It seems little has changed in early 2012 as seeking dividends are still the most favorable investing strategy. As this trend plays out, it is getting more difficult to find high yield investments trading at a reasonable price. So how did investors approach this issue in January? We can find insights by looking at CEFs with distribution yields greater than 10%. Many of these CEFs had excellent market price returns in the last 4 weeks. This is insightful as most of these funds performed poorly in price performance in the last 52 weeks. This is indicating that investors are digging deeper in the barrel to find high yield funds in hopes of a price performance improvement. So far in January, this strategy is working as the price performance significantly improved in these funds. The table below shows the list of monthly income CEFs with 10% yields and the highest market price performance in the last 4 weeks.
Some of the most interesting CEFs will be profiled in more detail in the following section.
ALPINE GLOBAL DYNAMIC DIVIDEND FUND (AGD) expects to invest in primarily common stocks, although the fund may, from time to time, also invest in real estate investment trusts, preferred stocks, exchange traded funds and securities convertible into exchangeable for common stocks, such as convertible debt. AGD will attempt to provide high current dividend income and growth of capital using strategies focused on Dividend Capture, Value and Growth.
In the last 4 weeks, AGD has a price gain of 12.57% compared to a loss of (27.25%) in the last 52 weeks. AGD is trading at $5.81 with a current premium of 4.29%. AGD has a distribution rate of 12.37% paid on a monthly basis. The fund uses a level distribution plan but does not use return of capital. AGD uses 5% leverage and has an expense ratio of 1.39%. AGD has changed their investing method to use more traditional investments with a lower percentage of the dividend capture strategy. AGD has been in an uptrend from Dec 19 at $5.10 to the current price nearing $6.00 per share. With a positive money flow into this CEF, the price should hold steady will you collect a 12% yield.
DELAWARE ENHANCED GLOBAL DIVIDEND AND INCOME FUND (DEX) will invest at least 80% of its net assets in a combination of dividend-paying or income-generating securities across multiple asset classes, including but not limited to, equity securities of large, well-established companies; securities issued by real estate companies (including REITs and REOCs), debt securities (such as government bonds, investment grade and high risk, high yield corporate bonds, and convertible bonds), and emerging market securities. The Fund will also utilize enhanced income strategies by engaging in dividend capture trading, option overwriting, realization of gains on the sale of securities, dividend growth and currency forwards.
In the last 4 weeks, DEX has a price gain of 11.42% compared to a loss of (7.6%) in the last 52 weeks. DEX is trading at $11.96 with a current premium of 0.6%. DEX has a distribution rate of 10.25% paid on a monthly basis. The fund uses a level distribution plan and use return of capital to cover unrealized option gains. DEX uses 28% leverage and has an expense ratio of 1.22%. In October 2011, DEX announced that its acquisition of substantially all of the assets and certain of the liabilities of Delaware Investments Global Dividend and Income Fund, Inc. (DGF) was completed and DGF was dissolved. DEX had a price run up from $10.44 to $12 per share. However, DEX is in overbought territory so wait for a price pullback before you buy into new shares.
AGIC CONVERTIBLE AND INCOME FUND (NCV) has an investment objective to provide total return through a combination of capital appreciation and high current income. The Fund will invest at least 80% of its total assets in a diversified portfolio of convertible securities and non-convertible income-producing securities. Investors should be aware that this fund is highly leveraged with a 36% leverage ratio. This leverage has led to extreme volatility, and this fund has shown very high risk characteristics with a three-year standard deviation of 33%.
In the last 4 weeks, NCV has a price gain of 8.4% compared to a loss of (13.42%) in the last 52 weeks. NCV is trading at $9.15 with a current premium of 9.6%. NCV has a distribution rate of 11.79% paid on a monthly basis. We like the fund's distribution policy on its face but are concerned with the fund's falling NAV. While the current (and historical) distributions are generally paid from income only, the fund's NAV has dropped from over $14 per share at its IPO to just $8 per share today. The falling NAV is due to capital losses on its holdings in the past. NCV had a poor earnings report on the latest data of nine months ending November 30 2011. If you already own shares then NCV is a hold but I would not purchase new shares at a premium price coming off a poor earnings report.
There are some closed-end funds that do not use leverage on the list such as Eaton Vance Enhanced Equity Income (EOI) and Eaton Vance Enhanced Equity Income II (EOS). This fund implements a pure covered-call strategy, writing call options on the fund's underlying holdings (which tend to mimic the broader sector allocations of the S&P 500 Index and, at times, the Russell 1000 Growth Index). Because of the option strategy, these funds will use return of capital as a means to account for unrealized gains. Both of these CEFs have a 10+% distribution rate.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.