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As more investors focus on dividends as a more important component of portfolio total return, the price of high yield investments have increased which in turn lowers dividend yield. This creates a situation where the income investor has difficulty finding high quality investments with high yields. I have identified two CEFs with yields above 9% with an excellent history of strong performance among their peers. Even better, these CEFs pay monthly distribution that increases the frequency of cash distributions and the effect of compounding returns. The 2 CEFs are discussed below:

Western Asset High Income II (HIX) places emphasis on individual holdings and, in recent history, has had a strong track record. During 2009, the fund had a default rate of 7% while the domestic high-yield market had a much higher default rate of 13%. Although defaults tend to be lower, the fund has shown above-average risk characteristics. The fund's three-year standard deviation is 26%, compared with the Bank of America/Merrill Lynch High Yield Master II Index with a standard deviation of 17%. This volatility is due to the fund's leverage.

Investors have been rewarded for taking this added risk with better-than-average performance. The fund is up 11% over the latest 10-year annualized period, while the average Morningstar U.S. high-yield leveraged CEF gained 7%. The Bank of America/Merrill Lynch High Yield Master II Index is up 9% (annualized) over the past 10 years. The fund has outperformed peers in six of the past nine calendar years and has outperformed the index in seven.

HIX is trading at $9.52 with a NAV price of $8.34. Its 11% distribution rate (at NAV) is higher than average (9%), and, since inception in 1998, the fund has used return of capital only twice (in 2002 and 2003). For the past eight fiscal years, the fund has paid its entire distribution from income earned from investments.

PIMCO Corporate Opportunity (PTY) has a strong long-term performance record and low fees, but its risk is high. PIMCO founder Bill Gross took over management of this fund in 2009. The fund's performance has been good: Over the past three years, the fund gained 35% on an annualized basis, while the Morningstar U.S. investment-grade leveraged peer group's average gain was 27%. It has outperformed peers in seven of the past eight calendar years, typically by more than 2 or 3 percentage points. Year-to-date performance is down, likely caused by Gross' well-documented negative view on U.S. Treasuries, which has thus far proved to be incorrect. Investors should also note that, because the fund has exhibited strong performance, because of its strong distribution policy, and because of the PIMCO name, it sells at a persistent premium.

PTY is trading at $16.73 with a NAV of $14.51. The fund's NAV Yield is 9.51%, slightly higher than the peer average of about 8.5%, and the fund has historically been able to meet payments with little return of capital. The fund has a standard distribution-reinvestment program. If the fund is trading at a premium, new shares are issued at the greater of net asset value or 95% of the market price. If the fund is trading at a discount, shares are purchased in the open market. The fund's fiscal 2010 adjusted expense ratio was 0.93%, which was among the lowest in the peer group.

Source: 2 Closed-End Funds With High Yield Distributions