Lets set aside the noise and talk about the one thing that matters most in a volatile market like this: earnings.
According to recent FactSet data, analysts expect negative earnings growth in the first quarter of 2020. Thats no surprise, given the battering the coronavirus is laying on some sectors of the economy.
But even so, the projected decline as I write was still reasonable: just 0.1%. Things can still change, of course, but its important to note that this modest decline comes after a fourth quarter in which earnings grew following three straight quarters of declinesand despite analyst expectations of a 1.7% drop.
The short story is this: even though the situation is still fluid, corporate profits are showing resilience.
CEFs: Bigger Discounts, Bigger Yields
In light of those buoyant profits, the markets recent plunge is giving us a chance to scoop up strong closed-end funds (CEFs) at bigger discounts (and with higher dividend yields) than weve seen in a long time.
If youre unfamiliar, CEFs are kind of like ETFs but, unlike those more-popular funds, they have a fixed number of shares issued when they first trade on the market, so they cant issue new shares when they get new capital. CEFs also dont have to sell assets when people sell their shares, which is a big problem for ETFs and mutual funds, because fund managers dont have a choice but to sell when the market is freaking out. CEFs, on the other hand, can hold on to their assets and ride out the panic.
But whats even better is that the market panic still causes the price of CEFs to drop, even if the fund doesnt sell any assets. This results in a misbalance between the funds market price (what you see on an exchange, like any other stock) and its net asset value (or the real market value of the funds assets).
To demonstrate this in action, lets look at the Nuveen NASDAQ 100 Dynamic Overwrite Fund (QQQX), whose market price was trading around its NAV at the start of 2020. Then, when the market freaked out, its discount dropped to 9%, where it sits now:
A Sale Appears
This is the kind of opportunity CEFs offer investors. With QQQX, youre getting a fund that holds big tech names like Apple (AAPL), Microsoft (MSFT) and Cisco Systems (CSCO) for 9% off. Another twist: QQQX also sells call options, a kind of insurance on its portfolio, and passes the income from those options to investors. This makes it both a tech play and an income play, and helps fuel its outsized 7.8% dividend.
And that isnt even the biggest discount CEFs are offering right now: not by a long shot. Take, for instance, the value investingfocused Boulder Growth & Income Fund (BIF), a fund that invests in Warren Buffetts Berkshire Hathaway (BRK.A) and other Buffett-approved stocks, like JPMorgan Chase & Co. (JPM) and American Express (AXP). BIF now trades at a jaw-dropping 17.3% discount to NAV, due to the market freak-out.
BIFs Discount Falls Off a Cliff
Thats a tremendous value: imagine getting Berkshire Hathaway at 17% off! Whats more, Buffett is adamant that Berkshire wont pay a dividend on his watch, but BIF is a great way to get one from Berkshire anyway. As I write, BIF yields 4.3%, nearly double the payout on the typical S&P 500 stock.
BIF and QQQX are just the start: there are dozens of stock-focused CEFs with big discounts and yields of 7% or more that are on sale right now, giving contrarians like us a chance to dive in and get both a big income stream and big gain potential.
Yours Now: 5 Cheap 8% Dividends Built for This Selloff
Let me cut straight to 5 of those cheap, high-yielding CEFs now, because they yield even more than BIF and QQQX.
Im talking about a steady 8% yield, on average, with some of these 5 stout plays paying even moreup to 9%! And due to the selloff, these funds are trading at discount levels we havent seen in years, and may not see again for a very long time to come.
Steady dividend-payers like these are perfect for a volatile market, because their high payouts mean youre getting more of your return in cash, not here-today, gone-tomorrow paper gains.
Whats more, these 5 funds totally unusual discounts give you another shock absorberbecause these funds are cheap now, its difficult for them to get a lot cheaper! That gives them a much better chance of holding their own in the markets next leg downand outperforming in the next leg up.
The full story on these 5 selloff bargains (with steady 8% average payouts) is waiting for you now. Click here to get all the details: names, tickers, complete dividend histories, current discounts and much more.