.56%

4.31%

4.24%

4.1%

25 years

Delaware Inv Natl Muni (NYSEMKT: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 (NYSE:MTS)

0.89%

-9.06%

0.82%

4.28%

4.62%

4.0%

26 years

Click to enlarge

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.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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.