10%-Plus-Yield CEFs: 3 To Buy And 1 To Avoid

Includes: AOD, DEX, IRR, SGL

In the article discussed here, a list of closed end funds (CEFs) yielding above 10% was provided. This list serves as a useful starting point for CEF selection. However, not all names on that list are created equal, and not all yields are true 10%-plus yields. This article discusses 3 picks from that list to buy, and 1 to avoid.

To Buy

  1. Strategic Global Income Fund (NYSE:SGL) - This fund invests in investment-grade debt securities of the US and foreign governments. It pays out a monthly dividend typically in the range of $0.05 to $0.06 per share, which translates to about a 5% yield. Special end-of-year dividends have inflated its yield. Its 3-year total return (here, total return is defined as stock price appreciation over the period plus total dividends received) from 1/1/2008 to 1/1/2011 is 47%. Over the same time period, SPY has returned -6%.
  2. ING Risk Managed Natural Resouce Fund (NYSE:IRR) - This fund invests in energy and natural resource stocks. IRR pays out $0.33 per share quarterly, which represents a 11% yield. From 1/1/2008 to 1/1/2011 the total return of this fund is 17%, which bests SPY by more than 23%. IRR trades at an 11% discount to NAV and its top holdings include Exxon (NYSE:XOM), Chevron (NYSE:CVX), and Halliburton (NYSE:HAL).
  3. Delaware Enhanced Global Dividend and Income Fund (NYSE:DEX) - This CEF invests in high-yield fixed income securities, REITs, and underlying pools of mortgages or consumer loans. Its top marketable holdings include iShares high yield fund (NYSEARCA:HYG), Australian Dollar (NYSEARCA:AUD), and Indonesia bonds. It pays out $0.1025 monthly for a 11.4% yield and trades at a 5% discount to NAV. From 1/1/2008 to 1/1/2011 the total return of this fund is 9%.

To Avoid

  1. Alpine Total Dynamic Dividend Fund (NYSE:AOD) - I am going to be blunt here: This CEF should be avoided at all costs. Over the past five years since its IPO, AOD's NAV has decreased from 20+ per share to a present day value of 4.80. Over this period, it has consistently cut its dividend. I would not be surprised if another dividend cut would not be implemented in the next quarter or two in an attempt to save the NAV. Over this time, the total amount of dividends paid out does not come close to canceling out the NAV decrease. I believe that AOD is a value trap - it consistently trades at a discount to NAV. Its current discount is about 10%, which is warranted given its poor historical performance. AOD features a 3-year total return of -39% from 1/1/2008 to 1/1/2011.

Disclosure: I am long SGL.